Having survived a tough year, investors in cannabis stocks are taking a long, hard look at what 2020 portends. Supply concerns, warnings, and a host of poor earnings were devastating to names like Canopy Growth (NYSE:CGC), Aurora Cannabis (NYSE:ACB), Cronos Group (NASDAQ:CRON) and Horizons Marijuana Life Sciences Index ETF (OTCMKTS:HMLSF).
However, there’s plenty of opportunity to be found in down-and-out cannabis stocks.
For one, support for U.S. legalization is explosive. According to Pew Research Center, 67% of Americans now support its legalization with only 32% of adults now opposing. A Gallup survey found a similar number in favor.
In response, more states are legalizing recreational use, with Illinois just the latest of a growing list. That sort of action in state capitals is contributing to what Arcview Market Research and BDS Analytics say will create global pot spending of $57 billion over the next decade. With the growing talk on presidential campaign trails of federal legalization as a platform plank, we could see higher highs for the sector.
While this all could create the rising tide to lift all ships, over time, I believe one of the top winners in the space will be Organigram Holdings (NYSE:OGI).
In fact, from a current price of about $2.70, I wouldn’t be shocked if we see $10 with patience.
Emerging as a Long-Term Winner
One of the most compelling reasons to own OGI stock is the fact it’s a major grower with the ability to produce peak annual output of 100,000 kilos. Better, its cannabis output comes from its Monkton facility. Having just one campus reduces supply chain costs, as noted by Motley Fool contributor Sean Williams.
Also, OGI has no financing concerns. In fact, the company believes it has enough capital to fund operations and planned capital expenditures. It had $34.1 million of cash and short-term investments at the end of the quarter, in addition to $30 million in undrawn capacity.
Better, OGI could see further upside with the Canadian market well-positioned for retail growth. Retail sales are planned for Ontario and Quebec, which represent 60% of the Canadian population. The recent legalization of edibles and derivatives — so-called Cannabis 2.0 — will be another strong catalyst.
Earnings “Surprisingly Encouraging”
To be sure, CEO Greg Engel recently said, “I still think we’re not going to hit any sense of normalcy or predictability until the fourth quarter of this year,” pointing to the launch of the edible and vaping segment of the market, which was just made legal in October.”
However, its numbers have been solid. The company knocked fiscal 2020 Q1 earnings out of the park, doubling net revenue growth to 25.2 million CAD ($19.3 million) year over year. That beat estimates for 21 million CAD. OGI also returned to positive EBITDA for the quarter.
“Despite ongoing industry challenges, we are pleased with solid Q1 2020 results and our return to positive adjusted EBITDA during the quarter, said Engel. “Our team was also successful in shipping the first of our Rec 2.0 products as planned and on schedule in December of 2019. We also look forward to the launch of the remainder of our vape pen portfolio followed soon after by our premium cannabis-infused chocolate products. In addition to an exciting line-up of 2.0 products, we are rolling out a couple of new core strains, such as our high THC Edison Limelight, across the country following their success as limited-time-offers in smaller markets.”
Analysts were impressed. Jefferies analyst Owen Bennett noted it’s a “return to the Organigram of old.” CIBC analysts also said the numbers were “surprisingly encouraging.”
Bottom Line on Organigram Stock
With plenty of demand and legalization efforts, the long-term growth story is still very much intact with Organigram stock. With great earnings, the fact it’s a major grower, and Canadian growth, OGI stock is high on the list of top cannabis stocks to buy and hold, long-term.
As of this writing, Ian Cooper did not hold a position in any of the aforementioned securities.
