It’s approximately 168 miles door-to-door from my house in Halifax, Nova Scotia, to the headquarters of OrganiGram Holdings (NASDAQ:OGI) in Moncton, New Brunswick. Best known for its Edison brand of cannabis, OrganiGram stock ought to be on the shopping list of every adventurous Maritimer, myself included.
Like most cannabis stocks, Canadian legalization has not been a slice of heaven—quite the opposite. In OrganiGram’s home province, the provincial government has decided to get out of cannabis retail after losing $12 million in the first six months of business.
Things have gotten better in recent months. In the final quarter of calendar 2019, Cannabis NB saw a 23.7% increase in cannabis sales over the previous year. However, it has received eight proposals to privatize the province’s cannabis operations, including one from Canopy Growth (NYSE:CGC) and another from Loblaw Companies (OTCMKTS:LBLCF), Canada’s largest grocery-store chain.
As a result, it appears as though the provincial government is going to carry out its privatization plans.
Cannabis 2.0 Will Help Organigram Stock Stand Out
However, as many experts have suggested, Cannabis 2.0 is likely to help ease the pain of these initial stumbles, and that’s especially true at a well-run organization like OrganiGram.
In late December, OrganiGram shipped its first Cannabis 2.0 products (vape cartridges) to retailers. On Feb. 20, the company announced it had sent retailers its first shipment of Edison Vape pens and Edison Bytes edible chocolates.
OrganiGram invested 15 million CAD in a state-of-the-art production line to produce high-quality cannabis-infused chocolates and other edibles. It’s no surprise, then, that the company’s head of operations (Jeff Purcell) came from New Brunswick chocolate maker, Ganong Bros.
As OrganiGram continues to roll out its Cannabis 2.0 products and the number of retail doors across Canada grows, you can be sure it’s going to take a significant amount of the market.
It’s one of many reasons that OrganiGram has moved up in my ranking of Canadian pot producers. At half the value where it was trading last September, OrganiGram’s business has gotten that much stronger over the past five months.
“We’ll really start to see over the next two quarters what the sales are like [Cannabis 2.0] but if it’s anything like what they’ve done [OrganiGram] with their other products it should be fairly strong,” said StoneCastle Investment portfolio manager Bruce Campbell recently.
“It’s one that we do own and continue to hold. We think that there aren’t going to be that many players over the sector in, say, five years and we think this will be one of them, for sure.”
Profitable Growth
My InvestorPlace colleague, Josh Enomoto, recently suggested that OrganiGram is one of the safer bets amongst cannabis stocks. He highlighted the fact that the company’s Q1 2020 top-line results were better than expected — revenue of 25.2 million CAD ($19.03 million), more than double the same period a year ago — and perhaps, more important, it beat the analyst estimate by 10.2 million CAD.
Two other points Josh mentioned about OrganiGram that stand out for me: It has just one cultivating and processing facility (state-of-the-art, three-tier growing system) to keep costs from spiraling out of control — think Aurora Cannabis (NYSE:ACB) — and its cost to produce a gram of dried flower is among the lowest in Canada at 61 cents CAD.
As for the bottom-line, analysts were expecting adjusted EBITDA of -1.4 million CAD in Q1 2020; it delivered 4.9 million CAD, 450% above the consensus.
If Organigram weren’t such an efficient operation, I’d be concerned that it only has 34.1 million CAD in cash and 30 million CAD available on its term loan. However, its financial discipline suggests it has plenty of cash flow to make its way to the next level of sales growth.
Is it a risky bet?
Well, you’re not getting shares in Berkshire Hathaway (NYSE:BRK.A, NYSE:BRK.B), that’s for sure. However, other than Canopy and Cronos Group (NASDAQ:CRON), and perhaps Aphria (NYSE:APHA), OrganiGram stock is one of the few Canadian cannabis stocks you should consider.
Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia. At the time of this writing Will Ashworth did not hold a position in any of the aforementioned securities.
