Shares of Canadian cannabis producer OrganiGram (NASDAQ:OGI) started off 2020 with a bang. The company reported strong first-quarter numbers in mid-January which showed that the company is back to growing again with positive adjusted profits. In response to the strong print, OGI stock soared from $2 to $3.50.
Shares have since given up all those gains amid sluggish reports from other cannabis producers. Specifically, it appears that the big cannabis demand turnaround that was supposed to happen in 2020, hasn’t quite kicked into gear just yet, but that doesn’t mean investors should throw in the towel on OrganiGram stock for the year.
Instead, the best is still ahead for this stock. That big demand turnaround is coming soon. When it does arrive, the stock will pop from currently depressed levels.
As such, recent weakness is nothing more than an opportunity to add on the dip before the big explosion later this year.
The Best Is Yet to Come
Sure, the company reported really good first-quarter numbers. Revenue, volume, margin, and profitability trends all improved dramatically from the fourth quarter. OrganiGram stock popped big in response to those improvements.
But, those trends will only improve more as we head deeper into 2020, thanks to two big catalysts: new products and more stores.
In late February, OrganiGram launched new vapes and edibles products under the Edison brand name. The introduction of these new products into the OrganiGram pipeline will spark higher consumer demand. Subsequent vapes and edibles product launches in 2020 will only further accelerate the company’s already hot demand trends.
Meanwhile, aggressive cannabis retail expansion is underway in Canada. Ontario — Canada’s largest province by population — is set to issue new store authorizations at a pace of 20 per month. For comparison purposes, Ontario only has 27 stores open today. Sure, these new store openings won’t happen until April. But, when they do start, new retail store openings in Ontario will provide a huge tailwind for OrganiGram.
Concurrently, Quebec is adding roughly two new stores per week. British Columbia and Alberta are also ramping retail store expansion. So, this retail store expansion tailwind is happening all over Canada.
Big picture — new products coupled with more retail stores will reinvigorate cannabis demand trends in Canada in 2020. Together, those two catalysts will sustain the current rebound in OrganiGram’s sales, volume, margin and profit trends.
OrganiGram Stock Has Huge Upside Potential
In response to strong first-quarter numbers, OrganiGram stock popped from $2 to $3.50 overnight.
The stock has since given up all those gains. But, I mention the huge first-quarter pop to underscore that this is an extremely volatile stock. At current levels, even just one piece of good news can cause shares to fly higher.
If what I’m saying is true — and OrganiGram’s sales, volume, margin, and profit trends consistently improve over the course of 2020 — then the company is looking at several consecutive pieces of good news on the horizon.
One piece of good news caused the stock to pop 75% overnight. Several consecutive pieces of good news over the next few months could cause shares to rip way higher, too.
Indeed, my numbers suggest that this stock has a reasonably good opportunity to hit $7 in 2020.
Bottom Line on OGI Stock
OrganiGram stock is a high-risk, high-reward play on improving cannabis supply/demand trends in Canada in 2020. If you believe — as I do — that those trends will improve in 2020 on the back of new products and more store openings, then buying OGI stock here makes a lot of sense.
Luke Lango is a Markets Analyst for InvestorPlace. He has been professionally analyzing stocks for several years, previously working at various hedge funds and currently running his own investment fund in San Diego. A Caltech graduate, Luke has consistently been rated one of the world’s top stock pickers by various other analysts and platforms, and has developed a reputation for leveraging his technology background to identify growth stocks that deliver outstanding returns. Luke is also the founder of Fantastic, a social discovery company backed by an LA-based internet venture firm. As of this writing, Luke Lango did not hold a position in any of the aforementioned securities.