Let’s be frank: when you invest in smaller companies, you have to be ready for volatility. A case in point is Canadian cannabis cultivator OrganiGram (NASDAQ:OGI). If you’re going to hold the shares of OGI stock, it’s advisable to keep your position size moderate.
The company has slightly more than 500 full-time employees and a market capitalization that’s in the millions, not the billions. Thus, there are marijuana companies that are much bigger than OrganiGram.
Plus, it is, technically speaking, a penny stock — defined by the U.S. Securities and Exchange Commission (SEC) as a stock that trades under $5 per share. Since it’s low-priced, the stock is susceptible to big moves in both directions.
On the other hand, if the share price is low enough, that could make it more attractive from a valuation standpoint. We’ll start our analysis with a look back at the stock’s recent history.
A Closer Look at OGI Stock
Interestingly, OrganiGram hasn’t always been a penny stock. In fact, back in the summer of 2019, the shares were trading above $7.
The bulls would undoubtedly like to get the stock back up to that price point, but they need to be realistic. At the end of January 2021, the share price was under the $2 level.
In early February, the bulls did attempt to stage a melt-up. Impressively, they managed to push OGI stock up to a 52-week high of $6.45 on Feb. 10.
As of Feb. 26, the share price had declined to $3.03. Therefore, it’s fair to say that the attempted melt-up resulted in a meltdown. This is a textbook example of why I typically don’t recommend buying a stock after its price has rallied tremendously.
At least now, prospective buyers can take a position in the stock at a more favorable price point. Moreover, folks who were already holding the stock might consider slightly adding to their positions in order to reduce their cost basis.
Just please don’t go overboard with this stock or with any penny stock, for that matter.
Cannabis Without the Plant?
Looking through OrganiGram’s investor presentation, I came across a technology that honestly blew my mind.
Evidently, OrganiGram has made an investment in Hyasynth, which is a biotechnology company involved in cannabinoid science and biosynthesis.
Here’s where it gets really interesting: Hyasynth’s biosynthesis process “uses patent-pending yeast strains and enzymes to produce pure cannabinoids (not synthetic) without growing cannabis plants.”
Why would any company want to produce pot without the plant? Here are three reasons:
- The business could quickly scale up the production of cannabinoids.
- This could be achieved at a fraction of the cost of traditional cultivation.
- The environmental footprint could be significantly reduced.
I won’t attempt to explain exactly how the biosynthesis process works. What I do (superficially) understand is that biosynthesis can produce cannabinoids “that are biologically identical to those produced by the plant itself.”
Cash From Crops
Only time will tell whether the Hyasynth investment bears financial fruit. At the very least, it’s an interesting idea and perhaps a notable innovation in cannabinoid science.
But let’s not stray too far from the hard fiscal data. If you’re going to buy OrganiGram shares on the dip, you’ll probably want some sort of assurance that the company is generating decent cash flow, right?
Both the aforementioned investor presentation and a recently published press release provide a clear indication that OrganiGram is indeed in good fiscal health.
During the company’s first fiscal quarter of 2021, OrganiGram exhibited double-digit-percentage growth in its adult-use recreational revenues:
- Adult-use recreational gross revenues: +14% quarter-over-quarter, and +42% year-over-year
- Adult-use recreational net revenues: +11% quarter-over-quarter, and +30% year-over-year
Those are some impressive fiscal figures, and they clearly indicate a positive growth trajectory for OrganiGram.
The Bottom Line
OGI stock really isn’t something that investors should load up on. It’s just too volatile for a big position.
However, if you’re prepared to take a chance on a smaller company and a cheaper stock in the cannabis space, OrganiGram is not a bad name to wager on.
On the date of publication, David Moadel did not have (either directly or indirectly) any positions in the securities mentioned in this article.