Black Ace Organigram Holdings Inc. (NASDAQ:OGI) (TSX.V:OGI) Has Top-Tier Financials and is Rapidly Expanding in 2019*
One Canadian pot producer that has been flying under the radar, has become a standout from the pack – Organigram Holdings Inc. (NASDAQ:OGI) (TSX.V:OGI) — the Canadian licensed producer (LP) of pot and related products with a foothold in all ten Canadian provinces.
Organigram has some of the best financials in the industry. Producing high-quality product at the lowest cultivation cost per gram amongst the publicly traded Canadian LPs, the Company is built upon a state-of-the-art expanding indoor facility and with strategic partnerships that position them for a significant early-mover advantage for what’s being called Pot 2.0—edibles and derivative products.
Organigram is one of only four producers with distribution arrangements lined up in all 10 provinces. The Company also has international partnerships, including in Germany, the largest legalized medical pot market in Europe.
Based out of the Maritime province of New Brunswick in Eastern Canada, the Company’s innovative 3-tier cultivation technology utilizes space better than any other in its class and is poised to take full advantage of its Canada-wide distribution strength.
The Company’s indoor facility is being expanded for target production capacity of 113,000kg/year (249,000 lbs) and construction is expected to be completed by the end of 2019. With this additional capacity and new product developments underway, Organigram is well positioned for the upcoming legalization of edibles and derivative products expected in October 2019.
Highest-Tier Financials with High-Quality Product for the Lowest Cultivation Cost Per-Gram
Perhaps the most glaring advantage of Organigram Holdings Inc. (NASDAQ:OGI) (TSX.V:OGI) is its low cultivation cost per-gram (lower than reported by any publicly traded Canadian LP), which helped drive excellent financial results in 2019, but if you look at their market capitalization divided by their revenue, they are trading at a much lower level than their peers. Aurora is trading at 243X, which is the closest comparison to Organigram. At 243X, Organigram would have a market capitalization of C$6.5 billion.
The Company’s low cost of cultivation hasn’t negatively impacted the quality.
On the contrary… Organigram Holdings Inc. (NASDAQ:OGI) (TSX.V:OGI) has the best of both worlds- high quality and low costs.
Organigram has won top accolades in the sector, including awards for Top Sativa and Top Blend at the 2017 Canadian Pot Awards.
Via their highly automated indoor facility in Moncton, New Brunswick, Organigram Holdings Inc. (NASDAQ:OGI) (TSX.V:OGI) achieved a cultivation cash cost per gram of C$0.65/gram and an all-in cost of C$0.85/gram in its second quarter of 2019 —This is lower than reported by any of their publicly traded competitors.
This is largely done by maximizing yields thanks to its 3-level cultivation system and operating year-round in a controlled indoor environment.
These low costs delivered the Company an excellent Q2 2019, with financial results that set the pace for its competitors.
In its first full quarter of adult-use recreational sales, Organigram’s net revenue for Q2 2019 was C$26.9 million, comprised of C$24.5 million from recreational, and C$2.4 million from medical markets. This output can also be broken down into 4,248kg of dried flower and 5,735L of oils.
The results are impressive when one notices Organigram Holdings Inc.’s (NASDAQ:OGI) (TSX.V:OGI) Q2 2019 adjusted gross margin of C$16 million or 60% in Q2 2019.
The Company also reported positive adjusted EBITDA for the third quarter in a row at C$13.3 million, translating to an adjusted EBITDA margin of 49% in its second quarter of 2019. Unlike many of its competitors, the Company has prudent spending reflected in a notable decline in SG&A as a percentage of revenue in Q2 2019 from Q1.
Moving forward, Organigram has five brands ranging from value to premium in the pipeline. Through this, they can cater to all segments of the market. If product doesn’t meet the standards for their high-quality flower, it can be used for extracts.
This has all pointed towards Organigram’s up-listing to the NASDAQ—joining the likes of Cronos Group Inc., Tilray Inc., and Village Farms International, Inc.
Vertical Cultivation, State-Of-The-Art Technology
Organigram Holdings Inc. (NASDAQ:OGI) (TSX.V:OGI) utilizes 3-level indoor cultivation technology in an indoor environment that enables complete year-round climate control for maximum yield and quality—and is the ONLY major Canadian licensed producer of pot using this method.
By using the 3-level system, Organigram gains significant additional capacity from its space and an advantage over other companies with the same footprint. The Company has also continued to deploy more and more automation in production, processing and packaging, further optimizing its state-of-the-art facility.
They have developed their own in-house proprietary information technology system called OrganiGrow, which tracks all grow cycles, environmental conditions and other factors, so the Company can refine the optimal methods for cultivation. The result has been award winning products at a low cost of cultivation.
Through strategic planning, the Company has also set the foundation for major expansions without the long approval wait times experienced by some of its competitors.
By the end of 2019, the construction of Phase 4 of its’ state-of-the-art facility is expected to be completed for an increase in Organigram’s target production capacity to 113,000kg/year (249,000 lbs). This phase’s improvements include a state-of-the-art mechanical system and an enhanced irrigation system that’s expected to be one of the most sophisticated in North America.
Phase 5 goes even further, giving Organigram Holdings Inc.’s (NASDAQ:OGI) (TSX.V:OGI) capabilities for its own derivative and edibles production facility, in preparation for the upcoming legalization of these products expected in October 2019—Phase 5 is expected to be substantially completed in October.
Unlike several companies in the sector that have made projections and fallen short, Organigram has a history of excellent execution and delivering on many of its commitments.
Organigram Holdings Inc. (NASDAQ:OGI) (TSX.V:OGI) is currently awaiting an R&D license to confirm and assess a shelf-stable, thermally-stable, water-soluble, tasteless pot nano-emulsion formulation that may provide an onset of action within 10-15 minutes in a beverage. Because formulations with similar molecular size are absorbed through the bloodstream (not processed via the liver), they result in a shorter onset which means potential for better dosage control. Perhaps the biggest issue with beverages is the inability to control dosage due to longer onset and duration uncertainty of existing product lines. In preparation for a launch, the Company is actively seeking a strategic partner with proven experience in beverage product development.
Organigram has also partnered with Hyasynth Biologicals Inc., a biotech company and leader in the field of pot science and biosynthesis. Hyasynth has developed a disruptive technology to produce pot without growing the plant. The process has the potential to create a global supply of pure psychoactive and non-psychoactive elements of pot at a fraction of the cost of traditional cultivation.
The potential for this innovation could be enormous on a global scale. By inserting genes into the natural metabolism of yeast and then using proprietary enzymes, the process aims to produce the psychoactive and non-psychoactive elements of pot using yeast. Through this process, production can be scaled to industrial levels of production using yeast fermentation.
Strategic Partnerships and Licensing Advantages Ahead of Edibles and Derivative Product Legalization (Pot 2.0)
Long-term planning has always been part of the strategy of Organigram Holdings Inc. (NASDAQ:OGI) (TSX.V:OGI). Organigram can expand production by submitting amendments for the existing facility rather than requiring a new application and each new production area is largely a replica of the currently licensed facility. This has resulted in a relatively streamlined and predictable licensing process which has been a significant advantage over much of the competition.Prior to this next round of product legalization, Organigram Holdings Inc. (NASDAQ:OGI) (TSX.V:OGI) has established partnerships with innovators Hyasynth, The Green Solution (TGS), Valens GroWorks, and Canada’s Smartest Kitchen. .
Prior to this anticipated round of legalizations, Organigram Holdings Inc. (NASDAQ:OGI) (TSX.V:OGI) has established partnerships with innovators Hyasynth, The Green Solution (TGS), Valens GroWorks, and Canada’s Smartest Kitchen.
Through these partnerships, Organigram is focusing on vape pen technologies and a selection of edible products.
With Canada’s Smartest Kitchen, Organigram Holdings Inc. (NASDAQ:OGI) (TSX.V:OGI) has partnered to develop premium chocolate products and expand edibles R&D. The Company recently announced a C$15 million investment commitment in a high-speed, high-capacity, fully automated production line with capacity of four million kilograms of exceptional chocolate pot edibles per year. Delivery is expected in the fall of 2019.
Through a partnership with Valens, the Company is able to build up extraction materials for conversion to concentrate for vapes and edibles. The Company has shipped 4.200 kg of materials to Valens and already received back initial shipments of concentrate.
Organigram also has a consulting agreement with The Green Solution, a proven market leader in the US, for commercial-scale extraction and product processing and further derivative product development..
Management Brings Diverse Wealth of Relevant Experience
Key to the makeup of the Organigram Holdings Inc. (NASDAQ:OGI) (TSX.V:OGI) team, is the diverse backgrounds of each member, which brings a variety of strengths to the table. The team not only has relevant sector-specific expertise, but is also complemented with talents from other branding and marketing efforts for diverse products such as pharmaceuticals, consumer packaged goods (CPGs) and alcoholic beverages.
Together, the team has compiled many decades of combined experience in their fields and shares the Company’s goal of providing high-quality products at industry leading low costs of production.
Here’s a quick look at some of the key figures behind Organigram Holdings Inc. (NASDAQ:OGI) (TSX.V:OGI):
The company is led by Chief Executive Officer, Greg Engel, whose 30 years of national and international experience includes pharmaceuticals, biotechnology, pot, and CPGs. Most recently, Engel served as CEO of Tilray Inc. where he was instrumental in the company becoming the first Canadian exporter of medical pot, as well as establishing several trailblazing industry standards. He brought this expertise to Organigram, where he’s focused the Company on building reputational excellence through product quality and safety, and through the expansion of the flagship Moncton, New Brunswick facility. His efforts have helped to position Organigram as a leader in the Medical and Adult Recreational Pot industries.
Joining Engel are a trio of food and beverage industry experts, each serving different roles within the company.
Bringing over 25 years of experience to the role of Senior Vice President, Operations, Jeff Purcell is an expert in implementation of quality systems, safety, and continuous improvement initiatives. Most recently Purcell served as Vice President of Operations for Canada’s oldest candy company, Ganong Bros., where he was responsible for a significant facility expansion that essentially created an entirely new production environment. Prior to that role, he spent more than 15 years in career formation in progressively senior roles leading operations for McCain Foods.
Serving as Senior Vice President, Marketing and Communications, is Ray Gracewood, whose experience has built a reputation as a leading brand and marketing professional in Atlantic Canada. Previously as the Senior Director of Sales and Marketing for Moosehead Breweries Ltd., Gracewood established a reputation as a strong speaker on brand, packaging, and positioning, both locally and throughout North America. He specializes in building and developing brands, as well as positioning and segmentation.
As Senior Vice President, Sales and Commercial Operations, Tim Emberg fulfills the role of leading both the recreational and medical sales organizations, while ensuring Organigram is well established and represented strongly on a national level. Emberg is an accomplished, bilingual, senior sales and marketing leader, with a proven track record in healthcare, OTC and CPG organizations, including Roche Canada, Jamieson Laboratories, and Frito-Lay Canada. He brings an extensive knowledge of the Canadian market access and regulatory environments to the role, as well as will help to set the stage for the company’s future growth and development.
ONE OF ONLY FOUR LPs WITH A FOOTHOLD IN ALL 10 PROVINCES
Keeping in great company with only Canopy, CannTrust and Aphria as peers, Organigram is a rare licensed producer that is in 9 Canadian provinces and expects to ship to the 10th in the near future. The Company is currently in 9 Canadian provinces and expects to ship to the 10th in the near future. This gives them tremendous revenue growth potential, and with their low-cost operations, they are set to compete as a front-runner.
Utilizing innovative 3-level growing technology, Organigram Holdings Inc. (NASDAQ:OGI) (TSX.V:OGI) can completely control climate for maximum yield and quality, year-round. They’re the only major Canadian LP to use the 3-level system, giving them more capacity than other companies with the same footprint. Phase 4 construction is expected to be completed by the end of 2019 for target production capacity of 113,000kg/yr (249,000 lbs). They are awaiting R&D licensing to test a shelf-stable, thermally-stable, water-soluble, tasteless pot-infused nanoemulsion formulation that may provide for an initial onset of effect within 10-15 minutes. They also have a partnership with Hyasynth which has developed a process to produce the psychoactive and non-psychoactive elements of pot without growing the plant at a fraction of traditional cultivation costs.
HIGHEST-TIER FINANCIALS, HIGH-QUALITY, LOWEST-COST PER GRAM
Among its peers, Organigram has won top accolades for its products, including taking home the Top Licensed Producer, and Top Blend honors at the 2017 Canadian Pot Awards. With a cultivation all-in cost of C$0.85/gram and a cash cost of C$0.65/gram in Q2 2019, the company has a lower cost than any of its publicly reporting competitors. These low costs delivered excellent Q2 2019 results, including net revenue of C$26.9 million, adjusted gross margin of C$16 million (60%), and adjusted EBITDA of C$13.3 million or an adjusted EBITDA margin of 49%.
STRATEGIC PARTNERSHIPS AND UNIQUE POSITIONING TOWARDS POT 2.0
Through strategic modular expansions, Organigram Holdings Inc. (NASDAQ:OGI) (TSX.V:OGI) is positioned for a streamlined and predictable licensing process to accommodate growth. Existing facilities can be expanded via amendments to their current license. This streamlined process could give the company a significant first-mover advantage when edibles and derivative-based products become legal in Canada. Organigram also has partnerships in place with Hyasynth, The Green Solution, Valens GroWorks, and Canada’s Smartest Kitchen to further develop products and processing capabilities as they position the Company to capture further growth from Pot 2.0.
WEALTH OF EXPERIENCE FROM VARIOUS RELEVANT SECTORS
Organigram Holdings Inc. (NASDAQ:OGI) (TSX.V:OGI) is led by CEO Greg Engel, who previously was the CEO of the first Canadian licensed producer to export products to Europe. Joining him are Senior Vice Presidents, Jeff Purcell, Ray Gracewood, and Tim Emberg, bringing multiple decades of experience in operations, and sales and marketing, with companies such as Ganong Bros. McCain Foods, Moosehead Breweries, and Frito-Lay.
*This article contains certain non-IFRS performance measures including cash and all-in cost of cultivation per gram, net revenue, adjusted EBITDA, and adjusted gross margin which are not calculated in accordance with IFRS and may not be comparable to similar data presented by other companies. Please see the Company’s Q2 2019 MD&A.