Bottom Line

Organigram place up a second straight quarter of strong final results, reporting $27 million of net income that beat street estimates by 13%.

Most importantly the firm is promoting cannabis the customer desires to invest in, demonstrated by a 90% raise in income in the company’s second quarter with legal sales.

Peers who report in the coming two months will most likely show they struggled to develop income as the legal marketplace gets off to a slow start out.

We are concerned even so with an apparent reduce in promoting costs. Across the board, Organigram saw flower and oil cost declines of among five%-17% quarter more than quarter.

If the market is facing an acute provide crunch as lots of producers allege, why are legal cannabis costs falling?

Rev/Gram, Rev/mL 1Q 2019 2Q 2019 QoQ Adjust
Rec Flower  $five.09  $four.91 -four%
Health-related Flower  $six.87  $five.71 -17%
Rec Oil  $.96  $.91 -five%
Health-related Oil  $1.72  $ 1.58 -eight%

Regardless of costs, Organigram continues to be the lowest expense producer in Canada and is the only producer to produce good EBITDA post-legalization.


EBITDA per Gram Run Price

Supply: SEDAR, Grizzle Estimates

The stock trades at a 50% discount to its biggest peers, which we assume is unwarranted.

If Organigram keeps creating market-top profitability, it will either re-price closer to peers or grow to be a takeout candidate, each good outcomes for shareholders.


Operational Evaluation – OGI’s Item is in Demand

Organigram’s income improved ~90% from 12.four M to 23.eight M on the back of a ~140% raise in sales of cannabis flower and equivalent, which doubled from two,100 kg to four,987 kg. This is good news for Organigram as it shows they have good quality goods that are in higher demand by buyers.

The discrepancy among the raise in income compared to sales (90% raise compared to 140%) can be in element attributed to their decrease sales costs across all goods (recreation and healthcare cannabis oil and flowers).

Their income per gram of $four.eight for the quarter left them close to the bottom of the market.

QoQ Income Per Gram of Cannabis Created

Supply: SEDAR, Grizzle Estimates

Organigram’s cannabis production was accomplished on expenses of $10.9 M, a quarter more than quarter raise of 250%. Their gross margin of 12.9 M represented a quarter more than quarter raise of 46% from eight.eight M. This important spike in production expense (when compared to gross margin raise) most likely stems from the larger expenses related with increasing cannabis in the Canadian winters. For the upcoming warmer quarters, we anticipate to see a seasonal reduce in increasing expenses.

Even with the jump, Organigrams production expenses per gram of $two.two leave them as the least expensive producer compared to peers.

Production Charges Per Gram for Canadian Producers

Supply: SEDAR, Grizzle Estimates

In comparison, their gross margin per gram of $two.six was typical compared to peers. Their market top production expenses and typical gross margin indicates they have lots of rooms to enhance operating costs and drive up profitability.

Gross Margin Per Gram

Supply: SEDAR, Grizzle Estimates


All round, Organigram has a quarterly money burn of $59 M compared to their total money and equivalents of $208 M. This leaves them in the middle of the pack compared to peers, with only 3 businesses holding a lot more than 1.five years of money. Nonetheless, as they are the only Canadian producer creating good EBITDA, they are absolutely in a significantly stronger position than most of their peers.


Organigram Continues to Enhance Cannabis Production and Processing

In other developments, the phase four expansion of their Moncton facility is progressing, exactly where they will be adding 92 incremental develop rooms by the finish of 2019, which are anticipated to triple capacity to 113,000 kg per year.

The firm also announced an additional 56,000 square feet became out there in a single of their facilities in March and is getting refurbished and made for added extraction capacity.

This supports their push to enhance extraction and processing capabilities for their concentrate location of vaporizers and edible goods.

Organigram also announced a new nano-emulsion for use in infused beverages that functions on the physique in only 10-15 minutes. The firm is searching for an skilled companion to support them roll out an infused beverage brand later in 2019.


Organigram Remains Undervalued

Organigram is placing up final results that place all the other licensed producer’s to shame.

As the firm continues to execute there is no doubt the valuation discount to peers will shrink.

Year to date overall performance has currently matched significantly bigger effectively-followed peers, displaying that sturdy final results are rewarded.

Organigram remains a single of the vibrant spots in a Canadian cannabis market struggling to justify lofty valuations.

2020 Estimated EV/EBITDA

Supply: Grizzle Estimates