Organigram Holdings Inc. (OGI.V) reported a third-quarter loss as revenue slipped amid lower recreational pot reorders from Ontario and British Columbia, but the cannabis company anticipated growth ahead as edibles and new retail stores come online.

The Moncton, N.B.-based licensed producer reported a $10.2-million loss for the three-month period ended May 31, compared with a profit of $2.8 million a year earlier.

Organigram’s net revenue during its financial third quarter totalled $24.8 million, down from $26.9 million in its second quarter, but up from $3.4 million a year earlier — before legal recreational cannabis sales began.
The decrease came as sales growth in Alberta and Atlantic Canada was offset by lower reorders from Ontario, after the province made a large number of orders in the previous quarter in advance of opening retail stores.

“Not having that replenishment in Q3 had an impact,” Organigram’s chief executive Greg Engel said on a conference call. “And so, while Alberta and Atlantic Canada grew, Manitoba grew for us as well… The B.C. market has been more challenging.”

He noted that B.C. is only now adding some additional retail stores but also the province’s dried flower market has been difficult to penetrate due to its “unique nature,” but did not elaborate further.
The quarter excluded shipments to Quebec, as well, which occurred after the quarter ended, the company added.

The cannabis producer said the quarterly loss amounted to nearly seven cents per share, compared with a profit of three cents per share in the same quarter a year ago.
It sold approximately 3,926 kilograms of dried cannabis flower and approximately 5,090 litres of cannabis oil in its most recent quarter.

Douglas Miehm, an analyst with RBC Capital Markets, said Organigram’s latest revenues came in below its estimate of $28.2 million. He added that its quarterly results reaffirmed their view that Organigram could face difficulties delivering revenue growth and margin growth over the next one or two quarters.

“This should be helped by the company’s value-add infrastructure build out, which appears to be progressing well,” Miehm said in a note to clients. “While shipments to Quebec and higher CBD oil sales should act as a tailwind for Q4 sales, we believe this could be offset by still-modest follow-on orders in Ontario.”

Organigram said Monday its Phase 4 production expansion is on schedule for completion by the end of the 2019 calendar year, which, once operational and licensed, will increase its capacity to 113,000 kilograms annually.

The company also said it expects Ontario to place an order in August or September as another 50 recreational pot stores are expected to open starting in October.
Graeme Kreindler, an analyst with Eight Capital Research, said Organigram’s outlook “remains solid” despite its latest quarter.

“We view the depressed results as an isolated event, with the company’s cultivation facility currently executing back at historical yields or greater,” he said in a note to clients.
The company outlined its strategy for next-generation cannabis products, such as edibles and topicals, which will be able to hit retail shelves in mid-December after rules governing the new class of pot goods come into force in October.

Organigram said it will focus on vaporizer pens and edible products at the outset, and expects to sell vape products in December and pot-infused chocolates and dried-powder products for beverages by early 2020.
“We expect to capture further significant growth when the market expands to include derivatives and edibles before the end of the calendar year,” Engel said on the conference call.

“In fact, we believe the Canadian market is positioned to grow significantly with the upcoming legalization of edibles and derivatives, and importantly, with more retail stores opening, particularly in the key provinces of Ontario and Quebec.”

The company’s latest earnings come after a tumultuous couple of weeks for the Canadian cannabis industry.

Earlier this month, Canopy Growth Corp.’s board of directors ousted its chief executive Bruce Linton after its largest shareholder Constellation Brands’ had said it was not pleased with the licensed producer’s latest results.

On Thursday, CannTrust Holdings Inc. halted all sales and shipments of its cannabis products as Health Canada continues its investigation into the licensed producer, which has more than 70,000 registered medical patients.

Earlier that week, CannTrust said it was notified by Health Canada that the government agency had found illegal cultivation at the company’s Ontario greenhouse in rooms which had not yet received government approval. It said Health Canada put 5,200 kilograms of its cannabis on hold and CannTrust voluntarily put a hold on 7,500 kilograms of cannabis products linked to the five rooms in question.

Organigram has already received some inquiries from provincial authorities about additional product availability as a result, Engel said.

When asked about the action Health Canada should take regarding CannTrust, Engel would not comment.

However, he said broadly that the cannabis industry has been in “transition,” over the years from founders as leaders and CEOs to firms bringing in people with experience building and running successful companies.
“That transition continues right now… It’s really important that companies have independent governance. We’re really proud of the fact that we have an independent chair and a fully independent board with the exception of myself sitting on the board,” he said.

“That’s not necessarily the case of many of the other companies, or historically was not the case, and it did lead to some challenge at those companies.”

Authored By: BNN BloombergArticle category: Marijuana Business NewsRegional Marijuana News: Canada
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