A supply agreement with the province of New Brunwick is a strong vote of confidence in Organigram (TSXV:OGI), says GMP Securities analyst Martin Landry.
On Friday, Organigram announced it had entered into a memorandum of understanding with the province of New Brunswick that will see the former supply a minimum of five-million grams of recreational marijuana a year to the latter.
“We are excited to enter into this MOU with the province,” said Organigram CEO Greg Engel. “The government of New Brunswick has established itself as a leader in the developing marijuana industry, working to ensure that the industry develops in a responsible and effective manner. New Brunswick’s stewardship on this file has been recognized throughout Canada and we are proud to work closely and support them as a strategic partner. We applaud the New Brunswick government’s efforts to foster an innovative, forward-thinking economic climate that supports cannabis as a driver of growth for New Brunswick-based businesses.”
Landry says he likes this deal because it expresses a vote of confidence in Organigram, because the large quantity provides visibility, and because the pricing appears in-line with expectations.
“Organigram has had challenges in the last 12 months dealing with production issues and recalls,” the analyst notes. “Hence, this agreement is a strong vote of confidence in the company’s ability to produce quality products at scale and could lead to agreements with other provinces.”
In a research update to clients today, Landry maintained his “Buy” rating and one-year price target of $4.00 on Organigram, implying a return of 50.9 per cent at the time of publication.
Landry thinks Organigram will post an EBITDA loss of $600,000 on revenue of $8.9-million in fiscal 2017. He expects those numbers will improve to EBITDA of positive $10.7-million on a topline of $36.8-million the following year.