OrganiGram Holdings is undervalued, says Canaccord Genuity

OrganiGram Holdings (OrganiGram Holdings Stock Quote, Chart, News: TSXV:OGI) is progressing in its expansion plans ahead of this summer’s rec cannabis deadline, says Canaccord Genuity analyst Matt Bottomley, who on Tuesday reiterated his “Speculative Buy” rating with a raised target price of $6.00.

Last week, Moncton’s OrganiGram unveiled its brand platform, which includes the company’s mainstream brand Edison Cannabis Company, premium products under the Ankr Organics label as well as Trailer Park Buds, a brand line related to the company’s existing partnership with Trailer Park Productions. CEO Greg Engel says that the brands are the result of more than a year and a half of research and development.

“Our recreational brand strategy incorporates the best of what we know about our current and potential customers, the industry and opportunities for growth, and the production of our premium products,” says Engel in a press release.

In tandem with the brand release, Bottomley toured OrganiGram’s facilities and came away satisfied that the company is hitting its expansion targets. In a research note to clients, the analyst writes that OGI’s Phase 1 and 2 developments are now complete and are able to produce 22,000 kg of existing capacity, with Phase 3’s added 24,000 kg of dried cannabis production soon.

“Although the industry is beginning to become saturated with an increasing number of large expansion plans, we believe having capacity up and running today (like OGI) is of particular importance in order to secure large purchase orders from many of the provincial authorities that will be responsible for rolling out retail distribution,” says the analyst.

“After the introduction of its rec brand platform and observing the substantial progress made by the company during our tour of its facilities, we have decreased both our medical and rec discount rates by 100bps (to 11 per cent and 13 per cent, respectively), on modestly lower execution risk (in our view). As a result, our target price has increased to $6.00 (from $5.50),” says Bottomley.

The analyst says that at approximately 8.0x its two-year forward EV/EBITDA, OGI currently trades at a discount to its most comparable peers at 10.8x.

The $6.00 target price represents a forecasted annualized return of 25.0 per cent at the time of publication.

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