Calling the company’s cultivation techniques paradigm-shifting and its operational efficiencies industry-leading, Paradigm Capital’s Rahul Sarugaser initiated coverage on Tuesday of cannabis company Organigram Holdings (Organigram Holdings Stock Quote, Chart TSX:OGI), starting out with a “Buy” recommendation.
Moncton, New Brunswick’s Organigram gets high praise from Sarugaser.
“OGI’s investment in cultivation-optimizing technologies, synergistic international operations, and future- facing technologies like cannabinoid biosynthesis all demonstrate the company’s commitment to innovative, highly standardized processes to serve present and future cannabis markets. This focus on technology and operation data has driven the company’s industry-leading production costs and has given rise to very healthy gross margins: a rarity among Canadian cannabis producers,” the analyst says.
The analyst makes note of Organigram’s distribution in all ten provinces, its expertise in the medical cannabis market and cultivation costs of $0.74 per gram (the lowest among Canadian producers, he says, and leading to gross margins of upwards of 80 per cent) as all reasons in support of his investment thesis.
“Its innovative and meticulous cultivation methodologies, and its industry-leading product quality, cost of goods, and pricing, in our view, set this company in bold relief against its peers in the cannabis arena,” says Sarugaser.
The analyst is expecting OGI to deliver fiscal 2019 revenue and EBITDA of $65.2 million and $32.7 million, respectively, and fiscal 2020 revenue and EBITDA of $177.3 million and $73.5 million, respectively.
Instead of a precise target price, Sarugaser has opted for a price range, stating that his discounted cash flow analysis gives a valuation range for OGI’s medical and adult-use cannabis sales of between $11.50 and $17.50 per share. Those numbers translate into a projected return between 22.3 per cent and 86.2 per cent at the time of publication.