OrganiGram is a cheap pot stock, says Beacon Securities

Beacon Securities analyst Russell Stanley says that not only is cannabis name OrganiGram Holdings (OrganiGram Holdings Stock Quote, Chart TSXV:OGI) currently trading at a substantial discount to its broader peer group, on a technical basis the stock is now trading at levels that should offer strong support.

On Tuesday, Moncton, New Brunswick-based OrganiGram announced that it had entered into an exclusive agreement allowing it to license Feather Company’s proprietary vaporizer pen technology and form factor, with management contending that the technology targets the more sophisticated cannabis consumer.

In an update to clients Tuesday, Stanley said OGI is well-positioned as a partner of choice for the agreement, as it is one of a select few companies with sales relationships in all ten Canadian provinces. The analyst also says that once Cannabis 2.0 comes into effect this fall, he expects vape products to be a major sales driver across Canada, as they represent greater than 20 per cent of sales in US states with rec and/or medical legalization.

“OGI is now trading at 12x our C2020E EBITDA estimate (which is a weighted average of our F2020 and F2021 estimates, given OGI’s August 31 FYE). This represents a 49 per cent discount to the 23x average for the broad peer group, and a 61 per cent discount to the 30x average amongst companies that trade on either NASDAQ or NYSE,” said Stanley.

The analyst says that upcoming potential catalysts for OGI include the company’s third quarter results in July, continued expansion updates and additional news on product development. Stanley is maintaining his “Buy” rating and $15.00 target price for OGI, which represents a projected return of 80 per cent at the time of publication.

Stanley thinks OrganiGram will generate fiscal 2019 revenue and adjusted EBITDA of $107.1 million and $54.3 million, respectively, and fiscal 2020 revenue and adjusted EBITDA of $218.8 million and $111.2 million, respectively.

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