Investment bankers AltaCorp Capital on Monday launched coverage of Canadian licensed cannabis producer Organigram Holdings (Organigram Holdings Stock Quote, Chart TSXV:OGI) with an “Outperform” rating and one-year target of $13.30 per share.
Analyst David Kideckel said the Moncton, New Brunswick company is positioning itself well to take advantage of shifting market dynamics in the burgeoning pot sector.
Kideckel says OGI is now the lowest cost producer among publicly listed Canadian LPs, pointing to the company’s “unique three-level indoor growing technology” and its proprietary IT system, OrganiGrow, as key advantages.
“Organigram boasts industry leading adjusted gross margins at 60 per cent and has been EBITDA positive since Q4/F18 which in our view, sets them apart from many of their competitors. In our view, OGI is one of the premier names in the Canadian cannabis sector and will continue to demonstrate operational excellence as we shift towards the next phase of Canadian cannabis legalization, in the derivatives market,” says Kideckel.
As far as the nascent cannabis derivates and edibles market goes, Kideckel points out that OGI has been stockpiling inventory for extraction and has formed partnerships with The Green Solution, Canada’s Smartest Kitchen and extraction company Valens GroWorks.
Further, the analyst sees biosynthesis of cannabinoids (rather than the plant-based model) as the way of the future and thinks OGI is well-positioned for the development.
“We believe that biosynthetic cannabinoid production has the potential to disrupt the cannabis industry supply chain. OGI’s investment in Hyasynth Biologicals Inc. (private) demonstrates their ability to be forward thinking, ensures that the Company will be able to maintain their low-cost operating structure going forward and positions them well as a leading partner of choice for global consumer packaged goods (CPG) companies, ultimately placing OGI as a front-running LP in the Canadian cannabis space,” says Kideckel.
The analyst thinks that OGI will generate 2019 revenue and adjusted EBITDA of $110.6 million and $48.3 million, respectively, and 2020 revenue and adjusted EBITDA of $223.8 million and $74.0 million, respectively.