Investors looking for a bright spot in Canada’s downtrodden cannabis sector might want to check out Organigram (Organigram Stock Quote, Chart, News TSX:OGI), which wowed the market with its quarterly results last month by posting a profit. It’s all down to execution, says Bruce Campbell of StoneCastle Investment, who picks OGI as one of the better names in the space.
Moncton, New Brunswick’s Organigram saw its share price spike last month when the market got hold of its first quarter fiscal 2020 results, which showed net revenue doubling year-over-year to $25.2 million, handily beating analysts’ forecast average of $19.5 million. The quarter’s adjusted EBITDA of $4.9 million was also a clear winner over the consensus expectation of negative $1.4 million.
Organigram’s $25.2 million in Q1 revenue came from $16.7 million in adult-use recreational and medical sales and $9.5 million in wholesale and international market sales.
OGI’s management said the company is now rolling out its lineup of cannabis derivative products for the Cannabis 2.0 market, including cannabis-infused chocolates, along with new strains of flower. Organigram shipped its first 2.0 products, its Trailblazer Torch vape cartridges, in mid-December.
“Despite ongoing industry challenges, we are pleased with solid Q1 2020 results and our return to positive adjusted EBITDA during the quarter, said Greg Engel, CEO. “Our team was also successful in shipping the first of our Rec 2.0 products as planned and on schedule in December of 2019.”
Campbell says that investors should be watching for sales figures in the value-added Cannabis 2.0 market over the next two quarters, as these could tell the tale for various companies’ prospects.
“If you look at what Organigram has done, they’ve been very good at executing. They’ve always just focused on what they could do and sort of stuck to their knitting out on the East Coast,” says Campbell, president and portfolio manager at StoneCastle, speaking to BNN Bloomberg on Thursday.
“They have a great production facility as far as producing the cannabis at a fairly low price with some unique technology —they have this three-stack system— but now they’ve moved into some of the 2.0 products, and of the 2.0 products they’re selling, one of them is chocolate, which is apparently just ramping up now,” Campbell said.
“We’ll really start to see over the next two quarters what the sales are like but if it’s anything like what they’ve done with their other products it should be fairly strong,” he says.
Like the rest of the space, OGI suffered major losses in 2019 after a promising start to the year. The stock finished 2019 down 34 per cent at $3.19 per share —a far cry from the high of $11.30 registered in mid-May.
So far in 2020, OGI is about even.
“It’s one that we do own and continue to hold. We think that there aren’t going to be that
many players over the sector in, say, five years and we think this will be one of them, for
sure,” added Campbell.