Don’t bail on Organigram, says Raymond James

Even with its latest announcement, Canadian cannabis producer Organigram Holdings (Organigram Holdings Stock Quote, Chart, News TSX:OGI) should do better than the competition this year and going into 2021, according to Raymond James analyst Rahul Sarugaser.

The analyst issued an update to clients on Tuesday where he reiterated his “Outperform” rating for OGI, saying the company’s track record of operational excellence and relatively strong balance sheet should be difference makers.

Moncton, New Brunswick’s Organigram on Monday announced that it will be temporarily laying off 45 per cent of its workforce or about 400 employees as a result of COVID-19 measures.

“These are unprecedented and trying times,” said Greg Engel, CEO, Organigram, in a press release. “Our priority right now is to make sound strategic decisions that are in the best interests of our people and which will contribute to the long-term sustainability of the Company.”

OGI said it is offering lump sum payments to its furloughed employees to help until government assistance kicks in and the company will also be continuing all employee health benefits during the furlough period.

As for its business, production will be impacted, said OGI, but the company has inventory on hand to fill the gap and will be using its automated production lines while concentrating on higher value products requiring less manual labour.

In his commentary, Sarugaser pointed out that while OGI has indicated that the launch of its powdered beverage product is being shelved for the time being, the company is still expected to launch its (“highly anticipated,” in Sarugaser’s words) Edison + PAX ERA vape product line on schedule sometime during the present quarter.

“This is important, as a very limited number of Canadian cannabis companies were included in this exclusive, high-profile deal with PAX — OGI, Aphria, Aurora Cannabis, Supreme Cannabis and, later, Zenabis — and we’ve already seen other cannabis companies delay their anticipated launches while the others haven’t disclosed detailed timelines for their launches; APHA is the only company with PAX-compatible products on the market,” Sarugaser wrote.

On OGI’s furloughing of employees, the analyst said that as one of Moncton’s largest employers, Organigram should be a beneficiary of government support while at the same time Sarugaser said,

“We appreciate OGI’s forthrightness and responsibility to its employees through this pandemic and that OGI’s manufacturing remains generally capable of meeting customer demand: both are testaments to the strong operational leadership we and the market have come to expect from OGI,” Sarugaser wrote.

Looking ahead, the analyst is calling for fiscal 2020 (ended August) revenue and EBITDA of $111 million and $23 million, respectively, and for fiscal 2021 revenue and EBITDA of $183 million and $41 million, respectively.

As for the cannabis sector in general, Sarugaser said the COVID-19 crisis has pushed out the recovery scenario for cannabis, with the analyst now calling for the sector to hit bottom in August or September of this year followed by a rebound in the fourth quarter 2020 and into early 2021.