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Organigram is best in class in Canadian cannabis, says Paradigm Capital


OrganigramParadigm Capital analyst Corey Hammill is calling Organigram Holdings (Organigram Holdings Stock Quote, Chart, News TSX:OGI) the cream of a revitalized crop of cannabis companies ready to prove naysayers wrong.

In a report to clients on Tuesday, Hammill said Organigram has done a lot of things right of the past few years to merit his nod as “the” name to own in Canadian cannabis.

It’s interesting times in the cannabis sector, to be sure, but not for the spectacular rise and fall from late 2017 to early 2020 but for cannabis’ surprising resurgence during COVID-19. Pot frenzy first gripped the nation in the lead-up to legalization, with inflated share prices across the board and tonnes of cash flowing into the space amid dreams of Canadian companies taking over the world.


That scenario has gone flat over the past 12 months as investors realized the numbers weren’t coming in as planned, what with supply issues and a slow roll-out of retail across the country, coupled with corporate mismanagement characteristic of an industry still finding its feet.

But the scene over the past few months has been refreshing for the sector, where lineups at pot shops have been a constant, quarterly numbers have been strong and share prices have climbed as a result — the Horizons Marijuana Index ETF, which mimics the sector as a whole, has been bumped up 13 per cent over the past month versus a flat result from the TSX Composite, while over the past three months, the HMMJ is up
two per cent compared to a negative seven per cent result from the TSX.

In his report, Hammill argued the good news from cannabis is no mere blip but an indication of an industry now with staying power.

“Despite mobility restrictions, and amid a global health crisis, Canadian cannabis retail sales grew two times quicker in March than they had on average in the trailing 12-month period. This shows the inelasticity of demand for cannabis products, but also is a result of the improvements that have been made to build out the lacking brick-and-mortar network and to fix the previously uncompetitive value proposition (improving product quality, diversity and lowering average prices to combat the illicit market which still accounts for roughly 70–80 per cent of total sales),” Hammill wrote.


“In terms of actual numbers, Canada’s national retail footprint has grown 58 per cent since October 2019, driven by 184 per cent growth in Ontario, 135 per cent in British Columbia and continued leadership in Alberta, while products continue to become more affordable and more diverse (as the average recreational price per gram of cannabis has fallen ~10.5 per cent since legalization and derivative products on aggregate continue to grow in number and become higher quality),” he said.

On Organigram, Hammill believes the Moncton, New Brunswick operation has a competitive advantage on its peers as a low-cost cultivator with cash costs of $0.53 per gram, well below other licensed producers. Moreover, the analyst likes OGI’s development into a vertically-integrated company with extraction, derivatives and product development capabilities, including a strong pipeline of SKUs in vapes andedibles.

Hammill also sees OGI as undervalued compared to its peers.

“Organigram is a proven cannabis grower (premium product at ultra-low costs) with one of the broadest reaches, a well thought out approach to cannabis 2.0, and a very reputable management group. Despite these fundamental strengths and macro industry tailwinds, OGI shares have been disproportionately beaten up, underperforming relative to the Canadian Cannabis LP Tier 1 Index over the last month, up 14 per cent versus 31 per cent, respectively. On a multiple basis, OGI trades at a discount compared to both LP
peers and non-cannabis consumer packaged goods (CPG) companies at ~2.8x versus ~4.8x and 4.0x 2021e sales, respectively,” Hammill wrote.

Hammill rates OGI a “Buy” with a 12-month target of $4.00, which at press time represented a projected return of 65 per cent.

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About The Author /

Cantech Letter founder and editor Nick Waddell has lived in five Canadian provinces and is proud of his country's often overlooked contributions to the world of science and technology. Waddell takes a regular shift on the Canadian media circuit, making appearances on CTV, CBC and BNN, and contributing to publications such as Canadian Business and Business Insider.
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