The market has been rough on Canadian cannabis name Organigram (Organigram Stock Quote, Chart, News TSX:OGI) but there’s a bit of good news related to its biosynthesis equity partner, which should be seen as a sign of OGI’s potential going forward, says Raymond James analyst Rahul Sarugaser.
In an update to clients Wednesday, Sarugaser reiterated his “Market Perform 3” rating on OGI, whose share price has dropped 56 per cent in value year-to-date.
On Monday, Montreal-based Hyasynth Biologicals announced it has made its first sale of cannabidiol (CBD) produced via biosynthesis from yeast. Not disclosing at this time information on the buyer, Hyasynth, who is Organigram’s CBD biosynthesis equity partner, has said that its proprietary process is profitable right away and that the company is now positioned to move toward large scale commercial manufacturing which it aims to achieve during 2021.
“Our head start in this area was a key factor in us being the first to reach commercial sale of CBD and CBDa produced from a reliable and sustainable source,” said Kevin Chen, CEO of Hyasynth, in a press release. “We’ve assembled an excellent team of researchers, built an IP portfolio across many cannabinoids, and our production & sale achievement is one of the last checkpoints before we make our solution available worldwide.”
In his report, Sarugaser pointed out that Organigram was one of the first cannabis companies to move on cannabinoid biosynthesis through a $10-million investment in Hyasynth back in 2018, which, to the analyst, “confirmed to us OGI’s future-facing, technology-prioritizing attitude to business.”
“OGI's conviction in cannabinoid biosynthesis was an early hedge on the botanical cannabis space, providing the company optionality on its future cannabinoid supply chains. Derivative cannabis products—Cannabis 2.0, e.g., edibles, vapes, topicals beverages, concentrates— comprise an escalating share of the global cannabis market, and the pure cannabinoids produced by fermentation are extremely fungible with plant-derived cannabinoids,” Sarugaser wrote.
“So, while Hyasynth is still in the early stages of scaling its process to reach commercial production volumes, we see this announcement as a positive for OGI,” he said.
Sarugaser said Organigram’s focus on Cannabis 2.0 products, especially vapes and chocolates, would allow it to “immediately incorporate” Hyasynth’s cannabinoids into its current product offerings, leading to reduced input costs and stabilized batch-to-batch variability. In essence, Sarugaser feels like OGI’s investment in Hyasynth is beginning to pay off.
“OGI has, indeed, been having a hard time on the markets recently, hitting new 52-week lows this week, but this news of positive progress from its biosynthesis partner, Hyasynth, illustrates to us that OGI has the capacity to develop a suite of innovative, technology-empowered products as the cannabis sector migrates from its reliance on noisy, inconsistent, expensive cannabis plant-derived cannabinoids toward pure, consistent, cost-effective APIs produced by alternate manufacturing modalities such as
biosynthesis,” Sarugaser wrote.
Looking ahead for OGI, Sarugaser thinks the company will generate fiscal 2020 (year end August) revenue and EBITDA of $91 million and negative $20 million, respectively, and fiscal 2021 revenue and EBITDA of $114 million and $23 million, respectively.