What’s happening with Organigram? Raymond James has the lowdown

Raymond James analyst Rahul Sarugaser is increasingly optimistic about Organigram Holdings (Organigram Stock Quote, Chart, News, Analysts. Financials TSX:OGI), maintaining his “Outperform 2” rating and target price of $5.00/share for a projected return of 52.4 per cent in an update to clients on September 14.

Founded in 2013 and headquartered in Moncton, New Brunswick, Organigram Holdings engages in the production and sale of medical marijuana with a focus on producing cannabis for patients and adult recreational consumers.

Sarugaser’s latest analysis comes after reviewing data from the Canadian cannabis market, finding that OGI has been growing its stake.

“Our channel check data reveals OGI’s revenue and market share ascendant, now capturing the #5 spot in Canadian adult-use cannabis sales with 7.1 per cent, but more importantly, OGI has successfully increased its share almost three per cent from just 4.2 per cent in 1Q21,” Sarugaser wrote. “These gains have primarily been at the expense of top-10 peers TLRY, HEXO, CGC, and ACB who have seen declines of about three per cent.”

Organigram has been busy with its product lines in recent months, launching the Edison Cannabis Co. JOLTS high-potency THC lozenge in August, which the company calls a first-to-market product. The company then expanded its SHRED product portfolio with the launch of its SHRED’ems lineup of cannabis-infused gummies, with its initial launch coming in Prince Edward Island, where the product has already taken the leading market share position of the edibles category.

Those products followed the May launch of Big Bag o’ Buds, a lineup of dried flower products available in 28-gram formats.

Though Sarugaser notes the company’s margins continue to be thin, based on its selection of value-priced cannabis and derivative products, he believes the tide may be turning.

“With its recently launched infused gummies, plus—what we assume will be a march into high-margin premium craft flower under new leadership of Beena Goldenberg—we anticipate this pressure to be short-term,” Sarugaser noted.

Organigram hired in August Beena Goldenberg as its new CEO in August, replacing previous CEO Greg Engel.

“At Organigram, we are committed to the development of our people along with extensive product innovation to power the growth of our brands which generates value for our shareholders,” said Peter Amirault, Executive Chair of Organigram in the company’s August 4 press release. “Beena shares this vision and has the deep experience in consumer facing industries now required to succeed in the rapidly evolving cannabis industry. This expertise will be invaluable in leading the Organigram team as we continue shaping the future of the cannabis industry both in Canada and around the world.”

OGI said Goldenberg brings more than 30 years of experience in consumer-packaged goods, manufacturing and marketing to the fold, most notably as CEO of The Supreme Cannabis Company, as well as with Hain-Celestial Canada, ULC.

“I am excited to take on this new challenge,” Goldenberg said in an August 4 press release. “I have watched the evolution of Organigram into a national and international leader in the cannabis industry and am looking forward to working with and continuing to build a team known for its high-quality products, strong brands and a commitment to industry leading innovation.”

With the update, Sarugaser has revised some of his financial metrics, with his revenue targets increasing to $20 million for the third quarter of 2021 instead of $18 million, and $24 million in the fourth quarter instead of $23 million.

However, the revisions aren’t enough to produce a year-over-year improvement for the overall 2021 revenue picture, as Sarugaser projects a topline of $79 million in 2021 compared to $87 million in 2020. Sarugaser believes the company’s revenue will shoot upward in 2022, with a revised projection of $167 million (111 per cent potential year-over-year increase) in play.

Accordingly, the company’s EV/Revenue multiple is projected to go up and down, with Sarugaser forecasting an increase to 9.5x in 2021 from 8.7x in 2020, then falling to a projected 4.5x in 2022.

Sarugaser also forecasts changes in the company’s EBITDA projections, though he still expects losses of $34 million in 2021 (previously a $47 million loss) and $23 million in 2022 (previously a $19 million loss), with EV/EBITDA multiple projections coming in at (22.1)x and (33.1)x for 2021 and 2022, respectively.

Sarugaser is also expecting Organigram’s market share to continue on its upward trajectory, going from 5.6 per cent in 2021 to a projected 10.2 per cent by 2022, eventually reaching a projected 15 per cent by 2025 in an industry where total net revenue is projected to grow nearly sevenfold to $522.6 million between 2021 and 2025.

Overall, Organigram’s stock price has risen 65 per cent for the year to date, reaching a high point of $7.62/share on February 10.