Organigram has an 82 per cent upside, says Raymond James

Calling it one of Canada’s best-run cannabis operations, Raymond James analyst Michael W. Freeman reiterated an “Outperform” rating on Organigram Holdings (Organigram Holdings Stock Quote, Charts, News, Analysts, Financials TSX:OGI) in an update to clients on Thursday. Freeman reviewed OGI’s latest quarterly numbers, saying while its first quarter fiscal 2023 revenue didn’t hit record levels, at $43.3 million compared to the previous quarter’s record $45.5 million, the company is showing that the above-$40 million quarterly level is sustainable.

Moncton, New Brunswick-based cannabis licensed producer Organigram announced its Q1 fiscal 2023 earnings on Thursday for the period ended November 30, 2022, posting the $43.3 million topline, which represented a year-over-year increase of 43 per cent. Adjusted EBITDA came in at $5.6 million compared to negative $1.9 million a year earlier and now representing OGI’s fourth consecutive quarter of positive adjusted EBITDA.

Organigram CEO Beena Goldenberg said the fiscal Q1 validated the company’s expansion efforts as well as continued productivity improvements.

“In the quarter, we achieved a record harvest and the lowest cost of cultivation in the history of the Company. We maintained our market position and are confident our disciplined approach to operations and innovation will drive further success in the rest of the year,” Goldberg said.

Looking at the results, Freeman noted OGI’s maintained position as the #3 LP in Canada’s adult-use market and said he expects the company to continue with similarly strong or stronger gross margin and EBITDA profiles throughout its fiscal 2023. Freeman related that management is aiming to be free cash flow positive by the end of the calendar year.

Freeman also pointed to the positives of Organigram’s international program, where through its agreements with its Israeli and Australian partners OGI had $5.9 million in international sales over the quarter, similar to the previous quarter’s $6.2 million.

“In light of OGI’s new export agreement with Canndoc/InterCure (INCR.U-TSX)—one of Israel’s largest medical cannabis players—which provides for a commitment of 10,000 kg, with an option to order up to an addition 10,000 kg over the course of three years, we anticipate international medical cannabis being a major growth driver for OGI during FY23. These traditionally high-margin sales should support OGI’s escalating overall profitability profile,” Freeman wrote.

With his “Outperform” rating, Freeman maintained a target price of $2.00 per share, which at press time represented a projected 12-month return of 82 per cent.

“We see OGI as one of Canada’s best-run cannabis businesses, with increasingly impressive ownership of Canadian market share and escalating international activity. While changes to U.S. cannabis legislation remain at a stand-still, we view OGI as one of the best quality (and best-priced) names in the entire cannabis complex,” Freeman wrote.