Cantor Fitzgerald Lowers Price Target As Canadian Cannabis Producer Organigram Posts Q3 Earnings

Organigram Holdings Inc. OGI (TSX: OGI) recently revealed its third-quarter fiscal 2021 earnings, reporting net revenue of $20.3 million, up by 13% from the same period last year. The sales beat the consensus estimates of $13.95 million.

The New Brunswick-based company reported that adult-use cannabis net revenue had spiked 40% sequentially and 10% year-over-year, reaching $16.8 million in the quarter ended May 31. Its adjusted EBITDA was a loss of $10.9 million, representing a 376% year-over-year increase. Its net loss amounted to $4 million.

The Analyst

Cantor Fitzgerald’s Pablo Zuanic reiterated an “Overweight” rating on Organigram stock and lowered the price target to CA$5.50 ($4.31) from CA$5.95. 

The Thesis

Zuanic lowered Cantor's price target on the Canadian cannabis stock based on the “sectoral derating,”  as per the analyst’s Friday note.

The U.S. marijuana sector is going to be exposed and affected by expectations of deregulation, resulting from the recent introduction of the proposed Cannabis Administration & Opportunity Act discussion draft. Nevertheless, the Canadian outlook will continue to improve regardless of cannabis-related developments in the U.S., as global pandemic restrictions are beginning to lift, resulting in more stores opening and orders starting to heat up in Canada, explained Zuanic. 

“After a 30% slump in the Feb quarter, recreational dollar sales (shipments to the boards) jumped to $16.8Mn (up 40% sequentially), back to the November quarter level,” detailed the analyst.

Organigram did not offer guidance, but sales are projected to jump again in the August quarter. Furthermore, the company is advancing its offering through new growth capacities and innovative products.

And while its exports to Israel are resuming, the company’s dependency on value flower have caused negative gross margins for two quarters in a row, Zuanic highlighted, adding that the average net selling price of dried flower of CA$2.12 per gram for the quarter significantly fell from the November quarter average of CA$3.24.

“We reiterate our Overweight on valuation and the British American Tobacco PLC (NYSE: BTI) alliance, but we do not regard Organigram as our top pick in Canada,” Zuanic concluded.

Price Action 

Organigram’s shares were trading 0.79% higher at $2.54 per share during Monday’s pre-market session.

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Photo: Courtesy of Tim Foster on Unsplash