What Holds Value For Canadian Cannabis Company Organigram? Analyst Opines

Canadian cannabis company Organigram Holdings Inc. OGI released its financial results Thursday for the first quarter that ended November 30, 2022, revealing net revenue of CA$43.3 million, ($32.3 million) a 43% increase compared to CA$30.4 million in the Q1 fiscal 2022.

This was the company’s fourth consecutive quarter of positive adjusted EBITDA reaching CA$5.6 million, compared to negative CA$1.9 million in Q1 fiscal 2022. In this period, Organigram achieved a record adjusted gross margin of CA$12.8 million, or 30% of net revenue, compared to CA$5.5 million, or 18%, in Q1 fiscal 2022.

Net income was CA$5.3 million, compared to a net loss of CA$1.3 million in Q1 fiscal 2022.

The Analyst

Cantor Fitzgerald’s Pablo Zuanic kept an ‘Overweight’ rating on Organigram stock, reducing the price target to CA$2.65 from CA$2.90.

The Thesis

Organigram guided for top-line growth in the second quarter and fiscal year, forecasting stable gross margins, even though weed prices have been dropping. The Toronto-based marijuana firm also expects to keep achieving positive EBITDA and to become free cash flow positive in 2023. As for revenue, the company noted it expects the fiscal year 2023 revenue to beat that of the previous year.

The analyst believes Organigram’s exports to Australia and Israel could help it achieve projected margins.

“In the landscape of Canadian stocks, on operating performance and trading at 1.5x CY23 sales vs 4-5x for the cannabis units of Tilray TLRY and Canopy Growth CGC, the stock stands out, in our opinion,” said Zuanic, highlighting British American Tobacco’s BTAFF ownership of a 20% stake in Organigram.

Zuanic acknowledged his concern about cash burn, which could lead to an equity dilution, but noted that the company is moving toward positive free cash flow by the end of the year.

“We think the stock represents good value, given recreational share and sales growth momentum versus peers, improving profit trends, and the optionality from the equity stake held by British American Tobacco.”

The Price Action

Organigram shares traded 2.22% higher at 92 cents per share during Friday's pre-market session.