Adam Jackson
Organigram Holdings Inc. (Nasdaq: OGI) (TSX: OGI) saw net revenue fall alongside rising operating costs in its financial results for the third quarter ending May 31, 2023. However, the company remains optimistic about its financial outlook, with the expectation of returning to positive adjusted EBITDA in the fourth quarter of the fiscal year.
The company reported a 14% drop in net revenue to $32.8 million, from $38.1 million in the same period last year, primarily due to a reduction in recreational flower sales. That, in turn, led to an increase in cost of sales and a decrease in gross margin.
Despite the challenging financial results, CEO Beena Goldenberg expressed confidence in the company’s strategy, adding that Organigram is focusing on sustainable long-term growth.
“Our outlook moving into next year remains positive with the foundation now in place to deliver continued growth,” Goldenberg said in a statement.
CFO Derrick West also pointed to the practice by some producers of inflating THC values on their labels as a reason for declines in the company’s sales and margins – but he emphasized that steps have been taken to increase whole flower THC levels to meet consumer demand.
“We believe that based on this progress we will return to positive adjusted EBITDA in Q4 Fiscal 2023,” he said.
Impairment losses of more than $191,000 were recorded, which are expected to result in an approximate 5% improvement to the gross margin rate moving forward, controlling for other factors. The company’s net loss for the third quarter was $213.5 million, versus to a net loss of $2.8 million in the same period last year, primarily due to the recorded impairment.
Organigram said in a statement that its R&D efforts are seeing gains both from a scientific development standpoint and in terms of revenue-driving commercial capability.
The company also announced strategic investments in Greentank, a vaporization technology company, and Phylos Bioscience, a cannabis genetics company. The partnerships are expected to enhance Organigram’s current and future product lineups and support its cultivation efforts in Canada.
On the international scene, Organigram signed an agreement in May to supply medical cannabis to the German market and reported shipments totaling $1.7 million to Australia in the third quarter.
Looking ahead, Organigram expects net revenue in the fourth quarter to be higher, largely due to the growth of its expanded product line across multiple categories, it said. The company also anticipates improved adjusted gross margins and a return to positive adjusted EBITDA.
“Organigram believes its capital position is healthy and that there is sufficient liquidity available for the near to medium term,” it wrote.
