Debra Borchardt
Organigram Holdings Inc. (OGI) (OGI) reported that its gross revenue grew to $19.2 million for the fourth quarter ending August 31, 2019, versus $3.1 million for the fourth quarter in 2018. The net loss for the 2019 fourth quarter was $22 million versus last year’s net income of $18 million for the same time period. The larger loss was due to “non-cash fair value changes to biological assets and inventories.”
For the full year, Organigram delivered net revenue of $80.4 million, which grew 547% over 2018’s $12.4 million. The net loss for 2019 was $9.5 million versus 2018’s net income of $22.1 million.
“Our 2019 results reflected a successful year for Organigram. Not only did we report strong top-line growth and establish an enviable national market share position in Canada, we generated positive adjusted EBITDA – one of the key measures we use to evaluate our performance,” said Greg Engel, Chief Executive Officer. “In 2019, we increased staffing and capacity to meet forecasted demand and maintain inventory in the market. Industry structural issues have challenged supply and demand dynamics in the short-term but we believe the growth opportunity in the Canadian cannabis market remains intact.”
Lower Sales Sequentially
The company’s fourth-quarter net revenue dropped to $16.3 million versus the third-quarter net revenue of $24.8 million. Organigram had warned the market about a $3.7 million in a provision for product returns and pricing adjustments. “The majority of the provision was largely related to two slower selling stock-keeping units (SKUs) sold to the Ontario Cannabis Store (OCS), comprised of a bespoke order of lower THC dried flower intended to fulfill a supply gap in the market earlier this year and THC oils which have seen less than anticipated demand in the adult-use recreational market.”
The company also said that the “lack of a sufficient retail network and slower than expected store openings in Ontario continued to impact revenue growth in Q4 2019 and were further exacerbated by increased industry supply. Quarter to quarter revenue is expected to continue to be volatile due to the timing of large pipeline orders for Ontario, in particular, where there is a centralized distribution model and where store additions are difficult to forecast.”
Year to date, Organigram said it estimates it has approximately 10% national market share based on its analysis of available data including, but not limited to, market share data from select provinces and various public data.
Cultivation Costs Come Down
The fourth-quarter “all-in” costs of cultivation of $0.66 and $0.94 per gram of dried flower harvested, respectively, dropped from $0.95 and $1.29 per gram in Q3 2019 as yield per plant increased in line with historical levels following a temporary decrease in Q3 2019 (Q4 2019: 148 grams compared to 110 grams in Q3 2019). As a result, the Q4 2019 harvest increased to 7,434 kg from 6,052 kg in Q3 2019.
Looking Ahead
Organigram said it took delivery of its high speed, high capacity, fully automated chocolate production line in October 2019. The installation has been almost completed, and the company expects to commission and license products in time for initial sales in Q1 calendar 2020. The company said it now expects to launch powdered beverage products in Q2 calendar 2020 based on expected licensing timing for the production area and equipment delivery and commissioning schedules.
The company also stated that Q1 2020 net revenue is expected to be higher than Q4 2019 on increased sales to provinces and higher wholesale revenue. It expects increased efficiencies and economies of scale from more capacity to decrease cultivation costs in Q1 2020 from Q4 2019. Labour costs are not expected to increase commensurate with production, processing and sales volume.
“As we were one of the first success stories to supply the market in the early days of legalization, we have had visibility for some time now on ultimate sell-through to consumers and have adapted our production mix and product strategy to align with our understanding of emerging consumer preferences. We have a great conviction in our strategy and ability to onboard the new retail store openings and to launch a portfolio of edible and derivative products appealing to adult consumers. ”
The stock was up over 3% and lately trading at $2.72.
