Organigram Holdings Inc: This $1.50 Pot Stock Could Deliver Big Returns

A Pot Stock Seeing Massive Growth

The Canadian Maritimes, which consists of New Brunswick, Nova Scotia, and Prince Edward Island, is not a very populous region. Combined, these three provinces have around 1.9 million residents, which is a tiny fraction of the country’s total population of 37.9 million.

Still, one industry has been booming in the Maritimes: cannabis.

You see, Canada legalized recreational pot on October 17, 2018. Since then, the cannabis industry has been firing on all cylinders across the country. And today, I want to talk to you about a pot stock that’s based in the Maritimes: Organigram Holdings Inc (NASDAQ:OGI).

Headquartered in Moncton, New Brunswick, Organigram is a licensed cannabis producer. The company has a production facility located on a 14-acre campus in Moncton. Right now, the facility has a licensed target production capacity of 89,000 kilograms (196,211 pounds) per year. (Source: “OGI Investor Presentation,” Organigram Holdings Inc, last accessed March 23, 2020.)

Now, if you’ve been following the cannabis industry, you’ll know that many Canadian pot companies are still trading over the counter in the United States.

And yet, despite coming from a small city, Organigram Holdings Inc managed to list its shares on the Nasdaq Global Select Market. So it’s very convenient for American investors to own the stock. Plus, trading on a major U.S. exchange can benefit the stock with more liquidity and exposure.

The No. 1 reason why investors like pot stocks is that the industry is growing rapidly. Over the past few years, quite a few cannabis companies have delivered astonishing growth rates in their business. And Organigram Holdings Inc happens to be one of them.

Consider this: in Organigram’s fiscal-year 2018, which ended August 31, 2018, the company generated CA$12.4 million of net revenue. In OGI’s fiscal-year 2019, which ended August 31, 2019, its net revenue grew to CA$80.4 million. That translates to a whopping 548% increase!

(Source: Ibid.)

Of course, Organigram’s more than six-fold top-line growth in its fiscal-year 2019 was mainly due to the legalization of recreational cannabis in Canada. But that was just the start. If you take a look at the company’s latest earnings report, you’ll see that the growth momentum is still continuing for the Moncton-based producer.

In the first quarter of Organigram’s fiscal-year 2020, which ended November 30, 2019, the company generated CA$25.2 million of net revenue, which more than doubled from the CA$12.4 million it earned in the year-ago period. (Source: “Organigram Reports First Quarter Fiscal 2020 Results,” Organigram Holdings Inc, January 14, 2020.)

At the bottom line, Organigram had a net loss of CA$900,000 or CA$0.006 per share, in the first quarter of its fiscal-year 2020. This compares to its fiscal year 2019 first-quarter net income of CA$29.5 million, or CA$0.195 per share.

Swinging from a profit to a loss was not exactly good news, however. The decline in the company’s bottom line was largely due to non-cash fair-value changes to biological assets and inventory sold.

Organigram Holdings Inc Is a Low-Cost Producer

With just one campus, Organigram Holdings Inc is not really the biggest player in Canada’s cannabis industry. However, we currently live in a time where a recession seems to be on the horizon, and almost every industry is facing a lot of uncertainty. Having only one facility could make it easier for the company to manage its costs in this period of uncertainty.

In fact, Organigram is already one of the lowest-cost producers in the country. In the first quarter of fiscal year 2020, its cash and all-in costs of cultivation were CA$0.61 and CA$0.87 per gram of dried flower harvested, respectively.

To put that in perspective, in the fourth quarter of the company’s fiscal-year 2019, the cash and all-in costs of cultivation were CA$0.66 and CA$0.94 per gram, respectively. During the same period, Organigram’s yield per plant increased from 148 grams in the fourth quarter to 152 grams in the first quarter.

Investors should also be reassured that the company had a solid liquidity position at the end of its reporting period. Organigram Holdings Inc had CA$34.1 million in cash and short-term investments at its first quarter-end. Moreover, it had CA$30.0 million in undrawn capacity on its term loan credit facility as of January 14, 2020.

Analyst Take

All in all, Organigram Holdings Inc stock deserves pot investors’ attention. The company should be able to run a solid business even if we enter a full-blown recession.

And with OGI stock trading at just about $1.50 per share on the Nasdaq, it wouldn’t take much money to scoop up some shares.