OrganiGram Tanks 12% After Disappointing Quarterly Results

Shares in Canada-based cannabis stock OrganiGram plunged 12% after the company reported a much wider-than-feared loss for the fiscal first quarter of 2021.

In the quarter to Nov. 30, OrganiGram’s (OGI) net loss ballooned to C$34.3 million from about C$863,000 during the same period a year ago. Analysts had been expecting a loss of C$7.1 million for the reported quarter. Gross revenue declined 11% to C$25.3 million, while net revenue dropped 23% to C$19.3 million due to significantly lower wholesale sales from licensed producers and a lower average selling price. Analysts had been looking for revenue of C$20.3 million.

Meanwhile, adult-use recreational net revenue increased 30% to C$16.8 million year-on-year. Gross margin flipped to a negative C$16.7 million from positive C$11.2 million.

“We are pleased with our double-digit sales growth in the Canadian adult-use recreational market this past quarter as it reflects the success of many of our new product launches, particularly in the dried flower value segment,” said OrganiGram CEO Greg Engel. “Now we look forward to our new higher margin Edison dried flower offerings contributing substantially to overall revenue with even more new products to come in the next few quarters. We believe our product portfolio revitalization combined with additional resources to ramp up production and achieve greater economies of scale as well as our relentless focus on increased automation and cost efficiency opportunities position us well to generate further top-line growth and significantly improve gross margins.”

In Q1 of fiscal 2021, OrganiGram generated positive cash flow from operations of $0.3 million, marking the second quarter of the last three quarters with positive cash flow. The company ended the quarter with $134 million in cash and short-term investments.

Looking ahead to Q2 of fiscal 2021, OrganiGram sees potential for temporarily suppressed demand to impact net revenues as cannabis stores in certain parts of Ontario have been closed to physical retail traffic since Nov. 23 and some have been shut since Dec. 26 due to the pandemic-led lockdown restrictions.

Oppenheimer analyst Rupesh Parikh recently assigned a Hold rating on the stock, telling investors that he “expected challenges given the recent coronavirus-related headwinds.”

Parikh noted though that management is taking aggressive actions to right-size costs and position the business for an increasingly challenging backdrop.

“We still believe OGI could emerge as a leading player longer-term, but it could take a few more quarters before we see meaningful improvement in financial delivery,” the analyst concluded. (See OGI stock analysis on TipRanks)

Overall, analysts have a cautiously optimistic Moderate Buy consensus on the stock with an average analyst price target of $1.98. With shares down 18% over the past year, this now indicates 25% upside potential from the current share price.

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