Canopy Growth vs. OrganiGram: Which Cannabis Stock Is a Better Buy?

: CGC | Canopy Growth Corporation News, Ratings, and Charts

CGC – Canadian cannabis producers such as Canopy Growth (CGC) and OrganiGram (OGI) have trailed the broader markets in the last three years. The two companies have been negatively impacted by a slew of macro-economic and industry-specific headwinds. But can they derive outsized gains to investors in 2022?.

The Canadian cannabis industry entered bear market territory in early 2019 and, as a whole, has yet to recover. This is evident in the 66% plunge of the ETFMG Alternative Harvest ETF (MJ) over the past three years.

However, the industry is growing quickly and now could be a good time for contrarian investors to scoop up shares of these beaten down stocks. In 2020, it was estimated that the legal global cannabis market was $12.81 billion and it grew to $16.25 billion in 2021.  This growth is forecast to continue, with the market reaching $54.41 billion by 2026.

With this in mind, today I’ll analyze and compare Canopy Growth (CGC) and OrganiGram (OGI) to determine which is currently the better investment.

Canopy Growth

In the last four quarters, Canopy Growth has reported a loss of $1.2 billion and an operating loss of almost $600 million. Further, it’s cash balance has reduced by $437 million in this period and sales declined by 3% year over year to $131 million in the quarter ended in September. A company wrestling with slowing top-line and widening losses is far from ideal.

Canopy Growth increased sales from $77.9 million in fiscal 2018 to $547 million in fiscal 2021 that ended in March. In the last 12-months, its sales stood at just $568 million. Analysts tracking the stock expect revenue to rise by a marginal 3.4% to $565 million in fiscal 2022 and by another 23.3% to $697 million in fiscal 2023.

However, Canopy Growth is better poised than most companies given Constellation Brands owns a 38.6% stake in the marijuana giant. It provides Canopy Growth with the required financial flexibility in case it remains unprofitable in the near-term. At the end of fiscal Q2 of 2022, Canopy Growth reported a cash balance of $2 billion.

OrganiGram

The New Brunswick-based cannabis producer, OrganiGram was one of the few companies to expand its market share. In the fiscal Q1 of 2022 that ended in November, OrganiGram’s share in Canada’s recreational market stood at 7.6%. The company expects this figure to rise to over 8% in the upcoming quarters.

OrganiGram has focused on offering customers a portfolio of quality dried-flower products, making it the 4th largest licensed producer in Canada with respect to recreational cannabis sales.

Its net sales in Q1 stood at $30.4 million, an increase of 57% year over year. It launched 13 additional stock-keeping units, taking its total to 49 at the end of Q1.

While sales grew by 57%, its cost of sales rose by just 21% in Q1, allowing OrganiGram to narrow its EBITDA loss to $1.88 million, compared to the year-ago loss of $5.74 million.

Analysts expect OGI sales to rise by 75% to $110.4 million in fiscal 2022 and by 48.5% to $164 million in fiscal 2023.

The verdict

Both Canopy Growth and OrganiGram are expected to remain unprofitable making them high-risk bets. However, I prefer OrganiGram given its solid revenue growth estimates, improving market share, and lower valuation multiple, compared to Canopy Growth.


CGC shares fell $7.78 (-100.00%) in premarket trading Wednesday. Year-to-date, CGC has declined -9.51%, versus a -3.44% rise in the benchmark S&P 500 index during the same period.


About the Author: Aditya Raghunath


Aditya Raghunath is a financial journalist who writes about business, public equities, and personal finance. His work has been published on several digital platforms in the U.S. and Canada, including The Motley Fool, Finscreener, and Market Realist. More...


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