As we enter into earnings seasons, investors are bracing themselves. It has been a challenging quarter, to say the least, and we fear that the worst is yet to come in the second quarter. 

The cannabis sector has received mixed signals this past quarter, as the COVID-19 crisis has unfolded. There has been an uptick in online sales, as the stay at home economy pushes on, but there has also been lots of controversy around retail stores. Some provinces in Canada have deemed cannabis retailers essential, while other parts have restricted them to temporarily close or only offer curbside pickup. And with all of the job losses, there will no doubt be a contraction in demand. 

Yesterday, OrganiGram Holdings (OGI) released their earnings report.

OGI reported net revenue of $23.2 million, compared to $26.9 million in Q2 2019 and $25.2 million in Q1 2020. Revenues declined clearly due to the challenging market conditions. However, adult-use recreational net revenue grew 16% to $15.0 million from $12.9 million in Q1 2020, which shows us strong consumer demand remained intact. 

The company ended the quarter with $41.2 million in cash. 

OGI made progress in the 2.0 market as they shipped their trailblazer torch vape cartridges in December of 2019. They also shipped their Edison Feather ready-to-go distillate vape pens and Edison Bytes, cannabis-infused chocolates in February. 

The company expects Edison PAX ERA distillate cartridges to start shipping next quarter. 

OGI received licensing for the remainder of their Phase 5 facility, which includes a dedicated edibles and derivatives division. We like the fact that they are putting a stronger focus on higher-margin 2.0 products. 

The company announced a corporate action plan which intends to boost containment of the COVID-19 virus. They also have goals of protecting the health of every one of their employees. OGI is striving to keep its operations running in order to meet the current demand for all of its products during these uncertain times. 

After this report was released, OGI traded down 11% on Tuesday. 

Greg Engel, CEO of OrganiGram, said, “Our second-quarter results reflect continued execution despite ongoing industry challenges. We introduced new products such as our Edison Bytes chocolates, Edison Limelight dried flower and Trailblazer vape pens and continue to elevate the Canadian consumer’s cannabis experience. These products have been well received with strong customer demand to date and we look forward to furthering roll-outs in the space.”

It’s our opinion that OGI not only has what it takes to survive this tough economic environment but they also have an efficient business model that should propel them going forward, when the market conditions improve.  They have a lot less overhead than some of the bigger cannabis companies and do not not carry goodwill like CGC or ACB, which makes their balance sheet a lot healthier.  

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OGI shares were trading at $1.54 per share on Wednesday afternoon, down $0.05 (-3.18%). Year-to-date, OGI has declined -37.14%, versus a -13.44% rise in the benchmark S&P 500 index during the same period.

About the Author: Aaron Missere

Aaron is an experienced investor who is also the CEO of Departures Capital. His primary focus is on the cannabis industry. He also hosts a weekly show on YouTube about marijuana stocks. Learn more about Aaron’s background, along with links to his most recent articles. More...

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