Are Shares of Organigram (OGI) a Buy, After Their Weak Fourth Quarter?

: ogi | Organigram Holdings Inc. News, Ratings, and Charts

ogi – The recent round of earnings for the vast majority of large-cap cannabis companies in Canada has been weak. .

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The recent round of earnings for the vast majority of large-cap cannabis companies in Canada has been weak. Therefore, it wasn’t too much of a surprise when OrganiGram (OGI) reported weaker than expected fourth-quarter on Monday.

OrganiGram posted 2019 revenues of $80.4 million which was a 547% increase year over year from revenues of just $12.4 million back in 2018. Gross margins improved by 2% on a strictly percentage basis growing from 45% to 47%. In 2019 gross margins grew 575% to $37.9 million or 47% of net revenue compared to $5.6 million or 45% of net revenue in 2018. The company also ended the year profitable with 2019 adjusted EBITDA of $19.9 million or 25% of net revenue which was negative $1.0 million just a year ago in 2018.

OrganiGram sells cannabis in all 10 provinces and estimates that they have approximately 10% of the Canadian adult-use recreational market under their belt.

OrganiGram expects to have a much more successful 2020 but what were some of the issues that caused a weak fourth quarter? Canada has been very slow at allowing the rollout of retail stores (to distribute their products) across the country. This has created a massive bottleneck in the market and cannabis companies are pleading with the Canadian government to alleviate this issue so that revenues can be realized and valuations can stabilize.

Some analysts remain bullish on the cannabis sector because they believe that companies, including OrganiGram, have seen the worst, in terms of earnings this past quarter. Their belief is that the financial environment should improve in the sector as more and more retail stores come online in 2020. We can also expect revenues to materialize from the cannabis 2.0 market which offers further diversity among revenue streams and alternative options for consumers to buy.

One thing that was a positive in OrganiGram’s holdings was that they managed to generate positive EBITDA for 2019. This is impressive because many of their peers, even competitors that are much larger than them, failed to achieve this.

We are going to keep a close eye on OrganiGram and look forward to 2020 to see what kind of results the company can produce when the retail environment improves in Canada. We think OrganiGram has a bright future and is an important cannabis company to watch closely in 2020.

 


OGI shares were trading at $2.70 per share on Friday afternoon, down $0.00 (0.00%). Year-to-date, OGI has declined -24.33%, versus a 27.68% 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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