This Under-the-Radar Pot Stock Is Showing Signs of Life

It seems like we just finished discussing a 2020 full-year revenue blowout for many of the top U.S. cannabis operators, such as Green Thumb IndustriesCuraleaf, and Cresco Labs. Here we are already at the midway point of 2021, and fortunately for investors, the sector’s sales numbers continue to climb. Recent better-than-expected revenue for…

Canadian grower OrganiGram (NASDAQ: OGI) in particular demonstrates some signs of life for a company whose stock has been less than spirited lately…

A positive quarterly sales surprise is a good sign, but it may not be representative of the bigger picture for the company. Is it enough to put OrganiGram in the green for the long haul?

The positives

Driven by stronger adult recreational-use sales resulting in 40% sequential quarterly growth (10% year over year), OrganiGram’s total gross revenue was up 51% sequentially and 31% year over year to a total of $29 million. This number topped analyst estimates of $22.2 million by 31%. On top of that, the company posted a net loss of $4 million, a colossal improvement on the 2020 same-quarter loss of $89 million.

OrganiGram also made an acquisition during the fiscal third quarter, and management is counting on it to be a new and growing revenue stream for years to come. The acquisition of The Edibles and Infusions Corporation, a licensed manufacturer of soft chews and candy, is expected to result in new products available to consumers in early August.

The new offerings will add to the growing number of SKUs (individual products) that are part of the company’s product portfolio revitalization program, currently at 84 since July 2020. An expected 20 more are to come during the current fiscal fourth quarter.

In addition to revenue-generating moves to improve the company’s health, OrganiGram is also taking steps toward cutting costs and other related expenses. The company is undergoing design improvements directed toward higher-quality flower and reduced production costs at its Moncton facility in Canada. It is also implementing new automation features, such as a pre-roll machine that will speed up production while cutting costs associated with manual labor.

And in an effort to reduce expenses unrelated to product offerings, the company repaid $58.7 million toward outstanding credit balances, which management expects will save $2.7 million of annual interest expense.

The challenges

Cutting costs and expenses could ultimately be the determining factor in how successfully, and for how long, OrganiGram can compete in the growing cannabis market. But the challenges to be overcome are not easy.

As gross revenue grew from $22 million to $29 million on a year-over-year basis for the quarter, excise taxes — taxes imposed on products and goods at the point of manufacturing — rose by over 108%, to $8.7 million. Sales, general, and administrative expenses also saw an increase of 32% year over year for the quarter, and are expected to climb once again during Q4. This is because of…

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