Organigram Down On COVID-19 Impact, Buying Opportunity In Sight

Lockdowns Cut Into Organigram Revenue 

Cannabis investors that didn't get the message when Aphria (NASDAQ: APHA) reported should pay attention to Organigram (NASDAQ: OGI). The company just reported its worst results since the 2018 cannabis market implosion and has shares down by 10%. The reason is not because of any underlying weakness in the cannabis market, far from it, the reason is because of COVID-19. The pandemic and lockdowns in Canada not only cut into sales but available staff which had an impact on cultivation and sales. As with Aphria, Organigram is expected to rebound from this hit the only questions we have are how soon, how fast, and how high? No pun intended. 

Organigram Revenue Shrinks But The Story Is Bigger Than COVID 

Organigram's revenue shrank in the FQ2 period by 37% YOY. The reason is because of COVID more than anything else but there is more to the story. The company has been losing share in the dried-flower category for the last two years and that is underpinning results. The $14.64 million in revenue is not only down 37% from last year, but last year's results are down 17% from the prior year and there is a noticeable downtrend in revenue in the intervening period.

• Q2 2021 net revenue was also lower due to missed sales opportunities, as certain employees tested positive for COVID-19 which resulted in a significant number of facility staff having to isolate.

That said, the company has been working to correct that issue by refocusing on growth markets and revitalizing its brands. Assuming Canada can get reopened (it looks like they are, no, reopening) we expect to see revenue growth resume and rebound to pre-COVID levels if not higher. The estimated loss of revenue for Q2 is in the range of $7.00 million or more than enough for a company record. 

Evidence of the revitalization and growth strategy includes new product launches, acquisitions, and new strains of cannabis intended to attract consumers. In total, there have been 62 new SKUs launched in the last 9 months with more on the way. The most recent acquisition is The Edibles And Infusions Company, a purchase that should greatly enhance the number of listings in the #1 edibles category, gummies & chews. 

The fiscal Q1 period produced a net loss of $66.39 million which really isn't a surprise. With sales restricted so severely, the company experienced massive deleveraging of its production facilities but there is a silver lining here. A rebound in sales will re-leverage those same costs with added strength due to the companies revitalization efforts, efforts that include process improvement from the grow-room to the showroom. 

The Technical Outlook: Organigram Down But Not Out 

Shares of Organigram are down about 5% in early trading but already showing signs of support. The stock hit a key support level at $2.00 that retraces the Reddit-inspired rally by 100% and brings the market back to normal. We are not surprised to see support at this level and expect to see a bottom form if not a rebound. The indicators are consistent with support and a possible rebound that could be strong. The MACD is diverging and stochastic extremely oversold which sets the market up for a swing in momentum at least. Based on our view of the cannabis market and the outlook for reopening, the rebound in OGI, when it comes, is going to be vigorous.