Should You Buy OrganiGram in May?

Smaller Canadian cannabis companies have often been ignored this year while the bigger ones like AphriaTilray, and Canopy Growth are grabbing all the attention. Aphria and Tilray’s mega-merger, which closed this month, was the highlight of the industry at the start of 2021. Meanwhile, Canopy Growth is working hard to…

lead the market for cannabis beverages, a new form of recreational cannabis derivatives that Canada legalized in October 2019 as part of “Cannabis 2.0.”

OrganiGram Holdings (NASDAQ:OGI) is a smaller company by market capitalization, with a market cap of just $787 million compared with Canopy Growth’s $8.7 billion. Its second-quarter fiscal 2021 results were a tad disappointing, but its efforts to grow cannot be ignored. Its wide range of popular and innovative cannabis products could help it flourish over the long term, making it a fascinating stock to invest in. However, there are other factors to consider before you dive in to buy the stock this month. Let’s take a look. 

OrganiGram’s financials could pick up

OrganiGram’s second quarter ended Feb. 28, and results weren’t wonderful. Revenue declined 37% year over year to 14.6 million Canadian dollars — not a good sign when cannabis sales have been progressing amid the pandemic, particularly after cannabis was declared as an “essential item” in Canada. The company said pandemic-related production and processing disruptions affected revenue, and the decline in wholesale revenue and lower prices for its products also contributed to the dip.

As a result, the company reported negative adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) of CA$8.6 million, a more than 14,000% increase from the negative adjusted EBITDA of CA$59,000 it posted in the year-ago period. Net losses also came in higher at CA$66.3 million compared to a net loss of CA$6.8 million in Q2 fiscal 2020.

Just a few days after the results, the company announced its CEO, Greg Engel, would be stepping down but would continue as a special advisor to the board of directors through a transition period. Meanwhile, the board’s chairman, Peter Amirault, will serve as interim CEO until the company fills the position permanently.

A sudden leadership change makes investors skeptical. However, every CEO has a unique way of running a company, and a new CEO might bring changes that could benefit the company over the long term. We will have to wait and see.

Management believes in innovation

What I find appealing about OrganiGram is its interest in adapting different technologies to develop innovative products. In 2018, the company entered into a strategic investment deal of $10 million with Hyasynth Biologicals, a Montreal-based biotech company that uses a process called biosynthesis to produce cannabinoids more cheaply and efficiently. Besides OrganiGram, only peer Cronos has adapted this technology to produce cannabinoids.Departing CEO Engel noted that”this technology has the potential to change the cannabis landscape.”

Another such innovation is the company’s use of… 

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