The main thesis in the cannabis sector for 2019 has been looking beyond the few major Canadian players that grabbed all of the financial headlines last year. OrganiGram Holdings (OGRMF) (TSE:OGI) is another company that follows the script of being under the radar and not listed on the major stock exchanges. The company doesn’t have the preferred access to the substantial U.S. market, but OrganiGram still offers a great growth opportunity in Canada without the wild spending for risky international expansion.
Not So Small
OrganiGram posted FQ2 results through the end of February providing a view into 2019 adult-use recreational sales. The quarterly net revenues of C$26.9 million more than doubled from the previous quarter and places the company on the scale of some of the much better known Canadian companies. A prime example is the Cronos Group (CRON) that only reported C$15.7 million in revenues for all of 2018, yet the stock has a listed market value of over $5 billion.
Even more important, OrganiGram hasn’t taken on aggressive expansion plans whether domestically or internationally so margins have remained relatively strong. For the quarter, gross margins were a strong 60% and adjusted EBITDA stayed a very healthy 49% of sales. Other major Canadian players only hope reach positive EBITDA numbers this year.
After converting some debt, the company has a fully diluted share count of 165 million shares. The stock valuation is only roughly $1.1 billion despite doubling off the market lows in December. Most Canadian cannabis stocks trade at roughly 10x future sales that extend into 2020 or 2021 while this stock is closer to 10x the current sales rate that now exceeds C$100 million.
Plenty Of Growth
Like most of the cannabis players in North America, OrganiGram has a plan to grow cultivation and enter the edibles and beverages segment when Canada opens it up last this year. The key here is building for reasonable growth, instead of wild expansion plans.
OrganiGram is the process of tripling current production capacity to a reasonable 113,000 kg/year from 36,000 kg/year once completed later this year. In addition, the company has a 56,000 square feet building for Phase 5 expansion to cover the derivatives launch this year.
The company expects to have several products available for sale including vape pens, chocolate edibles and a beverage product with an extended shelf live. By having products ready in quantities as needed and not on the bleeding edge, OrganiGram hasn’t needed wild share dilution. The cannabis company even has a cash balance of C$63 million at the end of February.
Going forward, OrganiGram is positioned to need additional capital to expand as opposed for running operations at the wild losses of the major players such as the above-mentioned Cronos Group.
The key investor takeaway is that companies like OrganiGram aren’t garnering the investor headlines since they aren’t undertaking excessive growth plans or listed on major stock exchanges. The lack of major headlines makes a stock like this a better value for investors.
Wall Street’s confidence backing this cannabis stock is strong, with TipRanks analytics showcasing OrganiGram stock as a Strong Buy. Based on 11 analysts polled in the last 3 months, all 11 rate a Buy on the stock.
To read more on the nitty gritty of what’s going on in the rising cannabis industry, click here.
Disclosure: The author has no position in OrganiGram stock.
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