OrganiGram Delivers 76% Sales Growth as Capacity Expansion Remains on Track

The marijuana industry has undergone an incredible transformation in 2018, with Canada becoming the first industrialized country in the world to legalize recreational cannabis, and additional U.S. states giving the green light to either recreational or medical pot. With the industry gaining legitimacy, attention now turns to whether marijuana stocks can deliver top- and bottom-line growth, as promised.

One of those highly followed companies, OrganiGram Holdings (NASDAQOTH: OGRMF), announced its fourth-quarter and full-year operating results on Friday morning, Dec. 14. Although capacity-expansion efforts remain at the forefront, there were encouraging signs of growth ahead of Canada's official legalization date of October 17.

OrganiGram Holdings Q4 results: The raw numbers

Metric Q4 2018 Q4 2017 Year-Over-Year Change
Revenue CA$3.21 million CA$1.82 million 76%
Profit/Loss per share CA$0.15 (CA$0.02) N/A
Cash and cash equivalents CA$130.1 million CA$34 million 283%

As with most pot stocks, OrganiGram delivered healthy sales growth of 76% from the year-ago quarter. Perhaps the big surprise was the company's 18 million Canadian dollars in net income, which translates into CA$0.15 on a diluted per-share basis. Of course, IFRS accounting had a big role in this profit, as the company recognized a CA$30.8 million positive fair-value adjustment on its biological assets (i.e., cannabis plants) during the fourth quarter.

What happened with OrganiGram Holdings this quarter?

Sales growth of 76% doesn't happen by accident, so let's take a closer look at some of the company's operating highlights during (and subsequent) to the quarter that ended on Aug. 31, 2018.

  • Arguably, the biggest news is that OrganiGram was able to work out cannabis supply deals with all but one of Canada's 10 provinces (the holdout being Quebec). Supply deals are very important for pot growers, as it means less running around trying to find a buyer for their product and guaranteed cash flow.
  • OrganiGram launched two brands during the quarter -- its premium Edison Cannabis Company brand and value-based Trailblazer brand -- and plans to launch ANKR Organics and Trailer Park Buds in calendar 2019. Brand building is going to be a key focus for OrganiGram in the quarters to come.
  • The company completed the second and third phases of expansion at its Moncton, New Brunswick facility, bringing the total number of available grow rooms to 52. When fully operational, OrganiGram will be producing at an annualized run rate of 36,000 kilograms.
  • Construction began on the fourth and final phase of expansion at Moncton in July. This fourth phase itself has three stages (4A, 4B, and 4C), which are expected to be complete in April 2019, August 2019, and October 2019, respectively, and add 31 grow rooms, 32 grow rooms and 29 grow rooms, respectively. In terms of peak annual output, OrganiGram's capacity will increase to 62,000 kilograms, 89,000 kilograms, and 113,000 kilograms, respectively.
  • OrganiGram completed its first international shipments of dried cannabis flower (July) and cannabis oil (September). With domestic annual demand only expected to total 1 million kilograms, according to an analysis by Health Canada, overseas exports will be a growing complement of aggregate sales for marijuana stocks as time passes.

What management had to say

As you might expect following a steady quarter of expansion, OrganiGram's management was pleased, which was reflected in comments from CEO Greg Engel. According to Engel:

For added context, the company's cost of cultivation, which includes cash and non-cash costs, was CA$0.83 per gram during the fourth quarter, down roughly two-thirds from the CA$2.65 per gram it reported in the first quarter of fiscal 2018.

Looking forward

At the moment, OrganiGram is all about capacity expansion, brand building, and securing domestic and international supply deals. Its Moncton facility is unique in that it employs a three-tiered growing system, which is a big reason the company's cultivation costs are so low. As it works to complete its fourth phase of construction by October, OrganiGram has a real shot at seeing its production costs fall further as it becomes a top-10 producer by annual output in Canada.

So what should investors expect? According to the company, fiscal first-quarter sales -- which will include only a partial time period where recreational sales were legalized in Canada (the fiscal first quarter began on Sept. 1, 2018) -- should be more than total sales were in all of fiscal 2018 (CA$12.4 million). Further, second-quarter sales should be higher than first-quarter sales, albeit the company didn't provide any specific figures to go along with its prognostications.

In other words, it's full speed ahead at the moment.

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Sean Williams has no position in any of the stocks mentioned. The Motley Fool recommends OrganiGram Holdings. The Motley Fool has a disclosure policy.