Why OrganiGram (OGI) stock looks like a solid bet

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September 6, 2019 12:09pm NYSE:MJ

OrganiGram Holdings Inc. (OGI) stock rose more than 10% yesterday thanks to a positive analyst forecast. Oppenheimer analyst Rupesh Parikh gave the stock a perform rating, meaning he expects the stock to perform in line with the S&P 500 throughout the next 12-to-18 months.

“Over the past few quarters, the company has executed quite well generating positive EBITDA, which represents a standout performance amongst Canadian players,” Parikh said.

“Early success in the Canadian market coupled with above-peer financial delivery gives us confidence in the company’s ability to further ramp from here.”

Nonetheless, Parik maintains a “muted” outlook on the stock for the near future, citing industry headwinds, overweight analyst forecasts and recent negative press associated with vape products.

The stock is currently down nearly 40% from 3 months ago.

Why the long drop?

Health Canada, the government agency responsible for regulating cannabis in Canada, has been painfully slow in approving sales licenses for cannabis companies, including OGI’s.  

OriganiGram also pushed back the launch of its CBD derivative product line to December, versus October as previously planned. But that in and of itself probably had little to do with OGI’s stock plummet. OriganiGram most likely sank as the cannabis sector as a whole took a dive this summer.

What makes OGI different?

OrganiGram stands apart from its cannabis producing peers for a couple of reasons. While most Canadian cultivators are based out of Ontario, Quebec, or British Columbia, OrganiGram is rooted in Canada’s Atlantic region in the province of New Brunswick.

This matters because Canada’s eastern-most provinces have seen the highest adult-use rates for cannabis in the entire country, despite being a less populated region.

Simultaneously, OGI is among the select few Canadian cultivators who have been able to lock down supply agreements with all ten provinces in the country. This is puts OrganiGram in the major leagues with brands like Canopy Growth, Aphria, and CannTrust Holdings, who thus far have been the only other cannabis companies to secure supply agreements in all 10 provinces.

OrganiGram is well-positioned to dominate their high-use, less-saturated Atlantic market, while still remaining competitive in other major provinces.

OGI also has a strong reputation for production efficiency. The company projects 113,000 kilos of peak annual output (which equates to more than 230 grams per square foot), based on the growing space at its Moncton campus.

Comparatively, Organigram’s peers are likely producing between 75-to-125 grams per square foot, which is essentially half of what OrganiGram is producing. Some investors credit the company’s specialized three-tiered growing system for its optimum efficiency.

Strong brand recognition is also fueling to the OrganiGram fire. They already have a solid reputation for the exceptional quality of their dried flower products, with nine nominations from the Canadian Cannabis Awards, including top sativa, top indica, and marijuana product of the year. 

Also, collaborations with 1812 Hemp and Eviana have set up OrganiGram to capitalize on the high-value industrial hemp space, which has been looking promising following this year’s U.S. farm bill legalizing industrial hemp production.

 


OrganiGram Holdings Inc. (OGI) was trading at $5.02 per share on Friday morning, up $0.25 (+5.24%). Year-to-date, OGI has declined %, versus a 12.23% rise in the benchmark S&P 500 index during the same period.


This article is brought to you courtesy of ETFDailyNews.com.


About the Author: Eric Bowler

eric-bowlerEric Bowler is an accomplished journalist providing in-depth insights for more than two decades. Over the past several years his focus has been on the marijuana industry, with a special interest in cannabis growth stocks. His daily coverage of the industry keeps him on top of the key trends with the goal of helping investors make well-informed decisions.


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