Part of Organigram's chocolate production line. Image: Inda Intiar/Huddle
Organigram Holdings, the parent company of licensed cannabis producer Organigram Inc., posted $19.3-million in net revenue in Q1 2021, a 23 percent year-on-year drop. It’s also a drop from Q4 2020, when it generated $20.4-million in net revenue. Nonetheless, they plan to hire up to 130 people to meet the growing demand for products.
Much of the first-quarter revenue came from its recreational products, which generated a 30 percent year-on-year increase in revenue to $16.8-million ($25.3-million), though the overall cost of sales went up 47 percent to nearly $23.2-million. These products also generated 11 percent more net revenue this quarter, compared to the last.
“We’re pleased with meaningful growth in our adult-rec sales sequentially from last quarter, strong evidence that our new products as part of our portfolio revitalization are resonating well with consumers,” said CEO Greg Engel in an earnings call on Tuesday.
With $300,000 of operational cash flow generated, this marks the second quarter of the last three that the company generated positive cash flow. It ended the quarter on November 30, 2020, with $134-million in cash and short-term investments. The company also set out to raise $60.1-million in November through a secondary financing deal to pay down debt, working capital and “other corporate purposes.”
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The company had a tough second quarter last year. After seeing its year-on-year net revenue more than double in the first quarter of 2020, it fell by more than 7 percent in Q2. In July, it laid off 25 percent of its team – 220 employees – including some who were not already on a temporary layoff. That left 609 employees company-wide, including some on temporary layoff that could be recalled, and around 433 employees working out of its facility in Moncton.
But Engel said it’s since been “extremely active” in introducing new products and improving existing ones, launching 53 different units of products, with up to 14 more set to launch before the end of February.
That reinvigoration of its Edison brand, in particular, has led the company to increase cultivation staff.
“We started to ramp up cultivation staffing so we can meet the overall increase in the industry and for many of our new products,” Engel said.
Even as alternative products begin to gain traction, Organigram sees dried flowers and pre-rolls as the two largest categories in the Canadian recreational cannabis market and U.S. states where cannabis is legal. Dried flowers make up the largest proportion of its revenue, Engel said, with the value segment growing in the last two quarters.
Engel said the company’s use of “street names” of cannabis strains has proven to be a success in attracting people from the illicit market to the legal side. “That’s been very, very helpful for them to identify the products and certainly something that’s been a positive move,” he said.
Organigram has focused its product launches on dried flowers with higher THC content, and in larger sizes, based on consumer demand during the pandemic. A bigger portion of its portfolio will focus on those larger products, including multi-pack pre-rolls.
“We expect to launch at least three more high THC strains under the Edison brand over the next few quarters as a result of our continuous investment in new genetics,” Engel said. “We believe our value products are differentiated and do not have to compete on price alone.”
One of those products is SHRED, its pre-shredded high-potency flower, which has “exceeded our expectations and continues to sell out,” Engel said. It’s also one of the reasons the company is boosting cultivation and staffing.
“We’re encouraged by the consumer response to date for many of our new products. However, we understand the frustration consumers have when they can’t get what they want because of inventory stocking,” he added. “We’ve already begun to ramp up staffing with plans to hire 100 staff, mostly in cultivation. With up to another 30 staff in packaging by early in our third quarter.”
Aside from those so-called Rec 1.0 products from the first phase of legalization in Canada, Organigram also continues to invest in Rec 2.0 products, including edibles, vape pens, and dissolvable cannabis powder for drinking, which is now available in eight provinces.
The cannabis beverage market represents a $467-million opportunity in Canada, while it’s also gaining popularity in the U.S. Though based on Organigram’s own consumer survey, 74 percent of its customers prefer to add cannabis to their own drink rather than consuming a pre-mixed drink. It also continues to produce cannabis-infused chocolate.
Due to Covid-19, Organigram expects its Q2 2021 sales to be negatively impacted by lockdowns, as many stores in highly-populated areas like Toronto have been closed for in-store sales of cannabis, though other methods of delivery remain available. Disposable vape pens also generated lower revenue than expected during the pandemic.
“We understand that those are driven in some cases more by tourism, and travelers and areas like that. And those are also things that people take to share at events,” Engel said.
To offset this and costs related to increased production and hiring, Engel said the company has invested in a new automated pre-roll machine expected to be online at the end of the next quarter, which will “reduce dependence on manual labour.”
Pre-roll production had fallen in the two previous quarters because of the pandemic. But it’s been ramped up again, though Engel also notes these are lower-margin products.
Overall, the boost in production “should result in efficiencies for greater economies of scale,” he adds.
“We know we’ve missed out on significant sales opportunities and remain focused on improving supply chain processes and order fulfillment rates,” he said, adding some cost reduction moves could be taken to benefit the margin starting in Q4 2021.
For its international market, Organigram is seeking the Control Union Medical Cannabis Standard certification by Q3 so it can resume shipments to Canndoc, one of Israel’s largest medical cannabis producers. Organigram signed a multi-year deal to supply dried flowers to Canndoc in June 2020.
Organigram also appointed Marni Wieshofer, who was CFO and EVP of corporate development at lions Gate Entertainment Company, to its board. Wieshofer is the company’s first U.S.-based board member, bringing much merger and acquisition experience from the U.S. and globally.
Inda Intiar is a reporter with Huddle, an Acadia Broadcasting content partner.
