Should You Avoid Organigram Stock in 2021?
The global cannabis market has been growing rapidly over the last few years making it one of the most preferred industries for investors. The Canada-based company Organigram Holdings (NASDAQ: OGI) is a popular licensed producer of medical marijuana. This penny pot stock is trading below its price target – but should you avoid Organigram stock in 2021?
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Organigram’s Unsatisfactory Q4 Results
As you can see from the chart above, this penny pot stock has underperformed the market this year. The company reported its Q4 results on the 30th of November and while overall results were better compared to the last quarter, they were still unsatisfactory.
Net revenue came in at $15.7 million this quarter which is higher than the Q3 of 2020 figure of $13.9 million and $12.5 million for Q4 of 2019. The fact that it achieved this even as the average selling price per gram dropped this year is commendable. It also reported a positive EBITDA consecutively for the second time in a row.
However, despite higher revenue, the company could not generate profits. It recorded a net loss of $29.6 million. This is better than its Q3 2020, loss of $69.3 million but not-so-good if compared with the loss of $17.3 million of Q4 2019. It seems the company is struggling with losses and negative cash flows for which it is forced to resort to pick up additional funds from the market to meet its working capital requirement and expansion plans.
Organigram’s Focus on Growth
Despite financial losses, Organigram has been successfully revitalizing its portfolio. Since July it has introduced about 40 new SKU’s and expects 18 more by Q2 of fiscal 2021. Its products are growing in indoor greenhouses allowing OrganiGram to produce whole dried cannabis flower of unique stains at competitive prices, and this tends to resonate well with buyers.
The company’s class Rec 1.0 and 2.0 dried flower is still the largest category in the Canadian adult-use recreational market and OGI expects to continue to dominate in this sector. Its newly launched products SHRED and variants of Trailblazer were so hyped that dispensaries sold out in short order due to excess demand.
Currently, OGI is investing in new genetics and enhanced cultivation strategies for introducing new stains in the dried flower and pre-rolls category for capturing the US market. OrganiGram also made one of its largest international deals in Israel under a supply agreement with Canndoc, one of the leading medical cannabis producers of Israel. If the company continues satisfying its suppliers this way along with managing its costs properly, its books might also finally turn green.
Potential in the Adult Beverage Market for Organigram
Research estimates suggest the cannabis adult-use beverage market in Canada is valued at about $467 million and is expected to increase by 15 times in the coming 5 years. As per recent Headset data, about 46% of cannabis consumers enjoy cannabis-infused beverages multiple times a day. Cannabinoid-infused powders also have been historically popular and comprise 55% of the US beverage market.
Recently, Organigram had introduced an Edison RE:MIX dissolvable powder. The powder is said to have an improved absorption rate compared to traditional beverages allowing a more controlled experience for the consumer.
The nanoemulsion technology used in the product would increase its stability to temperature variations, salinity, PH levels, and give a better shelf life. Considering the growth potential of the market and the uniqueness of the product, it can make a significant difference to Organigram’s profitability.
Bottom Line: Should You Avoid Organigram Stock in 2021?
As of now, OGI’s shaky financials may not give you a solid reason to invest in this penny pot stock. However, the company does have some exciting products lined up which could spur growth for this cannabis stock. Wait until there is more data to back up the profitability of new cannabis products. If the numbers seem promising, you can consider investing in this penny pot stock.
Should You Avoid Organigram Stock in 2021?
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