Canadian cannabis producer Organigram Holdings (NASDAQ:OGI,TSXV:OGI) improved its 2020 outlook in its Q4 2019 and fiscal year-end financial results released on Monday (November 25).

The New Brunswick-based cannabis company told investors it projects an increase in net revenue for Q1 2020 based on higher provincial sales and wholesale revenue.


This follows a warning that came earlier this month in a corporate update that said the firm did not think it was “prudent” to provide guidance in the face of the volatility seen in the industry.

 

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“The past year has not been without its temporary challenges, but importantly we believe we have the capital and cost structure to withstand short term headwinds,” said Greg Engel, CEO of Organigram, in a call with investors.

Year-over-year net revenue generation grew 547 percent to C$80.4 million from the C$12.4 million reported last year. Net losses from Q4 2019 were at C$22.5 million, or C$0.14 per share on a diluted basis, for the quarter and C$9.5 million for its fiscal 2019 year.

Engel added that Q4 reflected some of the challenges that came with a reduced retail sector, including lower-than-forecasted demand in the market and a lack of full efficiencies from scale.

The company also faced two product returns from the Ontario Cannabis Store (OCS) in Q4 of its tetrahydrocannabinol (THC) recreational oils and low-THC dried flower.

Engel said the return revealed the low demand for oil products. The executive blamed the OSC for the return of the dried flower, however, saying that Organigram’s offering was based on OSC’s estimates, which had indicated demand would be higher for cannabis with a lower strength.

All the returned flower will be used for extraction, Engel continued.

 

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The lack of retail space has also forced Organigram to delay the construction of a planned facility expansion.

This new operation was originally set to be completed by the end of 2019, but Organigram has halted construction of the final phase for its Moncton Campus expansions. “The Company has decided to delay final completion … until there is more clarity on the timing and magnitude of the retail network expansion,” the company said.

Despite the sector-wide obstacles, the firm estimates it has about 10 percent of the market share of Canada’s adult-use recreational cannabis space.

As it prepares for the launch of products from the second stage of legalization in Canada, Organigram confirmed it submitted product notification to Health Canada for its assortment of vape pens and chocolates in October, starting the federal regulator’s 60 day review period.

Cannabis-infused chocolate production took off in October with plans to reveal products to the public by the first quarter of the 2020 calendar year. Powdered beverages products are also set to become available in the following quarter.

Engel noted that sales of recreational cannabis have a high correlation to access for retail stores, which he crucially tied to the firm’s continued growth.

“We believe additional retail store openings in the next three to six months and a launch of Rec 2.0 products will position us for significant growth going forward,” he said.

He added the company was ready to take another step into the retail space in Ontario as new stores come online in the next two to three months and following the province’s promise of a more open retail space for private cannabis businesses.

Shares jumped 10.8 percent to C$3.79 early in the trading day and sit at C$3.33 as of 2:55 p.m. EST.

Don’t forget to follow us @INN_Cannabis for real-time news updates!

Securities Disclosure: I, Danielle Edwards, hold no direct investment interest in any company mentioned in this article.

 

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