OrganiGram Holdings Inc: A Low-Priced Pot Stock with High Growth Potential

OGI stockThis Canadian Pot Stock Could Be Special

One of the appeals of investing in the cannabis industry is that there are plenty of solid companies trading at low share prices. While it’s certainly not a good idea to base investment decisions purely on nominal share price, the existence of penny pot stocks has helped budget-conscious investors gain some exposure to the fast-growing pot industry.

And if you’re looking for low-priced pot stocks right now, OrganiGram Holdings Inc (NASDAQ:OGI) should probably be on your short list.

Organigram is a Canadian licensed producer of cannabis and cannabis-derived products for the medical and recreational markets. The company’s primary facility, which is in Moncton, NB, uses a unique three-level cultivation technology to maximize its footprint. Meanwhile, its products are sold in all 10 of Canada’s provinces. (Source: “OrganiGram Investor Presentation,” OrganiGram Holdings Inc, last accessed February 2, 2021.)

And while the company is based north of the border, OrganiGram stock is listed on both the Toronto Stock Exchange and the Nasdaq—the ticker symbol is “OGI” on both. Therefore, it’s very convenient for Canadian and U.S. investors to buy and sell the company’s shares.

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On the Nasdaq, OGI stock currently trades around $1.80 apiece.

Keep in mind, the U.S. has an evolving regulatory environment when it comes to pot. Canada, on the other hand, already completed full legalization in October 2018. That is, pot is legal for both medical and recreational use in Canada. And the market has been booming.

I should point out that the Canadian pot industry is highly regulated. In the early days of nationwide pot legalization, regulators faced criticism due to the slow rollout of legal retail stores. More recently, though, the number of brick-and-mortar pot retailers has increased, which could provide some tailwind for the Canadian cannabis industry.

The number of legal cannabis retail stores in the 10 Canadian provinces has grown by about 47% since July 2020. Notably, in Ontario—Canada’s most populous province—the number of stores has more than tripled during this period.

And that growth will likely continue. In September 2020, Ontario’s regulator doubled the number of marijuana retail authorizations from 20 to 40 per month, and in December, it doubled the number again to 80 per month. (Source: Ibid.)

And even though OrganiGram stock is a low-priced pot stock, the company’s products have a substantial following in the cannabis community.

For instance, OrganiGram Holdings Inc’s value brand “SHRED” was the No. 1 most searched brand on the Ontario Cannabis Store web site in November and December 2020. Meanwhile, the company’s higher-margin brand “Edison” was among the most searched brands on the web site in November 2020.

OrganiGram recently reported its earnings. The report showed that, in the first quarter of the company’s fiscal year 2021, which ended November 30, 2020, its Canadian recreational pot gross revenue totaled $22.5 million, representing a 42% increase year-over-year and a 14% increase sequentially. (Source: “Organigram Reports First Quarter Fiscal 2021 Results,” OrganiGram Holdings Inc, January 12, 2021.)

The company’s net revenue from the Canadian recreational weed market was $16.8 million, which was up 11% sequentially and up 30% from a year earlier.

OrganiGram generated $300,000 in cash flow from operations in the first fiscal quarter. Note that the company was cash-flow-positive in two of the past three quarters.

At the end of November 2020, OrganiGram Holdings Inc had $134.0 million in cash and short-term investments. Since that fiscal quarter-end, the company has made a $55.0-million repayment on its term loan, so its pro forma cash and short-term investments were $79.0 million, and it had $60.0 million owing on the term loan.

“We are pleased with our double-digit sales growth in the Canadian adult-use recreational market this past quarter as it reflects the success of many of our new product launches, particularly in the dried flower value segment,” said OrganiGram’s chief executive officer, Greg Engel, in a note to investors in January. (Source: Ibid.)

“Now we look forward to our new higher margin Edison dried flower offerings contributing substantially to overall revenue with even more new products to come in the next few quarters.”

OrganiGram Holdings Inc (NASDAQ:OGI) Stock Chart

Chart courtesy of StockCharts.com

Analyst Take

Pot stocks have received a lot more investor attention after the U.S. presidential election in November 2020. While OrganiGram Holdings Inc is a Canadian company, its shares have also enjoyed a post-election rally. As you can see in the above Organigram stock chart, its share-price rally was accompanied by substantially higher trading volume than before.

That said, the OGI stock chart also shows how volatile pot stocks can be. Even though the outlook is bright for the marijuana industry, Organigram stock has made some big swings to either side—even during an uptrend.

Bottom line: OrganiGram has strong potential, but investors should be prepared to handle some volatility before getting a piece of the action.