OGRMF Stock: OrganiGram Shares Collapse Following Q2 But Still a Great Pick

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OGRMF Stock Q2 2019

One of my favorite picks isn’t looking so hot today: OrganiGram Holdings Inc (OTCMKTS:OGRMF, CVE:OGI) is down big following a disappointing Q2.

The company hit record sales in the quarter and, for the last six months, record yields per plant. The higher yields will likely increase efficiency and drive down costs, which could lead to even lower cost per gram the following quarter.

With all that positive news, how did the OGRMF stock Q2 2019 lead to such a big drop? In a word: losses.

After having a positive-revenue quarter, the company incurred losses of $4.8 million. (Source: “UPDATE: Cannabis company Organigram swings to loss in Q2 but revenue tops estimates,” MarketWatch, April 15, 2019.)

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Gross revenue rose to CA$33.5 million from CA$2.9 million a year ago, helped by strong sales numbers post-legalization. Gross revenue, in fact, outdid analyst expectations.

The company was also able to significantly reduce its cost of production from CA$1.48 a year ago to CA$0.85 this quarter due to, among other factors, higher plant yield.

Registered medical patients climbed to a record 13,000 by the end of the quarter.

“We are incredibly proud of what we have achieved in Q2 as we registered record sales and a profit for the quarter,” said CEO Greg Engel. (Source: “Organigram Announces Record Q2 Financial Results – Net Income of $1.1 Million,” OrganiGram Holdings Inc, April 24, 2019.)

Engel continued:

…we have also significantly bolstered our balance sheet and from an operational and sales and marketing perspective we are well positioned to take full advantage of not only the medical market but also the burgeoning adult recreational and international opportunities as well.

But it was the loss that cost OrganiGram about 10% in trading after the company released the report.

And there’s good reason for that.

With marijuana legalized, investors want to see profitable pot companies now. It’s harder to sell a company on potential when investors are hungry to see results and the market is no longer theoretical.

Still, it may be far too early to jump ship from OGRMF stock.

OGRMF Stock Prediction

While the 10-point dip is jarring, that hardly offsets the magnificent gains that OrganiGram stock investors have netted over the past three months.

Year to date, the stock has seen gains nearing 80%.

Chart courtesy of StockCharts.com

OGRMF stock saw a burst in value when it last released its quarterly report, which showed huge gains in revenue, leading to positive cash flow.

But the losses aren’t all that troublesome.

You see, these companies are still growing and are still going to need to spend a lot of capital in order to meet the demands of consumers.

While investors would like to see positive revenue each quarter from here on out, that’s unrealistic (and also not great for the company).

Remember that other companies like Uber Technologies, Inc. continue to see losses their bids to shore up market cap. Amazon.com, Inc. (NASDAQ:AMZN) showed losses year after year until it didn’t, and it is now among the largest and highest-valued companies in the world.

That is to say that spending a lot of money in order to gain a strong market position isn’t necessarily a bad thing.

Not to mention that OrganiGram stock is jam-packed with potential.

Among my favorite marijuana penny stocks, the company is the perfect size for an acquisition or to form a major partnership with another company.

On top of that, OrganiGram already has a bevy of strong supply agreements across Canada. It is also one of the few marijuana companies generally considered to be undervalued. As such, I see OGRMF stock having the potential to easily double in 2019.

Still, investors are hungry to see positive earnings reports and I understand that. With an open market, companies are now able to produce such numbers.

But for companies like OrganiGram, which are relatively small with market caps under or near $1.0 billion, focusing on growth isn’t a bad idea.

In fact, many other marijuana companies may also find themselves spending more than investors would like in order to secure a bigger market cap. And that, to me, is the winning ticket for long-term growth.

Gains Now vs. Future Market Cap

With the Canadian marijuana market now legal, there are far fewer excuses for marijuana companies to be losing money.

But to expect all these pot stocks to shift suddenly from growth-oriented plans to instead focus on immediate profits is myopic. That truly would be sacrificing the future global potential of marijuana to fight over what is, in Canada, a relatively small market.

By increasing efficiencies, shoring up their production capacity, and expanding to different markets, these companies will be positioning themselves for the multi-billion-dollar global marijuana market. That will cost money—a lot of it. Probably more than the Canadian market can supply.

But it would be foolish to sacrifice all that potential in order to satisfy impatient investors today.

My view of marijuana stocks is that these are long-term stocks—not short-term pumps-and-dumps. They have the potential to be the real first-movers in an industry that could rival alcohol in the coming years.

So while it would be better if pot stocks could expand rapidly and manage positive cash flow balance sheets, ultimately, if you’re an investor who wants to make 100%, 200%, or even 300% gains in the coming years, then spending now on growth is the proper strategy.

If, by contrast, you’re interested in gains now, buying and selling during the various up and downs of the market is another potentially highly lucrative way to play the marijuana market, if perhaps more nerve-wracking.

Analyst Take

OrganiGram stock is down big after a fall in its Q2. But the numbers weren’t really all that bad when you consider the company long-term. While we’d love to see positive cash flow, spending at a time of growth isn’t the worst thing in the world.

I expect to see OGRMF stock bounce back from this downturn.