Why OGRMF Stock Is Poised for a Takeover
While there are many marijuana stocks that are labeled as “overvalued” (some grossly so), few stocks are given the much-coveted designation of “undervalued.” OrganiGram Holdings Inc (OTCMKTS:OGRMF, CVE:OGI) is one of those few.
OGRMF stock is among the few pot stocks largely agreed upon to be trading below their deserved value, making it a prime target for a takeover.
You see, this undervalued status makes OrganiGram a perfect company for larger marijuana players to add to the fold.
Regardless of whether the company gets taken over, OGRMF stock is already a winner. The stock has recently seen significant gains, up 29% over the past month.
Chart courtesy of StockCharts.com
OrganiGram has a bevy of supply deals that will ensure that it’s supplying pot to eager consumers in Canada for years to come. Furthermore, the company is expanding its production capacity.
So, the fundamentals are all there for OrganiGram to succeed on its own, which is precisely why so many companies ought to consider it a well-timed acquisition target.
The OrganiGram takeover rumors have yet to begin in earnest, but I wouldn’t be surprised if more than a few companies have taken a look at this smaller marijuana penny stock with interest.
Remember that Aurora Cannabis Inc (NYSE:ACB) went on a bit of an acquisition tear in 2018, with the largest of those deals being the purchase of MedReleaf Corp.
While I’m not sure if Aurora is looking to be in that position again in 2019 (it recently acquired yet another smaller pot company), there are more than enough good suitors to buy OrganiGram.
Another major pull for companies is that, while OrganiGram has a number of supply deals, it has yet to strike a major partnership with Big Alcohol or Big Tobacco, something that many other pot companies of a similar size have done.
Consider Hexo Corp (OTCMKTS:HYYDF, TSE:HEXO) as a near-perfect foil for OrganiGram.
Both are marijuana penny stocks trading around $5.00, and both companies have valuations under $1.0 billion (although Hexo is around the $900.0-million mark and OrganiGram is near $620.0 million).
Both stocks are widely considered to be undervalued.
Aside from the significant difference in valuations, these two companies are in the same vein.
But while Hexo has nailed down some of the best supply deals in the legal marijuana business, and has scored a major Big Alcohol partnership, and is looking to list on the New York Stock Exchange (NYSE), OrganiGram falls short in each category.
That is both a blessing and a curse. It’s a blessing in that it leaves the door wide open for future deals to be made, which could boost the stock value. Another blessing is that it leaves OrganiGram with a lot of room to grow while maintaining a very reasonable valuation and price.
The drawbacks are that the company simply hasn’t grown apace with some of its competitors. That makes the OrganiGram takeover target question that much more relevant: Has the company peaked on its own? Is it time to join another firm?
Frankly, in both cases, I believe that OGRMF stock is due for gains.
Alongside OrganiGram’s strong fundamentals, the company’s financial numbers are all in order.
The most recent quarter saw revenue hit CA$3.2 million and adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) reach negative CA$1.7 million. (Source: “Organigram reports impressive growth for 2018 in advance of adult recreational sales results,” OrganiGram Holdings Inc, December 14, 2018.)
The results were below expectations, but there was still plenty of good to take away from this earnings report.
During the fiscal year, OrganiGram’s net sales increased by 131% to CA$12.4 million. In the same period, its registered patient list rose by 112% to 15,730.
On top of these strong numbers, the company’s low production costs really shined through. It produced at a rate of CA$0.62 per gram in the fourth quarter, which was down from CA$0.66 per gram in the previous quarter.
The company cited New Brunswick’s (the province it is based in) lower wages, energy bills, and occupancy costs as reasons that costs went down.
This is a huge competitive advantage for OrganiGram. The company’s ability to produce marijuana on a mass scale while undercutting competitors’ prices would make it a dangerous rival (and a valuable addition to any pot company’s business).
Again, all these factors make OrganiGram a very affordable and strong marijuana company, making a takeover a no-brainer for many companies.
Look at it this way: you can buy a ready-made company to help drive your costs down while also providing a huge boost to your supply capacity, all at an affordable price. What’s not to like?
Phase 4 Construction Production Capacity
Speaking of supply capacity, OrganiGram has begun work on its Phase 4 expansion plans, following the completion of its Phase 3 project.
Phase 3 saw the company increase its target dried flower equivalent production capacity from 22,000 kilograms per year to 36,000 kilograms per year.
“We are pleased to successfully complete our latest expansion project on time and on budget to meet the needs of the existing domestic and international medical market as well as the launch of the recreational adult-use market in Canada on October 17, 2018,” said CEO Greg Engel in July 2018. (Source: “OrganiGram Provides Expansion Update as Phase 4 Construction Begins,” OrganiGram Holdings Inc, July 23, 2018.)
The Phase 4 expansion project, which will be completed in 2019, will further increase the company’s already impressive supply capacity.
By April, OrganiGram plans to have a production capacity of 62,000 kilograms per year. By August, that number will swell to 89,000 kilograms per year. By October, the company plans to be producing 113,000 kilograms per year.
This expansion will cost approximately CA$70.0 million, with the company having sufficient cash on hand to fund all three stages of Phase 4.
OrganiGram even plans to remain cash-flow-positive through all of the construction—which would be a laudable achievement.
OGRMF Stock Forecast 2019
Whether or not OrganiGram is acquired by a larger company, its share price is very likely to see significant rises.
It is only a matter of time before the company signs a big partnership or nails down another major supply deal. Even a shift to the NYSE or Nasdaq would likely see a welcome boost to OGRMF stock.
There’s a ton of potential locked inside the undervalued OrganiGram stock. It’s likely to erupt at one point or another, with a decent chance to nearly double its value in 2019.
In case the company is acquired, expect to see its share price surge (as it did for MedReleaf when it was acquired), leaving investors with huge profits.
Nevertheless, OGRMF stock is in a prime spot to see huge gains.