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Organigram shares surge nearly 50% after strong quarter

Jeff Lagerquist
A one-day view of Toronto-listed Organigram shares on Jan. 15, 2020.
A one-day view of Toronto-listed Organigram shares on Jan. 15, 2020.

Shares of Organigram (OGI.TO)(OGI) rose nearly 50 per cent in Wednesday’s trading session on the heels of strong quarterly results, driven in large part by pot sales to other licenced producers.

Wholesale revenue was 37 per cent, or $9.2 million, of the $25.2 million in sales booked by Organigram in the three months ended Nov. 30 2019. That’s a more than 1,500 per cent increase compared to the roughly $535,000 reported in the previous quarter. Meanwhile, sales into the recreational market fell almost four per cent.

Chief executive officer Greg Engel said while Organigram has not historically been a major wholesaler, the decision to diversify the company’s revenue was based on strong demand among licenced producers for high-quality cannabis. But the question of whether Organigram can expect hefty wholesale revenue long-term is not one he can answer easily.

“It is dependent on the other companies and their needs,” Engel told Yahoo Finance Canada on Wednesday.

Speaking on a conference call with analysts after the closing bell on Tuesday, Engel warned wholesale orders “can have big variations on the revenue on a quarterly basis.” He declined to provide wholesale guidance beyond saying the company has booked wholesale purchases in the current quarter.

Wholesale cannabis is sold at a lower price than pot sold through medical and recreational channels. However, the company pays for less packaging and labour.

Organigram chief financial officer Paolo De Luca said 2.6 million grams were sold in wholesale transactions in the quarter, at an average selling price “in the high $3 range.”

The average net selling price per gram of dried flower equivalent declined $1.28 per gram to $4.57 in the first quarter.

Organigram’s fiscal first quarter financial results showed the company topped analyst estimates and returned to a positive adjusted EBITDA number figure.

The company has high expectations for its cannabis 2.0 portfolio. Its first vape pens were shipped to retailers in December. Cannabis infused chocolates are expected to be released in the current quarter, and a powdered cannabis beverage is set to be released in February.

“We've seen so far with the launch of 2.0 products very strong consumer response,” Engel told Yahoo Finance Canada. “We've seen lineups at the stores.”

He added that one province, which he declined to name, recently tripled an order for Organigram cannabis chocolates.

A number of analysts were pleased with the company’s first quarter results. Jefferies analyst Owen Bennett called it “a return to the Organigram of old.”

“Given the high bar they had set themselves, and two quarters of declining financials, this print should be a relief that headwinds were temporary and supports our confidence which sees OGI as one of our preferred picks in the cannabis industry,” he wrote in a note to clients.

CIBC analysts said the quarter was “surprisingly encouraging” given today’s difficult operating environment. However, they cautioned against expectations for sustained wholesale revenue of this magnitude.

“A meaningful portion of this came from robust wholesale revenues, which aren’t overly sustainable, but this still speaks to OGI’s ability to cultivate quality products at reasonable cost,” John Zamparo and Krishna Ruthnum wrote in a note to clients.

Both CIBC and Jefferies have a $5.00 price target on Organigram shares, and “buy” and “outperform” ratings, respectively.

Toronto-listed Organigram shares surged 45.91 per cent to $4.10 at 1:21 p.m. ET on Wednesday. New York-listed shares jumped 45.14 per cent.

Jeff Lagerquist is a senior reporter at Yahoo Finance Canada. Follow him on Twitter @jefflagerquist.

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