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Organigram to report weaker Q3 sales: BMO

Jeff Lagerquist
Ray Gracewood, Organigram's senior vice-president of marketing and communications. (CBC)
Ray Gracewood, Organigram's senior vice-president of marketing and communications. (CBC)

Smaller-than-expected cannabis shipments to provincial distributors in April has prompted BMO Capital Markets to lower its sales forecast for Organigram Holdings Inc. (OGI)(OGI.V).

Analysts Tamy Chen and Peter Sklar are now calling for the Moncton, N.B.-based producer to sell $31 million of inventory to provincial distributors in the company’s fiscal third quarter, down from their previous estimate of $36 million.

“According to Health Canada, total LP (licensed producer) shipments to provincial distributors were 8,000 kilograms in April, down from 14,700 in March,” the pair wrote in a research note on Tuesday.

“Our prior FQ3/19 forecast had anticipated that the opening of retail stores in Ontario would have supported the March-level of sales volumes throughout the quarter.”

Canada’s most populous province rolled out private brick-and-mortar cannabis retail stores on April 1. Few were ready on day one, prompting industry observers to delay expectations for a major uptick in sales until more shops open for business.

“We have heard anecdotally that Ontario may have tempered product purchases in April to first sell the products purchased from LPs in March,” Chen and Sklar wrote.

Their slimmer sales expectations for Organigram is also the result of a delay in the company’s shipments to Quebec, which will not be reflected until the its fourth-quarter results.

Organigram is one of only four licensed producers with supply agreements for adult-use recreational cannabis in all 10 Canadian provinces.

Chen and Sklar praise Organigram’s low cost of production, suggesting the company is ramping up ahead of its peers and establishing a “first mover” advantage.

NASDAQ-listed shares jumped 7.93 per cent on Monday to $7.08 after the company announced the launch of a variety of dried powder-based beverage products in early 2020 in Canada.

“We know that predictability and reliability are important to adult consumers of cannabinoid-infused products,” chief executive officer Greg Engel wrote in a news release.

“We also believe that a powder additive will offer consumers a unique and differentiated offering, along with convenience and discretion. Allowing consumers to make their own choice as to which beverage they will infuse opens up a new consumption experience for Canadian cannabis consumers.”

Chen and Sklar maintain an “outperform” rating on Organigram shares, with a price target of $9.50.

NASDAQ-listed shares climbed 1.69 per cent to $7.20 in pre-market trading at 9 a.m. ET on Tuesday.

Organigram will report its fiscal third-quarter results before markets open on July 15.

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