- Net revenue of $18.0 million compared to $24.8 million in Q3
2019
- Generated positive cash flow from operations of $8.5 million
as a result of monetization and optimization of working capital and
ended the quarter with cash and short-term investments of $44.8
million
- Subsequent to quarter-end, raised $17.9 million in gross
proceeds to complete the at-the-market (“ATM”) equity program and
drew remaining $30 million on its existing term loan with only
modest remaining expansion capex of $4 million as at quarter-end
based on current plans
- Launched Organigram’s first value offering of dried flower
in a large size format of 28g into the fast-growing value segment
of the adult-use recreational market
- Secured the Company’s largest international deal to date in
June 2020 to supply one of Israel’s largest and most established
medical cannabis producers, Canndoc Ltd., with up to 6,000kg of
dried flower in a multi-year agreement
- Reduced the Company’s workforce by ~25% or ~220 employees in
June 2020 in order to better align with the needs of the business
and prevailing market conditions
Organigram Holdings Inc. (NASDAQ: OGI) (TSX: OGI), the parent
company of Organigram Inc. (together, the “Company” or
“Organigram”), a leading licensed producer of cannabis, is pleased
to announce its results for the third quarter ended May 31, 2020
(“Q3” or “Q3 2020”).
(in 000s) unless otherwise indicated
Q3 2020
Q3 2019
% Change
Select Key Financial Metrics
Gross revenue
22,241
30,361
-27%
Excise taxes
(4,220)
(5,611)
-25%
Net revenue
18,021
24,750
-27%
Cost of sales
44,375
12,473
256%
Gross margin before fair value changes to
bio assets & inventories sold
(26,354)
12,277
-315%
Fair value changes to biological assets
& inventories sold
(23,862)
(12,456)
92%
Gross margin
(50,216)
(179)
nm*
Sales & marketing and general &
administrative expenses (“SG&A”)1
10,258
9,063
13%
Net loss
(89,871)
(10,180)
783%
Adjusted EBITDA2
(24,739)
7,712
-421%
Net cash provided by operating
activities
8,540
3,006
184%
1Excluding share-based compensation and
impairment on property, plant and equipment
2Adjusted EBITDA is a non-IFRS financial
measure not defined by and does not have any standardized meaning
under IFRS; please refer to the Company’s Q3 2020 MD&A for
definitions and a reconciliation to IFRS.
* not meaningful
Select Balance Sheet Metrics (in
000s)
31-May-20
31-Aug-19
% Change
Cash & Short-Term Investments
44,777
47,935
-7%
Biological Assets & Inventories
100,634
113,796
-12%
Other Current Assets
17,226
34,550
-50%
A/P and Other Current Liabilities
31,563
43,864
-28%
Working Capital
131,074
152,417
-14%
Property, Plant & Equipment
249,719
218,470
14%
Long-Term Debt
78,884
46,067
71%
Total Assets
433,677
428,525
1%
Total Liabilities
113,519
101,519
12%
Shareholders’ Equity
320,158
327,006
-2%
“Since the onset of the global pandemic, the priority for us has
been protecting the health and safety of our employees,” said Greg
Engel, CEO. “This prioritization led to a significantly reduced
workforce which contributed to a number of product launch delays,
including our initial large format value offering, which affected
opportunities to potentially capture significant market share and
sales in dried flower, the largest product segment of the
recreational market. Since then, we have launched a number of new
products and line extensions with more to come. Furthermore, we
believe we have right-sized our workforce and even before doing so,
we were able to generate positive cash flow from operations in Q3
2020 as we continue to remain focused on building a business that
delivers attractive return on investment for shareholders.”
Key Financial Results for the Third Quarter Fiscal
2020
- Net Revenue:
- Q3 2020 net revenue of $18.0 million compared to $24.8 million
in Q3 2019 primarily due to:
- Lower flower sales volumes and a lower average net selling
price driven by increased competition and as the large format dried
flower value segment of the recreational market grew in Q3 2020
while there was a delay launching Organigram’s large format value
product due in part to a reduced workforce from COVID-19 and
earlier delays in packaging material and equipment; and
- Ongoing evolving consumer preferences, for which a net
provision for sales returns and price adjustments on slow-moving
aged product of $3.0 million was recognised during Q3 2020.
- Cost of Sales:
- Q3 2020 cost of sales of $44.4 million compared to Q3 2019 cost
of sales of $12.5 million.
- Higher cost of sales in Q3 2020 was primarily due to:
- Write-offs of excess and unsaleable inventories of $19.3
million, of which $11.9 million related to excess trim and
concentrate;
- $2.7 million in inventory write-downs to net realizable value
to reflect declining prices; and
- $7.9 million in charges related to a reduced workforce due to
COVID-19 comprised of $5.0 million in plant culling, $2.0 million
in unabsorbed fixed overhead as a result of lower production
volumes, and $0.9 million mostly related to lump-sum payments paid
to temporarily laid-off workers.
- Gross Margin before fair value changes to biological assets and
inventories sold:
- Q3 2020 negative gross margin before fair value changes to
biological assets and inventories of $26.4 million compared to
positive $12.3 million in Q3 2019.
- Negative and lower gross margin in Q3 2020 was largely due to
lower net revenue and higher cost of sales as described above.
- Gross Margin:
- Q3 2020 negative gross margin of $50.2 million compared to Q3
2019 negative gross margin of $0.2 million, largely due to negative
Q3 2020 gross margin before fair value changes to biological assets
and inventories sold as described above as well as greater net
non-cash negative fair value changes to biological assets and
inventories sold of $23.9 million in Q3 2020 versus $12.5 million
in Q3 2019.
- SG&A expenses:
- Q3 2020 SG&A of $10.3 million were comparable to Q3 2019’s
amount of $9.1 million. The increase in costs from the Company’s
continued to scale operations for the ongoing launch of Rec 2.0
products was offset by the current quarter’s reduced spending
during COVID-19.
- Adjusted EBITDA1:
- Q3 2020 negative adjusted EBITDA of $24.7 million compared to
Q3 2019 adjusted EBITDA of $7.7 million.
- Q3 2020 negative adjusted EBITDA was largely impacted by lower
gross margin before fair value adjustments to biological assets and
inventories sold in Q3 2020 as described above.
- Net Loss:
- Q3 2020 net loss of $89.9 million, or $(0.51) per share on a
diluted basis, compared to Q3 2019 net loss of $10.2 million, or
$(0.07) per share, largely due to greater negative gross margin in
Q3 2020 as described above as well as $37.7 million in impairment
charges for property, plant and equipment in Q3 2020 ($0 in Q3
2019).
Canadian Adult-Use Recreational Market – Rec 1.0
Value in Large Format Offering
- The Company has noted the significant growth in the large
format dried flower value segment of the market with intensifying
competition including recent entries of lower priced offerings,
which have caused significant market share shifts within the dried
flower segment. Particularly since the onset of the pandemic, value
priced product in larger format sizes have become an increasing
focus of consumers.
- During the quarter, the Company responded with the introduction
of Trailer Park Buds (“TPB”), its first value offering of dried
flower in a large size format of 28g. The Company is not limited to
competing on price alone as it believes its product is
differentiated from much of the competition since it is
indoor-grown, dried whole flower and strain specific. The product
was well-received and sold out quickly in many of the early entry
provinces. The Company’s efforts to capitalize on opportunities to
capture more market share and sales during Q3 2020 were affected by
the pandemic as the launch of TPB was delayed due in part to a
reduced workforce from COVID-19 until later in the quarter (the
last week of April 2020).
- The Company announced in early Q4 Fiscal 2020 that it is
proactively making some changes to the TPB brand and logo after
reviewing perception around the brand with Health Canada. In the
immediate term, Organigram has moved to a modified version of the
logo, “Buds”. As such, there was some disruption to supply in the
first month of Q4 Fiscal 2020. Longer term, the Company is
exploring options for a permanent revised brand name for its large
format value brand.
- In Q3 Fiscal 2020, the Company had listings of TPB in Alberta,
Manitoba, Saskatchewan, New Brunswick and Nova Scotia and launched
in Ontario in mid-July. For Quebec, the Company expects to offer
dried flower in large format size of 28g under its Trailblazer
value brand in Q1 Fiscal 2021.
Further Value Segment Offerings
- Organigram’s value segment strategy also includes dried flower
offerings launched in larger format sizes of 7g and 15g under our
Trailblazer brand in mid-July 2020.
- The Company’s Trailblazer value brand offers higher THC levels
versus what was offered when originally launched near the start of
adult-use cannabis legalization, at a competitive price point such
that the Company believes it has the ability to compete in the
growing large format value segment of the market.
New Strain and Line Extension Launches
- The Company expects to start shipping new core strains with
higher potency THC during Q4 Fiscal 2020 and began rolling out
further line extensions, including new size formats and three-pack
pre-rolls of its most popular strains, such as Limelight and Blue
Velvet, in June 2020.
Canadian Adult-Use Recreational Market – Rec 2.0
Vape Portfolio
- Organigram shipped the first of its Rec 2.0 products on or
about December 17, 2019 including Trailblazer Spark, Flicker and
Glow 510-thread Torch vape cartridges followed by its first
shipment of Edison + Feather ready-to-go distillate pens on or
about February 20, 2020. Powered by Feather technology, Edison vape
pens are ready-to-use inhalation-activated pens that are designed
to offer adult consumers a simple and intuitive user
experience.
- During Q3, the Company launched Edison + PAX ERA® distillate
cartridges, its premium line of vape products, in April 2020.
Cannabis-Infused Chocolates
- The Company also began shipping the first of its premium
cannabis-infused chocolates, Edison Bytes, which are truffles in
both milk and dark chocolate formulations on or about February 20,
2020. The chocolates are available to Canadian adult consumers as
single chocolates containing 10 mg of THC each and as a set of two
truffles containing 5 mg THC each.
- In addition to its Edison Bytes cannabis-infused chocolates,
the Company expects to launch a cannabis-infused chocolate bar into
the value segment of the adult-recreational edibles market under
the Trailblazer brand in Q4 Fiscal 2020. The chocolate bar will be
available in two flavours, mocha and mint chocolate with 10 mg of
THC in every 42 g bar.
Powdered Beverage Launch
- As previously announced, Organigram’s researchers have
developed a proprietary nano-emulsification technology that is
anticipated to provide an initial absorption of the cannabinoids
within 10 to 15 minutes. The team of researchers transformed this
emulsification into a solid form, turning it into a dissolvable
powder which can be added to a liquid of a consumer’s choice.
- The Company expects to launch the powdered beverage product in
Q1 Fiscal 2021.
Phase 4 Expansion
- As previously estimated and disclosed, the entire Phase 4
expansion of the Moncton Campus facility represented a total of
77,000 kg per year of additional annual target production capacity
and was divided into a series of stages (4A: 25,000 kg; 4B: 28,000
kg; and 4C: 24,000 kg). As the Company adjusts its production
methods to produce higher THC levels in the cannabis plants, the
yield per plant is reduced by approximately 20%. As a consequence,
the revised annual target production capacity for Phase 4 is now
estimated at 42,000 kg per year (4A: 20,000 kg; 4B: 22,000 kg;). As
disclosed with Q2 Fiscal 2020 results, the Company has completed
construction of Phases 4A and 4B and received licensing approval
from Health Canada for total licensed cultivation capacity of
89,000 kg per year (now estimated at 70,000 kg per year).
- During Q3 2020, the Company decided to indefinitely defer final
completion of Phase 4C (the final stage in Phase 4 expansion) as
originally designed due to less than anticipated demand (which the
Company believes is largely due to a lack of an adequate retail
network) and to more effectively manage and prioritize cash flow as
well as potentially use the space for other opportunities (if
strategic and/or market factors dictate).
- Phase 4C has effectively been partially completed and without
any foreseeable near-term use for this Phase, the Company
recognized an impairment charge of $37.7 million in relation to
this asset in Q3 Fiscal 2020.
- The estimated capital cost to complete the entire Phase 4, such
that 4C can be occupied, was approximately $1 million as of
quarter-end.
Phase 5 Under Refurbishment
- Phase 5, once fully operational, is expected to add significant
functionality to the Moncton Campus including additional
post-harvesting rooms (including drying rooms), additional
extraction capacity, and a dedicated derivatives and edibles
facility.
- During Q3 2020, the Company received Health Canada’s licensing
approval for the remainder of Phase 5. The license amendment
includes the approval of a two-floor production facility designed
to support all processing activity as well as dedicated spaces for
packaging of flower, pre-rolls, vape pens and powdered beverages.
The amendment to the License also allows for new purpose-built
harvest and drying rooms and support areas for quality assurance,
maintenance and sanitation.
- The estimated capital cost to complete Phase 5 was
approximately $3 million as at quarter-end, largely related to the
installation of certain equipment in the edibles and extraction
areas.
Workforce Update
- On April 7, 2020, Organigram announced the temporary layoff of
approximately 45 per cent of its workforce or approximately 400
employees primarily to help boost COVID-19 containment efforts. The
Company had offered voluntary layoffs to certain staff and those
that accepted made up the majority of the layoffs. In some cases,
due to the impacts of COVID-19, some administrative, support and
other functions were deemed non-essential to the short-term needs
of the business. The temporary layoffs were initiated on March 24,
2020.
- Effective May 13, 2020 as the province of New Brunswick began
to lift some of the restrictions related to COVID-19, the Company
began to implement a staggered return-to-work plan.
- On July 3, 2020, in relation to the worldwide COVID-19 pandemic
and the continuing evolution of the Canadian cannabis industry, the
Company provided a corporate update on its recent operational
changes to better align its production capacity to prevailing
market conditions, as a result the Company announced it had reduced
its workforce by about 25% or approximately 220 employees.
Outlook
- The cannabis industry in Canada remains highly competitive and
oversupplied amongst both licensed producers and the still dominant
illicit market. The Company believes it has right-sized the
business to better match the current demand and competitive
dynamics, but retains significant flexibility to increase
production as the necessary Company infrastructure is already in
place to do so.
- With the aforementioned launches in Q3 and Q4 2020, the Company
believes it is well-positioned to capture incremental market share
and sales over time. Since most of the Q4 launches did not occur
until mid-quarter or later and there was some supply disruption in
its value in large format offering for about a month in Q4, the
Company expects it will take until Q1 Fiscal 2021 before there is
the potential for any meaningful incremental sales from the
adult-use recreational market.
- To date in Q4 Fiscal 2020, the Company has also recorded
wholesale revenue and expects to start shipping to Canndoc Ltd. in
Q4 Fiscal 2020, subject to the receipt of an export license and
placement of any required insurance coverage.
- The Company expects an improvement to gross margins before fair
value changes to biological assets and inventories sold in Q4 2020
due to fewer inventory write-offs and provisions as compared to Q3
2020. A negative non-cash adjustment to cost of sales for
unabsorbed fixed overhead costs are anticipated to persist as
Organigram intends to cultivate at less than the target cultivation
capacity for the foreseeable future. Further, as indicated in
previous quarters, the Company expects some production
inefficiencies to persist in the near term and impact gross margin
while it continues to launch new Rec 2.0 products and optimize
production.
Liquidity and Capital Resources
- Organigram generated $8.5 million in cash from continuing
operations and ended the quarter with $44.8 million in cash and
short-term investments.
- The Company only has modest remaining expansion capital
expenditures of approximately $4 million to complete its plans for
Phase 4 and 5 of the Moncton Campus Facility.
- During the quarter, the Company successfully completed an
Amendment to the Credit Facility Agreement with BMO and the
syndicate of lenders and subsequently drew the remaining $30
million on the term loan in June 2020.
- Organigram has completed its ATM equity program, first
announced in April 2020. During Q3 2020, the Company issued
approximately 14.0 million common shares for gross proceeds of
$31.1 million at a weighted average price of $2.21 per common share
and net proceeds of $29.8 million after agents’ commissions and
other fees. Subsequent to quarter-end, the Company issued
approximately 7.0 million common shares for gross proceeds of $17.9
million at a weighted average price of $2.54 per common share.
- As at July 17, 2020, excluding the $8.0 million of restricted
investment (GIC) the Company had $78.2 million in cash and
short-term investments.
Capital Structure
(in 000s)
MAY 31, 2020
AUGUST 31, 2019
Current and long-term debt
$ 85,438
$ 49,576
Shareholders’ equity
320,706
327,006
Total debt and shareholders’ equity
$ 406,144
$ 376,582
Outstanding common shares
187,203
156,196
Outstanding common shares
187,203
156,196
Options
9,612
8,833
Restricted share units
930
842
Performance share units
132
-
Total fully-diluted shares
197,877
165,872
Outstanding basic and fully diluted share count as at July 17,
2020 is as follows:
(in 000s)
JULY 17, 2020
Outstanding common shares
194,507
Options
9,098
Restricted share units
898
Performance share units
132
Total fully diluted shares
204,635
Third Quarter Fiscal 2020 Conference Call
The Company will host a conference call to discuss its results
with details as follows:
Date: July 21, 2020 Time: 8:00 a.m. Eastern
Standard Time Toll Free (North America) Dial-In Number:
(833) 502-0460 International Dial-In Number: +1 7785602593 *
All participants will be required to enter Conference ID: 7882447
to gain access to the call. Webcast:
https://event.on24.com/wcc/r/2393332/93DADEF857E6C6908A4A4849C8FB44D8
A replay of the webcast will be available within 24 hours after
the conclusion of the call at https://www.organigram.ca/investors
and will be archived for a period of 90 days following the
call.
Non-IFRS Financial Measures
This news release refers to certain financial performance
measures (including, target production capacity, and adjusted
EBITDA) that are not defined by and do not have a standardized
meaning under International Financial Reporting Standards (“IFRS”)
as issued by the International Accounting Standards Board. These
non-IFRS financial performance measures are defined below. Non-IFRS
financial measures are used by management to assess the financial
and operational performance of the Company. The Company believes
that these non-IFRS financial measures, in addition to conventional
measures prepared in accordance with IFRS, enable investors to
evaluate the Company’s operating results, underlying performance
and prospects in a similar manner to the Company’s management. As
there are no standardized methods of calculating these non-IFRS
measures, the Company’s approaches may differ from those used by
others, and accordingly, the use of these measures may not be
directly comparable. Accordingly, these non-IFRS measures are
intended to provide additional information and should not be
considered in isolation or as a substitute for measures of
performance prepared in accordance with IFRS. Please refer to the
Company’s Q3 2020 MD&A for definitions and, in the case of
adjusted EBITDA, a reconciliation to IFRS amounts.
About Organigram Holdings Inc.
Organigram Holdings Inc. is a NASDAQ Global Select Market and a
Toronto Stock Exchange (“TSX”) listed company whose wholly owned
subsidiary, Organigram Inc., is a licensed producer of cannabis and
cannabis-derived products in Canada.
Organigram is focused on producing high-quality, indoor-grown
cannabis for patients and adult recreational consumers in Canada,
as well as developing international business partnerships to extend
the Company's global footprint. Organigram has also developed a
portfolio of adult use recreational cannabis brands including The
Edison Cannabis Company, Ankr Organics and Trailblazer Organigram's
primary facility is located in Moncton, New Brunswick and the
Company is regulated by Health Canada under the Cannabis Act
(Canada) and the Cannabis Regulations (Canada).
This news release contains forward-looking information.
Forward-looking information, in general, can be identified by the
use of forward-looking terminology such as “outlook”, “objective”,
“may”, “will”, “could”, “would”, “might”, “expect”, “intend”,
“estimate”, “anticipate”, “believe”, “plan”, “continue”, “budget”,
“schedule” or “forecast” or similar expressions suggesting future
outcomes or events. They include, but are not limited to,
statements with respect to expectations, projections or other
characterizations of future events or circumstances, and the
Company’s objectives, goals, strategies, beliefs, intentions,
plans, estimates, forecasts, projections and outlook, including
statements relating to the Company’s future performance, the
Company’s positioning to capture additional market share and sales,
expected improvement to gross margins before fair value changes to
biological assets and inventories, the Company’s plans and
objectives including around its credit facility, availability and
sources of any future financing; expectations regarding the impact
of COVID-19, expectations around layoffs; expectations around
market and consumer demand and other patterns related to existing,
new and planned product forms; plans for further construction or
expenditures at the Moncton Campus, estimates of costs for
completion of those Phases and uses of spaces therein; timing for
launch of new product forms, ability of those new product forms to
capture sales and market share, estimates around incremental sales
and more generally estimates or predictions of actions of
customers, suppliers, partners, distributors, competitors or
regulatory authorities; statements regarding the future market of
the Canadian cannabis market and, statements regarding the
Company’s future economic performance. These statements are not
historical facts but instead represent management beliefs regarding
future events, many of which, by their nature are inherently
uncertain and beyond management control. Forward-looking
information has been based on the Company’s current expectations
about future events.
Forward-looking information involves known and unknown risks,
uncertainties and other factors that may cause actual events to
differ materially from current expectations. Important factors -
including the heightened uncertainty as a result of COVID-19
including any continued impact on production or operations, impact
on demand for products, effect on third party suppliers, service
providers or lenders; general economic factors; receipt of
regulatory approvals or consents and any conditions imposed upon
same and the timing thereof, ability to meet regulatory criteria
which may be subject to change, change in regulation including
restrictions on sale of new product forms, timing to receive any
required testing results and certifications, results of final
testing of new products, timing of new retail store openings being
inconsistent with preliminary expectations, changes in governmental
plans including related to methods of distribution and timing and
launch of retail stores, timing and nature of sales and product
returns, customer buying patterns and consumer preferences not
being as predicted given this is a new and emerging market,
material weaknesses identified in the Company’s internal controls
over financial reporting, the completion of regulatory processes
and registrations including for new products and forms, market
demand and acceptance of new products and forms, unforeseen
construction or delivery delays including of equipment, increases
to expected costs, competitive and industry conditions, customer
buying patterns and crop yields - that could cause actual results
to differ materially from the Company's expectations are disclosed
in the Company's documents filed from time to time under the
Company’s issuer profile on the Canadian Securities Administrators’
System for Electronic Document Analysis and Retrieval (“SEDAR”) at
www.sedar.com and reports and other information filed with or
furnished to the United States Securities and Exchange Commission
(“SEC”) and available on the SEC’s Electronic Document Gathering
and Retrieval System (“EDGAR”) at www.sec.gov including the
Company’s most recent MD&A and AIF available from time to time.
Readers are cautioned not to place undue reliance on these
forward-looking statements, which speak only as of the date of this
news release. The Company disclaims any intention or obligation,
except to the extent required by law, to update or revise any
forward-looking statements, whether as a result of new information,
future events or otherwise.
1 Adjusted EBITDA is a non-IFRS financial measure not defined by
and does not have any standardized meaning under IFRS; please refer
to the Company’s Q3 2020 MD&A for definitions and a
reconciliation to IFRS.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20200721005342/en/
For Investor Relations enquiries, please contact:
Amy Schwalm Vice-President, Investor Relations
amy.schwalm@organigram.ca 416-704-9057
For Media enquiries, please contact:
Marlo Taylor Gage Communications
mtaylor@gagecommunications.ca
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