- Launched 62 new stock-keeping units (SKUs) since July 2020
as part of the Company’s product portfolio revitalization; up to 31
more SKUs expected to launch by the end of Q3 2021
- SHRED was the #1 most-searched brand on the Ontario Cannabis
Store website for the last 5 consecutive months1 and Edison was
among the most-searched brands in November 2020, January and
February 2021
- On March 11, 2021, announced a product development
collaboration with BAT and a strategic investment of ~$221 million
from a BAT subsidiary for 19.9% equity interest in
Organigram
- On April 1, 2021, repaid all outstanding balances under the
credit facility agreement for annual interest savings of $2.7
million2 and has a current balance of $232 million in cash and
short-term investments
- On April 6, 2021, announced the acquisition of all the
issued and outstanding shares of The Edibles and Infusions
Corporation which positions the Company to earn near term revenue
and a growth platform from soft chews, the largest edible
category
Organigram Holdings Inc. (NASDAQ: OGI) (TSX: OGI), the parent
company of Organigram Inc. (together, the “Company” or
“Organigram”), a leading licensed producer of cannabis, announced
its results for the second quarter ended February 28, 2021 (“Q2
2021”).
“Although Q2 2021 results were challenged by industry dynamics,
COVID-19 and staffing limitations at our facility, we believe there
are excellent prospects ahead for the industry, Organigram and our
shareholders,” said Greg Engel, Chief Executive Officer of
Organigram. “Nearer term, we are currently tracking to generate
higher revenue in Q3 2021 as our new product portfolio continues to
gain traction and we become better staffed to fulfill demand. Our
recent acquisition of The Edibles and Infusions Corporation
positions us to generate revenue from the largest single category
of edibles, soft chews or gummies. We also see the potential for
meaningful gross margin improvement over time as we revitalize our
dried flower portfolio with new Edison and Indi strains and execute
on a number of opportunities including the refinement of our
cultivation, post harvesting and packaging processes. Longer term,
we are extremely excited about developing innovative and appealing
products to consumers in collaboration with BAT. All of this is
made possible and supported by strong liquidity and a balance sheet
that is largely debt-free.”
Select Key Financial Metrics (in $000s)
unless otherwise indicated
Q2 2021
Q2 2020
% Change
Gross revenue
19,292
27,309
-29%
Excise taxes
(4,649)
(4,088)
14%
Net revenue
14,643
23,221
-37%
Cost of sales
31,146
15,811
97%
Gross margin before fair value changes to
biological assets, inventories sold, and other charges
(16,503)
7,410
-323%
Fair value changes to biological assets,
inventories sold, and other charges
(692)
3,878
-118%
Gross margin
(17,195)
11,288
-252%
Adjusted gross margin*
(680)
8,449
-108%
Adjusted gross margin %*
-5%
36%
-41%
SG&A**
11,131
14,018
-21%
Adjusted EBITDA*
(8,642)
(59)
nm
Net loss
(66,389)
(6,833)
872%
Net cash provided used in operating
activities
(10,430)
(10,894)
-4%
nm – not meaningful
* Adjusted gross margin, adjusted gross
margin % and adjusted EBITDA are non-IFRS financial measures not
defined by and do not have any standardized meaning under IFRS;
please refer to the Company’s Q2 2021 MD&A for definitions and
a reconciliation to IFRS.
** Sales and marketing and general and
administrative expenses (“SG&A”) excluding non-cash share-based
compensation.
Select Balance Sheet Metrics (in
$000s)
28-Feb-21
31-Aug-20
% Change
Cash & short-term investments
71,123
74,728
-5%
Biological assets & inventories
43,374
71,759
-40%
Other current assets
17,757
23,717
-25%
Accounts payable & accrued
liabilities
13,808
17,486
-21%
Current portion of long-term debt
6,048
11,595
-48%
Working capital
112,398
141,123
-26%
Property, plant & equipment
240,253
247,420
-3%
Long-term debt
52,759
103,671
-49%
Total assets
392,764
435,127
-10%
Total liabilities
125,535
135,600
-7%
Shareholders’ equity
267,229
299,527
-11%
Key Financial Results for the Second Quarter Fiscal
2021
- Net revenue:
- Q2 2021 net revenue decreased from Q2 2020 primarily due to
significantly lower wholesale revenue and a lower average selling
price in Q2 2021. The higher wholesale revenues during Q2 2020 were
opportunistic in nature, primarily sales to a single licensed
producer.
- Q2 2021 net revenue was also lower due to missed sales
opportunities, as certain employees tested positive for COVID-19
which resulted in a significant number of facility staff having to
isolate.
- The Company was unable to fulfill certain demand for its
products totaling approximately $7 million in Q2 2021 due to
production and processing constraints.
- Q2 2021 revenue was also negatively impacted by certain
provincial boards aiming to manage lower levels of inventory such
as Alberta.
- Gross revenue:
- Q2 2021 gross revenue decreased from Q2 2020 largely due to
similar factors impacting net revenue described above.
- Cost of sales:
- Higher cost of sales in Q2 2021 was primarily due to higher Q2
2021 inventory provisions, a higher cost of production, and a
charge related to unabsorbed fixed overhead as a result of lower
production volumes in Q2 2021.
- Gross margin before fair value changes to biological assets,
inventories sold, and other charges:
- Negative and lower gross margin in Q2 2021 was largely due to
lower net revenue and higher cost of sales as described above.
- Gross margin:
- Q2 2021 gross margin was negative compared to positive Q2 2020
gross margin largely due to negative Q2 2021 gross margin before
fair value changes to biological assets, inventories sold, and
other charges as described above as well as net non-cash negative
fair value changes to biological assets and inventories sold in Q2
2021 versus positive changes in Q2 2020.
- Adjusted gross margin3:
- Q2 2021 adjusted gross margin was negative compared to positive
Q2 2020 gross margin primarily due to lower net revenue as
described above and value segment offerings comprising a larger
proportion of total revenue in Q2 2021.
- Selling, general & administrative (SG&A) expenses:
- Q2 2021 SG&A decreased from Q2 2020 largely due to higher
professional and consulting fees in Q2 2020 related to project
specific work, including the launch of Rec 2.0 products.
- Adjusted EBITDA4:
- Q2 2021 negative adjusted EBITDA declined from positive
adjusted EBITDA in Q2 2020 largely due to lower adjusted gross
margin in Q2 2021 as discussed above.
- Net loss:
- Q2 2021 net loss was greater than the Q2 2020 net loss largely
due to the negative change in the fair value of the derivative
warrant liabilities and the negative gross margin in Q2 2021.
- Net cash used in operating activities:
- Q2 2021 net cash used in operating activities remained stable
relative to Q2 2020, despite lower gross margin in Q2 2021, largely
due to the prior period’s increase in working capital assets as the
Company continued to scale operations ahead of Rec 2.0
launches.
Canadian Adult-Use Recreational Market
Rec 1.0
Higher Margin Edison and Indi Dried Flower Strains
- In late December 2020, the Company launched three new Edison
Indica strains namely Black Cherry Punch, Ice Cream Cake (I.C.C.)
and Slurricane. The Company expects to launch additional high THC
strains under the Edison brand in Q3 2021.
- Subsequent to quarter-end in late March, Organigram launched
the Black Cherry Punch, I.C.C. and Slurricane strains in a package
of three 0.5g pre-rolls. Also, in late March, the Company
introduced Indi, one of Canada’s only cannabis brands dedicated
exclusively to indica cultivars. Skyway Kush is the first strain in
the Company’s Indi portfolio and currently offers THC in the range
of 20% to 23%.
Value segment offerings
- In Q1 2021, Organigram expanded its strong value portfolio with
the launch of SHRED, a high quality, high potency and affordable
dried flower that is pre-shredded for consumer convenience. SHRED
offers three pre-milled varieties, all with THC of 18% or more. It
is made from whole flower, does not contain any shake or trim and
is milled to the same specifications as the Company’s pre-roll
products. SHRED is currently Organigram’s most affordable option
(on a per gram basis).
- In March 2021, the Company announced that it expanded the
successful SHRED brand with the introduction of a Jar of Joints, a
convenient jar of 14 x 0.5g pre-rolls in SHRED’s Tropic
Thunder.
Rec 2.0
Cannabis-Infused Chocolates
- The Company’s chocolate portfolio consists of Trailblazer SNAX,
a value-priced chocolate bar and Edison Bytes truffles.
Organigram’s investment in state-of-the art chocolate equipment
means that each section of the SNAX bar is filled separately,
allowing for higher accuracy of infusion. In Q2 2021, the Company
launched milk chocolate, a new flavour of Trailblazer SNAX, and the
Company has plans to introduce further Edison Bytes products in the
next few quarters.
Vapes
- Organigram expects to launch new vape products with higher THC
concentrations in Q3 2021, including an Edison + Feather disposable
vape pen at a competitive price point as well as a 1g Edison
cartridge for the 510 vaporizer, both of which will be based on the
Company’s popular Limelight strain.
Research and Product Development
- Organigram continues to focus on innovation and research and
product development. Examples of this hallmark of the Company
include its nanoemulsification technology (described above) as well
as its investment in biosynthesis through Hyasynth (see Hyasynth
section of the Q2 2021 MD&A) and most significantly, its recent
March 11, 2021 announcement of the Product Development
Collaboration (“PDC”) with BAT.
- The R&D laboratory at The Edibles and Infusions
Corporation’s (“EIC”) Winnipeg facility, coupled with EIC’s
Research License, will also complement the Company’s focus on
innovation.
- Per the PDC agreement with BAT, a “Center of Excellence” (or
“CoE”) is being established at the Company’s Moncton facility to
focus on developing the next generation of cannabis products with
an initial focus on CBD. Both companies will contribute scientists,
researchers, and product developers to the CoE which is governed by
a steering committee consisting of an equal number of senior
members from both companies.
- Both Organigram and BAT have access to certain of each other’s
intellectual property (“IP”) and, subject to certain limitations,
have the right to independently, globally commercialize the
products, technologies and IP created by the CoE.
- Approximately $30 million of BAT’s investment in the Company
has been reserved for its portion of its funding obligations under
a mutually agreed initial budget for the CoE. CoE costs will be
funded equally by Organigram and BAT. Currently, the CoE is hiring
staff as part of its ramp up.
Outlook
Net Revenue
- Organigram expects Q3 2021 revenue to be higher than Q2 2021 as
the Company is improving demand fulfillment with increased
staffing. As noted above, the Company’s Moncton facility was shut
down during the quarter for deep cleaning after identifying
positive COVID-19 cases and a significant number of employees had
to isolate. The lost production time resulted in missed revenue
opportunities as the Company was unable to fulfill certain demand.
Although the Company expects higher net revenue in Q3 2021 due to
greater fulfilment rates with increased cultivation and packaging
staff, there is the risk that net revenue could be negatively
impacted again if there positive cases are identified in the future
and the Company needs to take similar measures.. In addition, the
COVID-19 restrictions for cannabis retail stores, particularly in
the most populous province of Ontario, could suppress demand and
negatively impact net revenue in Q3 2021.
- The Company expects to generate more revenue growth from the
production of soft chews and other confectionary products with the
specialized equipment in the Winnipeg EIC facility. The Company is
targeting first sales of soft chews in Q4 2021 subject to certain
achievements, including, but not limited to, the timing of receipt
and commissioning of certain ancillary equipment, completion of
quality assurance documentation, the hiring of requisite staff and
obtaining product listings from the provincial boards.
Adjusted Gross Margins
- The yield per plant increased in Q2 2021 from Q1 2021 as a
result of optimizing the density of plants per room and decreasing
the time spent in vegetation. The higher yield per plant in Q2 2021
drove a lower average cost of cultivation per gram (compared to Q1
2021) such that when this inventory is sold starting in Q3 2021, it
will positively impact Q3 2021 adjusted gross margins. However, the
overall level of Q3 2021 adjusted gross margins versus Q2 2021 will
depend on other factors including, but not limited to, product
category and brand sales mix.
- In addition, the Company has identified the following
opportunities which it believes have the potential to further
improve adjusted gross margins over time:
- The Company expects to gain economies of scale and efficiencies
as it continues to scale up cultivation.
- The recent launches of new higher margin dried flower strains
under the Edison and Indi brands with more to come in the near term
have the potential to positively impact gross margins over time as
these products gain traction in the market and comprise a greater
proportion of the Company’s overall revenue.
- International sales have historically attracted higher margins
and are expected to comprise a greater proportion of the Company’s
revenues once the Company resumes shipments to Canndoc (currently
expected in Q4 2021 – see International section below).
- The Company is launching more multi-pack pre-rolls and 1g vape
cartridges and these higher volume SKUs attract higher
margins.
- The Company continues to invest in automation to drive cost
efficiencies and reduce dependence on manual labour. For example,
the new pre-roll machine was commissioned and began operating in
March 2021 which has significantly reduced the Company’s reliance
on manual labour.
- As a result of a packaging task force project, a number of cost
reduction opportunities have been identified for implementation
starting in Q4 2021.
Selling, general and administrative (SG&A) expenses
- Q3 2021 SG&A is expected to be higher than Q2 2021 largely
due to increasing staffing related to the BAT and EIC
transactions.
International
- The Company continues to serve international markets (including
Israel and Australia) from Canada via export permits. The Company
is looking to augment sales channels internationally over time. In
early Q1 Fiscal 2021, the Israeli Ministry of Health amended its
quality standards for imported medical cannabis. The Company is
seeking Good Agricultural Practice certification by the Control
Union Medical Cannabis Standard and is making progress. Subject to
successful completion of a required inspection that is likely to be
conducted remotely, the Company currently expects to be certified
as early as the end of Q3 2021. Shipments to Canndoc are expected
to resume in Q4 2021 contingent upon regulatory approval from
Health Canada, including obtaining an export permit, and the
availability of the desired product mix.
Liquidity and Capital Resources
- On April 1, 2021, the Company repaid all outstanding balances
(approximately $58.5 million) under its credit agreement (the
“Credit Agreement”) with BMO and a syndicate of lenders which will
result in annual interest savings of $2.7 million (based on the
outstanding balance at the time of repayment).
- Currently, the Company has $232 million in cash and short-term
investments.
- Organigram currently intends to terminate the Credit Agreement
and discharge the related security.
Capital Structure
in $000s
28-Feb-21
31-Aug-20
Current and long-term debt
58,807
115,266
Shareholders’ equity
267,229
299,527
Total debt and shareholders’ equity
326,036
414,793
in 000s
Outstanding common shares
234,811
194,511
Options
7,981
9,029
Warrants
16,989
-
Restricted share units
1,192
893
Performance share units
481
127
Total fully-diluted shares
261,454
204,560
Outstanding basic and fully diluted share count as at April 11,
2021 is as follows:
in 000s
11-Apr-21
Outstanding common shares
298,233
Options
7,921
Warrants
16,951
Restricted share units
1,185
Performance share units
467
Total fully-diluted shares
324,756
Second Quarter Fiscal 2021 Conference Call
The Company will host a conference call to discuss its results
with details as follows:
Date: April 13, 2021
Time: 8:00am Eastern Time
To register for the conference call, please use this link:
http://www.directeventreg.com/registration/event/1957647
To ensure you are connected for the full call, we suggest
registering a day in advance or at minimum 10 minutes before the
start of the call. After registering, a confirmation will be sent
through email, including dial in details and unique conference call
codes for entry. Registration is open through the live call.
To access the webcast:
https://event.on24.com/wcc/r/3079347/ADF4D345BD5DF5386FDEF631BD132518
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 adjusted gross margin 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. 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 Q2 2021 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 listed company whose wholly owned
subsidiaries include Organigram Inc., a licensed producer of
cannabis and cannabis-derived products in Canada and The Edibles
and Infusions Corporation, a cannabis infused soft chew and
confectionary manufacturer 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, Indi, Bag o’ Buds, SHRED and Trailblazer.
Organigram's primary facility is located in Moncton, New Brunswick
with another leased manufacturing facility in Winnipeg, Manitoba.
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, expectations regarding higher
revenue, 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
market and consumer demand and other patterns related to existing,
new and planned product forms including by EIC; 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; expectations regarding Good Agricultural Practice
certification by the Control Union Medical Cannabis Standard
(“CUMCS”), and resumption of shipments to Canndoc Ltd.; statements
regarding the future the Canadian and international cannabis
markets 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, changing listing
practices, ability to manage costs, 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, successful
completion of the inspection for the Good Agricultural and
Collecting Practices certification by CUMCS, market demand and
acceptance of new products and forms, unforeseen construction or
delivery delays including of equipment and commissioning, 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 January, February, and March 2021 as
well as November and December 2020
2 Based on the outstanding balance of
approximately $58.5 million at the time of repayment
3 Adjusted gross margin is a non-IFRS
financial measure not defined by and does not have any standardized
meaning under IFRS; please refer to the Company’s Q2 2021 MD&A
for definitions and a reconciliation to IFRS.
4 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 Q2 2021 MD&A for
definitions and a reconciliation to IFRS.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20210413005468/en/
For Investor Relations enquiries: Amy Schwalm
Vice-President, Investor Relations amy.schwalm@organigram.ca
416-704-9057
For Media enquiries: Marlo Taylor Gage Communications
mtaylor@gagecommunications.ca
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