Retail cannabis sales in Canada have rebounded from a brief dip in February, but Organigram (OGI +0.00%) stock hasn't followed. Shares of the licensed cannabis producer have lost about 30% of their value this year.
The company has pushed back its earnings report for the three months ended May. 31, 2020, by a week to compensate for coronavirus-related difficulties experienced during the hectic period. Now that the company's market value has fallen to a sprightly $299 million, bargain shoppers are wondering if the stock is a buy right now.
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Reasons to wait
Organigram might look like a bargain at its depressed price, but there's a chance the company will disappoint investors again before the end of the month. Organigram recently postponed its fiscal third-quarter earnings report until Jul. 21, 2020, but still provided a disappointing snapshot of the top line figures. Earlier this month, the company said it expects to report a decline in net revenue compared with the previous three-month period.
Organigram's warning seems out of step with retail cannabis sales reports from Statistics Canada. During Organigram's fiscal second-quarter, cannabis store sales across Canada averaged CA$151 million per month. We don't have data from May yet, but countrywide Cannabis sales during the first two months of Organigram's fiscal third-quarter averaged $181 million per month.
The company halted the expansion of its cultivation and processing plant earlier this year and plans to produce less cannabis than its facility was built for. Organigram hasn't been specific about how far revenue fell, but any sign of slipping sales while the rest of the industry thrives isn't a good sign.
Reasons to buy
Revenue isn't the only line item that declined during the fiscal third quarter. Organigram also expects to report a significant decrease in sales, general, and administrative costs due to a 25% workforce reduction that left the company with just 609 employees.
Unlike all of its Canadian peers with U.S. stock market listings, Organigram has just one facility to manage. While it's disturbing to see the company's Moncton campus run at less than full capacity, Aurora Cannabis (ACB +2.45%) shut down five production facilities in June with the goal of becoming more centralized like Organigram.
Organigram has posted significant losses this year, but nothing near those of its larger peer. Aurora lost a whopping CA$137 million during the first three months of 2020.
Organigram finished February with CA$41 million in cash after losing around CA$8 million during the first half of the company's fiscal year. In April, Organigram added another CA$49 million to its coffers after completing an offering that raised its outstanding share count about 12% higher. With far less payroll overhead now than at the beginning of the year, there's a good chance the company's current cash balance will sustain Organigram through this period of losses and back into profitability.
Stand back
In June, Health Canada forced Organigram to stop marketing its new deep-value line of dried flower called "Trailer Park Buds" because of its relation to The Trailer Park Boys, a Canadian television show with a cult following. With limited ability to create recognizable brands, standing out among dozens of licensed producers selling nearly identical products isn't going to get any easier.
Organigram's Moncton facility produced cannabis at a cost of CA$0.75 per gram during the three months ended February. While this is an impressive feat, it also means there isn't much room to increase efficiency going forward. The company's almost making ends meet now, but pressure from dozens of competitors producing similar cannabis products could get even stronger. Right now, it's probably best to watch Organigram's story unfold from a safe distance.
