Organigram Reports First Quarter Fiscal 2024 Results
Achieved positive cash flow from operations, solidified #2 market position in Canada among licensed producers, significantly improved margins sequentially quarter-over-quarter, and closed first $41.5 million tranche of previously announced $124.6 million investment from BAT
HIGHLIGHTS
- $124.6 million strategic investment from BAT announced in November 2023 approved by shareholders, with first of three tranches now funded at $3.22 per share for proceeds of $41.5 million
- Achieved positive Adjusted EBITDA¹ and positive cash flow from operations of $7.7 million
- Improved sequential quarter-over-quarter adjusted gross margin² from 17% in Q4 Fiscal 2023 (references to “Fiscal 2023” are to the 13-month period from September 1, 2022 through September 30, 2023) to 31% in Q1 Fiscal 2024
- Maintained #2 market position in Canada for the last 5 consecutive months as of the end of Q1 Fiscal 2024³
- Held the #1 position in milled flower, the #1 position in concentrates, the #2 position in edibles, and the #3 position in pre-rolls³
- Reintroduced Edison JOLTS to the market, achieving the #2 brand position in the capsules and ingestible extracts category in December 20233
- Launched 22 SKUs in the quarter
- Completed first craft harvest resulting from the completed expansion of the Company’s Lac-Supérieur facility
- Completed planting first grow room using seed-based production resulting from technology acquired from the strategic investment in US-based Phylos Bioscience Inc. (“Phylos”)
- Due to the achievement of THCV concentration and aroma specific milestones from F1 seeds, Organigram advanced the second tranche of US$2.75 million to Phylos for a total current investment of US$6.0 million in senior secured convertible loans
- Applied for EU-GMP certification of Moncton facility in November 2023 and awaiting audit
- Strong balance sheet with negligible debt and $54.6 million in cash (not including $41.5 million tranche of BAT investment which closed in January)
TORONTO–(BUSINESS WIRE)–Organigram Holdings Inc. (NASDAQ: OGI) (TSX: OGI), (the “Company” or “Organigram”), a leading licensed producer of cannabis, announced its results for the first quarter ended December 31, 2023 (“Q1 Fiscal 2024”).
We certainly kicked off fiscal 2024 with a bang. By closing the first tranche of our $124.6 million follow-on investment from BAT shortly after quarter end, we have removed a significant amount of risk from our business while enhancing the key competitive advantages that our team worked diligently to put into place in Fiscal 2023.
Beena Goldenberg, Chief Executive Officer
We can now fully leverage our world-class facilities, market leadership in several categories, and cutting-edge research and development capabilities to increase Organigram’s reach both within the Canadian market and beyond.
Canadian Recreational Market Introduction Highlights
As an industry leader and pure-play cannabis company, Organigram remains committed to delivering consumer focused innovations and products to the Canadian market. Q1 Fiscal 2024 saw the introduction of 22 new SKUs to the market for Organigram. Some notable highlights include:
- Holy Mountain Ultra Jean G (28g) – A new sour sativa in a 1 oz. bag
- SHRED Dartz Dessert Storm tube-style pre-rolls – A new flavour in 10 x 0.4g tube-style pre-rolls
- SHRED X Mother Pucker Peach Rip-Strip Hash – A new Rip-Strip flavour packed with peach
- Holy Smokes Purple Punch Out! tube-style pre-rolls – A new strain boasting up to 26% THC
- Trailblazer Hustle n’ Haze THCV pre-rolls – The first pre-roll high in THCV blended with THC
Research and Product Development
Product Development Collaboration (“PDC”) and Centre of Excellence (“CoE”)
- Organigram and BAT continue to work together through their PDC on new workstreams to develop innovative technologies in the edible, vape and beverage categories in addition to new disruptive inhalation formats aimed at addressing the biggest consumer pain points that exist in the category today. Organigram is preparing to deliver new products in these spaces and the launch priority includes gummies which will feature a new nano-emulsion technology
- The PDC has completed pharmacokinetic studies regarding the onset and half-life of nano-emulsion gummies, and is now analyzing results to substantiate claims
Follow-on Strategic Investment from BAT and creation of the Jupiter Investment Pool
- In March of 2021, BAT invested ~$221 million into Organigram which has served to propel product innovations resulting from CoE at Organigram’s Moncton facility
On November 6, 2023 Organigram announced a $124.6 million follow-on investment from BAT and the creation of Jupiter, a strategic investment pool designed to expand Organigram’s geographic footprint and capitalize on emerging growth opportunities - In January 2024, Organigram shareholders voted to approve the $124.6 million investment from BAT and the Company completed the first of three tranches of the investment for proceeds of $41.5 million
Strategic Investment in Green Tank Technologies Corp. (“Greentank”)
- In Fiscal 2023, Organigram announced that it had entered into a product purchase agreement (the “Purchase Agreement”) with Greentank, a leading vaporization technology company, and a subscription agreement with Greentank’s parent company, Weekend Holdings Corp. (“WHC”). The Purchase Agreement provides Organigram with an exclusivity period in Canada for the new technology incorporated into 510 vape cartridges (along with other formats) for use with cannabis, including the development of a custom all-in-one device that will be proprietary to Organigram.
- Subsequent to quarter end, the first Greentank enabled vapes shipped to market
Strategic Investment in Phylos
- On May 25, 2023, Organigram announced its first strategic U.S. investment in Phylos, a cannabis genetics company and provider of production ready seeds, based in Portland, Oregon, to initiate a wide-ranging technical and commercial relationship in Canada. Under the terms of the agreement, Organigram will advance up to US $8 million to Phylos in three tranches structured as a secured convertible loan
- In November 2023, due to the achievement of THCV concentration and aroma specific milestones for F1 seeds, Organigram advanced the second tranche of US$2.75 million to Phylos for a total current investment of US$6.0 million in senior secured convertible loans
- In Q1 Fiscal 2024, the Company completed planting its first seed-based production grow room
International
- In Q1 Fiscal 2024, the Company reported international shipments totaling $1.0 million to Australia
Subsequent to quarter end, the Company completed its first export to the German medical market - The Company is evaluating international expansion opportunities propelled by the Jupiter strategic investment pool resulting from BAT’s $124.6 million strategic investment announced in November 2023
Liquidity and Capital Resources
- On December 31, 2023, the Company had unrestricted cash of $41.8 million and restricted cash of $12.8 million for a total of $54.6 million
- In January 2024, Organigram closed the first of three tranches from BAT’s follow-on $124.6 million strategic investment for proceeds of $41.5 million. 50% of the first tranche will be allocated to general corporate purposes and 50% will be allocated toward Jupiter
Key Financial Results for the First Quarter 2024
- Net revenue:
- Compared to the prior period, net revenue decreased 16% to $36.5 million, from $43.3 million in Q1 Fiscal 2023. The decrease was primarily due to a reduction in international revenue and medical sales
- Cost of sales:
- Q1 Fiscal 2024 cost of sales decreased to $26.9 million, from $31.6 million in Q1 Fiscal 2023, primarily due to lower sales including decreased international sales and lower cultivation and post-harvest costs
- Gross margin before fair value changes to biological assets, inventories sold, and other charges:
- Q1 Fiscal 2024 margin declined to $9.5 million from $11.7 million in Q1 Fiscal 2023, negatively impacted in the quarter by lower net revenue, and $1.7 million in inventory provisions versus $1.1 million in the same prior year period
- Adjusted gross margin:
- Q1 Fiscal 2024 adjusted gross margin was $11.2 million, or 31% of net revenue, compared to $12.8 million, or 30%, in Q1 Fiscal 2023. The increase in the adjusted gross margin rate was primarily due to a decrease in depreciation
- Adjusted gross margin improved sequentially to 31% from 17% in Q4 Fiscal 2023
- Selling, general & administrative (SG&A) expenses:
- Q1 Fiscal 2024 SG&A expenses increased to $16.5 million from $15.7 million in Q1 Fiscal 2023. The increase in expenses was primarily due to higher foreign exchange losses on foreign-currency denominated receivables and higher professional fees related to the BAT investment
- Net (Loss) Income:
- Q1 Fiscal 2024 net loss was $(15.8) million compared to a net income of $5.3 million in Q1 Fiscal 2023 as a result of lower gross margin due to the change in fair value of biological assets
- Adjusted EBITDA:
- Q1 Fiscal 2024 Adjusted EBITDA was $0.1 million compared to $5.6 million adjusted EBITDA in Q1 Fiscal 2023. The decline is primarily attributed to lower international shipments, and higher SG&A expenses
- Adjusted EBITDA improved sequentially by $2.5 million from $(2.4) million in Q4 Fiscal 2023
- Net cash (used in) provided by operating activities before working capital changes:
- Q1 Fiscal 2024 net cash provided by operating activities was $7.7 million, compared to $3.5 million cash provided in Q1 Fiscal 2023, which was primarily due to favorable changes in working capital, partially offset by lower Adjusted EBITDA
“Our results for the first quarter of Fiscal 2024 demonstrate improvements on multiple fronts,” added Greg Guyatt, Chief Financial Officer. “Our improved adjusted gross margin and Adjusted EBITDA on a sequential quarter-over-quarter basis were driven by the refinement of newly enhanced production processes for ready-to-consume products resulting from the $29 million in facility enhancements we completed in Fiscal 2023, the highly successful reintroduction of our patented Edison JOLTS to the market, and improved margin profiles in several product categories. In December 2023, we had a record breaking month in shipped recreational sales, stemming from consistent market share gains throughout Q1 Fiscal 2024.”
