Release Date: August 13, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- OrganiGram Holdings Inc (OGI, Financial) achieved a 25% year-over-year growth in its Canadian recreational business for Q3 fiscal 2024.
- The company has maintained a market share of over 7% for eight consecutive months as of the end of July.
- OrganiGram Holdings Inc (OGI) has expanded its international footprint with a $21 million investment in German cannabis leader, Sanity Group.
- The company reported a record yield of 185 grams per plant, supported by changes in cultivation processes and strategic investments.
- OrganiGram Holdings Inc (OGI) returned to generating adjusted EBITDA in Q3 fiscal 2024, reporting $3.5 million compared to negative $2.9 million in the same prior year period.
Negative Points
- The Canadian market remains highly competitive with 153 LPs having at least $1 million in sales, contributing to market share erosion.
- There is ongoing price compression in the edibles segment, impacting overall margins.
- The company is still awaiting EU GMP certification, which is expected to be received in early 2025, delaying potential international revenue growth.
- Operational KPIs such as yield and potency are subject to fluctuations due to changes in cultivar mix, impacting margin stability.
- Despite significant investments, the company faces challenges in ramping up production to meet the growing demand in international markets like Germany.
Q & A Highlights
Q: Could you provide additional color on when you're expecting EU GMP certification and any additional requirements for export licenses? Also, how will you allocate capacity between domestic and international markets once you receive the certification?
A: We expect the German regulator to audit our facility in the fall, with certification paperwork taking a couple of months. We should be ready by early 2025. Until then, we continue to supply GACP flower internationally. We will prioritize international sales due to higher margins and then protect our branded domestic sales. Opportunistic B2B sales in the domestic market would be reduced as we expand internationally.
Q: Can you provide insights into the potential for further gross margin expansion?
A: We are pleased with our current 36% adjusted gross margin and aim to maintain this trajectory. Short-term, maintaining margins around 36% is reasonable. As our international business scales up next year, we expect further benefits. Our cost-saving initiatives, increased yield per plant, and lower cost per gram are key contributors.
Q: Can you provide any feedback from Sanity Group regarding the German market's growth since April?
A: Sanity Group has reported business doubling since April 1. The challenge is securing incremental volume to meet demand. The product takes five months from planting to market, causing a delay in supply. Sanity Group and other German customers are eager for more product, and we are working to meet this demand.
Q: Any concerns about state-level bans on hemp derivatives in the US, and would you consider investments in US MSOs through Jupiter?
A: We are monitoring state regulations closely with OBX and feel confident that some states will maintain the availability of hemp-derived cannabis offerings. Regarding US investments, we are cautious to ensure compliance with our listings. We prefer strategic investments with long-term opportunities rather than passive investments.
Q: Does the improvement in yield per plant relate to your seed-based production, and what impact does seed-based production have on margins?
A: The improvement in yield per plant is partly due to seed-based production, but overall yield is also improving in our clone-based production. Seed-based production shortens cycle times, increasing capacity and reducing labor costs, which will improve margins. We are optimizing production and expect further margin improvements as we transition to auto flower seeds.
Q: Can you comment on the pricing environment in Canada and its impact on your average selling price for flower?
A: Flower pricing has stabilized and even picked up slightly. We have taken some pricing on large format products. Our average selling price remained flat due to mix impacts, but like-to-like pricing has improved. We see price compression in other segments like edibles, but we hope differentiated products will stabilize pricing.
Q: Can you comment on the trends in Germany's medical cannabis market and its impact on pricing dynamics?
A: There is increased demand for medical cannabis in Germany, with more people purchasing from pharmacies. Early days saw supply challenges, but we expect greater volume as supply becomes more available. Sanity Group is ready to expand with their telemedicine platform, pending sufficient supply.
Q: What activities would stabilize yields and potency KPIs, and how would this impact margin performance?
A: Yield and potency are predictable for specific cultivars, but demand for different cultivars causes fluctuations. Over time, we will continue to drive higher numbers, but fluctuations will remain due to cultivar mix. We aim to improve overall yields while managing mix impacts.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
