Organigram Holdings Inc. (NASDAQ: OGI) (TSX: OGI), (the “Company” or “Organigram”), a leading licensed producer of cannabis, announced its results for the third quarter ended May 31, 2023 (“Q3 Fiscal 2023”). All financial information in this press release is expressed in thousands of Canadian dollars ("$"), except for references to $ millions.
“During the quarter, we continued to demonstrate our responsible leadership in the Canadian cannabis industry," said Beena Goldenberg, Chief Executive Officer. “We focused on the ongoing execution of our strategy of sustainable long-term growth by delivering disruptive consumer-focused innovations, while driving costs out of our operation and improving productivity. We are very pleased with the growth of our Canadian recreational business and our outlook moving into next year remains positive with the foundation now in place to deliver continued growth.”
In Q3, the Company observed the increasingly common practice of THC-inflation, what it believes to be the practice by some licensed producers of inflating THC values on their labels though selective sampling and lab shopping. At the same time there is no standardized testing for cannabis potency regulated by Health Canada which has resulted in inconsistent practices designed to inflate THC potency. For example, in one large national retail chain, the total number of SKUs labelled 30%+ THC increased ten-fold since last year3. Organigram was disproportionately negatively impacted by THC-inflation this quarter due its strength in flower categories and this had a profound impact on the size of the impairment the Company took this quarter. Organigram remains confident that is has positioned itself for long term success through responsible capital stewardship, a commitment to efficient operations, and industry leading R&D bolstered by an impressive list of strategic partners who share Organigram's commitment to innovation.
Select Key Financial Metrics (in $000s unless otherwise indicated) |
Q3-2023 |
Q3-2022 |
% Change |
|||
Gross revenue |
48,409 |
|
55,173 |
|
(12 |
)% |
Excise taxes |
(15,624 |
) |
(17,058 |
) |
(8 |
)% |
Net revenue |
32,785 |
|
38,115 |
|
(14 |
)% |
Cost of sales |
32,289 |
|
29,440 |
|
10 |
% |
Gross margin before fair value changes to biological assets & inventories sold |
496 |
|
8,675 |
|
(94 |
)% |
Realized fair value on inventories sold and other inventory charges |
(13,588 |
) |
(7,386 |
) |
84 |
% |
Unrealized gain on changes in fair value of biological assets |
8,395 |
|
6,353 |
|
32 |
% |
Gross margin |
(4,697 |
) |
7,642 |
|
(161 |
)% |
Adjusted gross margin1 |
6,074 |
|
9,298 |
|
(35 |
)% |
Adjusted gross margin %1 |
19 |
% |
24 |
% |
(21 |
)% |
Selling (including marketing), general & administrative expenses2 |
19,033 |
|
17,469 |
|
9 |
% |
Net loss |
(213,451 |
) |
(2,787 |
) |
7559 |
% |
Adjusted EBITDA1 |
(2,914 |
) |
583 |
|
(600 |
)% |
Net cash used in operating activities before working capital changes |
(14,847 |
) |
(3,984 |
) |
273 |
% |
Net cash used in operating activities after working capital changes |
(5,515 |
) |
(6,372 |
) |
(13 |
)% |
1 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 “Non-IFRS Financial Measures” in this press release for more information.
2 Excluding non-cash share-based compensation.
Select Balance Sheet Metrics (in $000s) |
MAY 31, 2023 |
AUGUST 31, 2022 |
% Change |
|
Cash & short-term investments (excluding restricted cash) |
52,735 |
98,607 |
(47 |
)% |
Biological assets & inventories |
81,832 |
68,282 |
20 |
% |
Other current assets |
45,829 |
54,734 |
(16 |
)% |
Accounts payable & accrued liabilities |
34,349 |
40,864 |
(16 |
)% |
Current portion of long-term debt |
80 |
80 |
— |
% |
Working capital |
140,626 |
166,338 |
(15 |
)% |
Property, plant & equipment |
110,384 |
259,819 |
(58 |
)% |
Long-term debt |
100 |
155 |
(35 |
)% |
Total assets |
348,515 |
577,107 |
(40 |
)% |
Total liabilities |
46,528 |
69,049 |
(33 |
)% |
Shareholders’ equity |
301,987 |
508,058 |
(41 |
)% |
“Our results for the third quarter of Fiscal 2023 were impacted by a reduction in sales in two of our higher margin categories of international sales and ingestible extracts," added Derrick West, Chief Financial Officer. "Further, to address the impact of THC inflation, which forced us to adjust our pricing to remain competitive, we intentionally accelerated adjustments to growing conditions to increase whole flower THC levels to meet consumer demand. This temporarily reduced our flower yields, negatively impacting our margins on all flower categories. In the last month of the quarter, we returned to above average yields while maintaining increased whole flower THC levels. We believe that based on this progress we will return to positive Adjusted EBITDA in Q4 Fiscal 2023.”
Key Financial Results for the Third Quarter 2023
The following table reconciles the Company's Adjusted EBITDA to net loss.
Adjusted EBITDA Reconciliation (in $000s unless otherwise indicated) |
Q3-2023 |
Q3-2022 |
||||
Net (loss) income as reported |
$ |
(213,451 |
) |
$ |
(2,787 |
) |
Add/(Deduct): |
|
|
||||
Financing costs, net of investment income |
|
(903 |
) |
|
(234 |
) |
Income tax expense (recovery) |
|
(1,302 |
) |
|
308 |
|
Depreciation, amortization, and (gain) loss on disposal of property, plant and equipment (per statement of cash flows) |
|
6,975 |
|
|
6,515 |
|
Impairment of intangible assets |
|
37,905 |
|
|
— |
|
Impairment of property, plant and equipment |
|
153,337 |
|
|
— |
|
Share of loss from investments in associates and impairment loss from loan receivable |
|
287 |
|
|
193 |
|
Unrealized loss (gain) on changes in fair value of contingent consideration |
|
(2,892 |
) |
|
(3,422 |
) |
Realized fair value on inventories sold and other inventory charges |
|
13,588 |
|
|
7,386 |
|
Unrealized (gain) loss on change in fair value of biological assets |
|
(8,395 |
) |
|
(6,353 |
) |
Share-based compensation (per statement of cash flows) |
|
1,325 |
|
|
761 |
|
COVID-19 related charges, net of government subsidies and insurance recoveries |
|
— |
|
|
(335 |
) |
Legal provisions (recoveries) |
|
— |
|
|
(310 |
) |
Share issuance costs allocated to derivative warrant liabilities and change in fair value of derivative liabilities |
|
(1,322 |
) |
|
(5,904 |
) |
Incremental fair value component of inventories sold from acquisitions |
|
— |
|
|
700 |
|
ERP implementation costs |
|
2,561 |
|
|
1,410 |
|
Transaction costs |
|
538 |
|
|
1,424 |
|
Provisions (recoveries) and impairment of inventories and biological assets and provisions of inventory to net realizable value |
|
5,578 |
|
|
(77 |
) |
Research and development expenditures, net of depreciation |
|
3,257 |
|
|
1,308 |
|
Adjusted EBITDA |
$ |
(2,914 |
) |
$ |
583 |
|
The following table reconciles the Company's adjusted gross margin to gross margin before fair value changes to biological assets and inventories sold:
Adjusted Gross Margin Reconciliation (in $000s unless otherwise indicated) |
Q3-2023 |
Q3-2022 |
||||
Net revenue |
$ |
32,785 |
|
$ |
38,115 |
|
Cost of sales before adjustments |
|
26,711 |
|
|
28,817 |
|
Adjusted gross margin |
|
6,074 |
|
|
9,298 |
|
Adjusted gross margin % |
|
19 |
% |
|
24 |
% |
Less: |
|
|
||||
Write-offs and impairment of inventories and biological assets |
|
2,823 |
|
|
(83 |
) |
Provisions to net realizable value |
|
2,755 |
|
|
6 |
|
Incremental fair value component on inventories sold from acquisitions |
|
— |
|
|
700 |
|
Gross margin before fair value adjustments |
|
496 |
|
|
8,675 |
|
Gross margin % (before fair value adjustments) |
|
2 |
% |
|
23 |
% |
Add: |
|
|
||||
Realized fair value on inventories sold and other inventory charges |
|
(13,588 |
) |
|
(7,386 |
) |
Unrealized gain on changes in fair value of biological assets |
|
8,395 |
|
|
6,353 |
|
Gross margin |
|
(4,697 |
) |
|
7,642 |
|
Gross margin % |
|
(14 |
)% |
|
20 |
% |
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. Q3 Fiscal 2023 saw the introduction of a record-breaking 28 new SKUs to the market for Organigram.
SHRED X Rip Strip Hash
SHRED'ems Grapple Juice Gummies
Holy Mountain GMO Tropical Reign (28g)
Edison Limelight x Cobra Milk Combo Pack
Holy Mountain Live Resin Vapes
SHRED X Heavies Infused Pre-Rolls
Research and Product Development
Product Development Collaboration ("PDC") and Centre of Excellence ("CoE")
Strategic Investment in Greentank
Strategic Investment in Phylos Bioscience
International
Liquidity and Capital Resources
Capital Structure
in $000s |
MAY 31, 2023 |
AUGUST 31, 2022 |
Current and long-term debt |
180 |
235 |
Shareholders’ equity |
301,987 |
508,058 |
Total debt and shareholders’ equity |
302,167 |
508,293 |
in 000s |
|
|
Outstanding common shares |
321,970 |
313,816 |
Options |
11,737 |
11,051 |
Warrants |
16,944 |
16,944 |
Top-up rights |
8,274 |
7,590 |
Restricted share units |
3,618 |
2,346 |
Performance share units |
1,065 |
265 |
Total fully-diluted shares |
363,608 |
352,012 |
Outstanding basic and fully diluted share count as at July 13, 2023 is as follows6:
in 000s |
JULY 13, 2023 |
Outstanding common shares |
80,499 |
Options |
2,917 |
Warrants |
4,236 |
Top-up rights |
2,061 |
Restricted share units |
896 |
Performance share units |
263 |
Total fully-diluted shares |
90,872 |
Outlook7
The following outlook provides a description of management's expectations regarding the Company's Q4 Fiscal 2023 performance and may not be appropriate for other purposes. Actual results may vary based on a variety of factors. See "Cautionary Note Regarding Forward-Looking Statements" in this press release.
Net revenue
Adjusted gross margins8
Adjusted EBITDA9
Cash flow
Third Quarter Fiscal 2023 Conference Call
The Company will host a conference call to discuss its results with details as follows:
Date: July 14, 2023
Time: 8:00 am Eastern Time
To register for the conference call, please use this link:
https://conferencingportals.com/event/RUyBPhzX
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://events.q4inc.com/attendee/444750435
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, adjusted gross margin %, Adjusted EBITDA and free cash flow) 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. Adjusted EBITDA is a non-IFRS measure that the Company defines as net income (loss) before: financing costs, net of investment income; income tax expense (recovery); depreciation, amortization, reversal of/or impairment, (gain) loss on disposal of property, plant and equipment (per the statement of cash flows); share-based compensation (per the statement of cash flows); share of loss from investments in associates and impairment loss from loan receivable; change in fair value of contingent consideration; change in fair value of derivative liabilities; expenditures incurred in connection with research & development activities (net of depreciation); unrealized (gain) loss on changes in fair value of biological assets; realized fair value on inventories sold and other inventory charges; provisions and impairment of inventories and biological assets; provisions to net realizable value of inventories; COVID-19 related charges; government subsidies; legal provisions; incremental fair value component of inventories sold from acquisitions; transaction costs; and share issuance costs. Adjusted EBITDA is intended to provide a proxy for the Company’s operating cash flow and derive expectations of future financial performance for the Company, and excludes adjustments that are not reflective of current operating results.
Adjusted gross margin is a non-IFRS measure that the Company defines as net revenue less cost of sales, before the effects of (i) unrealized gain (loss) on changes in fair value of biological assets; (ii) realized fair value on inventories sold and other inventory charges; (iii) provisions and impairment of inventories and biological assets; (iv) provisions to net realizable value; (v) COVID-19 related charges; and (vi) unabsorbed overhead relating to underutilization of the production facility and equipment, most of which is related to non-cash depreciation expense.
Adjusted gross margin % is a non-IFRS measure that the Company calculates by dividing adjusted gross margin by net revenue.
Management believes that this adjusted gross margin and adjusted gross margin % both provide useful information to assess the profitability of our operations as it represents the normalized gross margin generated from operations and excludes the effects of non-cash fair value adjustments on inventories and biological assets, which are required by IFRS.
The most directly comparable measure to Adjusted EBITDA, calculated in accordance with IFRS is net income (loss) and beginning on page 4 of this press release is a reconciliation to such measure. The most directly comparable measure to adjusted gross margin calculated in accordance with IFRS is gross margin before fair value changes to biological assets and inventories sold and beginning on page 5 of this press release is a reconciliation to such measure.
Free cash flows is a non-IFRS financial performance measure that deducts capital expenditures from net cash provided by operating activities. The Company believes this to be a useful indicator of its ability to operate without reliance on additional borrowing or usage of existing cash.
Free cash flows is intended to provide additional information only and does not have any standardized definition under IFRS and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with IFRS. Free cash flows is not necessarily indicative of operating profit or cash flow from operations as determined under IFRS. Other companies may calculate this measure differently.
About Organigram Holdings Inc.
Organigram Holdings Inc. is a NASDAQ Global Select Market and TSX listed company whose wholly-owned subsidiaries include Organigram Inc. and Laurentian Organic Inc. licensed producers of cannabis and cannabis-derived products in Canada, and The Edibles and Infusions Corporation, a licensed manufacturer of cannabis-infused edibles 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 legal adult-use recreational cannabis brands, including Edison, Holy Mountain, Big Bag O’ Buds, SHRED, Monjour and Trailblazer. Organigram operates facilities in Moncton, New Brunswick and Lac-Supérieur, Québec, with a dedicated manufacturing facility in Winnipeg, Manitoba. The Company is regulated by the Cannabis Act and the Cannabis Regulations (Canada).
Cautionary Note Regarding Forward Looking Statements
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 including international sales, expectations for consumer demand, expected increase in SKUs, expected improvement to gross margins before fair value changes to biological assets and inventories, expectations regarding adjusted gross margins, Adjusted EBITDA and net revenue in Fiscal 2023 and beyond, the Company's ability to generate consistent free cash flow from operations, expectations regarding cultivation capacity, the Company’s plans and objectives including around the CoE and the Company's Bio Lab facility, availability and sources of any future financing, expectations regarding the impact of COVID-19, availability of cost efficiency opportunities, the increase in the number of retail stores, the ability of the Company to fulfill demand for its revitalized product portfolio with increased staffing, expectations relating to greater capacity to meet demand due to increased capacity at the Company’s facilities, expectations around lower product cultivation costs, the ability to achieve economies of scale and ramp up cultivation, expectations pertaining to the increase of automation and reduction in reliance on manual labour, expectations around the launch of higher margin dried flower strains, expectations around market and consumer demand and other patterns related to existing, new and planned product forms including by EIC and Laurentian; 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; continuation of shipments to Canndoc Ltd., Cannatrek Ltd., Medcan and Sanity Group GmbH; expectations around federal legalization of cannabis in the U.S., statements regarding the future of 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.
This news release contains information concerning our industry and the markets in which we operate, including our market position and market share, which is based on information from independent third-party sources. Although we believe these sources to be generally reliable, market and industry data is inherently imprecise, subject to interpretation and cannot be verified with complete certainty due to limits on the availability and reliability of raw data, the voluntary nature of the data gathering process, and other limitations and uncertainties inherent in any statistical survey or data collection process. We have not independently verified any third-party information contained herein.
Forward-looking information involves known and unknown risks, uncertainties and other factors that may cause actual events to differ materially from current expectations. These risks, uncertainties and factors include: 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; the Company's ability to meet regulatory criteria which may be subject to change; change in regulation including restrictions on sale of new product forms; timing for federal legalization of cannabis in the U.S. and changing regulatory conditions; change in stock exchange listing practices; the Company's ability to manage costs, timing and conditions to receiving 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 those 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 and commissioning; increases to expected costs; competitive and industry conditions; change in customer buying patterns; and changes in crop yields. These and other risk factors 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”) from time to time 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. 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. Forward looking information is subject to risks and uncertainties that are addressed in the “Risk Factors” section of the MD&A dated July 13, 2023 and there can be no assurance whatsoever that these events will occur.
1 Multiple sources (Hifyre, Weedcrawler, OCS wholesale sales and e-commerce orders, shipped sales data and provincial boards data)
2 Hifyre data extracted July 5, 2023
3 Cabannalytics - Ontario Retail, Sept-April, 2023
4 Adjusted gross margin is a non-IFRS financial measure not defined by and does not have any standardized meaning under IFRS; please refer to “Non-IFRS Financial Measures” in this press release for more information.
5 Adjusted EBITDA is a non-IFRS financial measure not defined by and does not have any standardized meaning under IFRS; please refer to “Non-IFRS Financial Measures” in this press release for more information.
6 The number of common shares, options, warrants, top-up rights, restricted share units and performance share units outstanding of the Company as at July 13, 2023 is adjusted to reflect the share consolidation at a ratio of four (4) pre-consolidation common shares for every post-consolidation common share which took effect on July 5, 2023.
7 The disclosure in this section is subject to the risk factors referenced in the “Risk Factors” section of the Company’s Q3 Fiscal 2023 MD&A, which is available on SEDAR under the Company's profile at www.sedar.com, and has been furnished to the United States Securities and Exchange Commission on Form 6-K and is available on EDGAR on www.sec.gov. Without limiting the generality of the foregoing, the expectations concerning revenue, adjusted gross margins and SG&A are based on the following general assumptions: consistency of revenue experience with indications of fourth quarter performance to date, consistency of ordering and return patterns or other factors with prior periods and no material change in legal regulation, market factors or general economic conditions. The Company disclaims any obligation to update any of the forward-looking information except as required by applicable law. See "Cautionary Note Regarding Forward Looking Statements" in this press release.
8 Adjusted gross margin is a non-IFRS financial measure not defined by and does not have any standardized meaning under IFRS; please refer to “Non-IFRS Financial Measures” in this press release for more information.
9 Adjusted EBITDA is a non-IFRS financial measure not defined by and does not have any standardized meaning under IFRS; please refer to “Non-IFRS Financial Measures” in this press release for more information.
10 Free cash flow is a non-IFRS financial measure not defined by and does not have any standardized meaning under IFRS; please refer to “Non-IFRS Financial Measures” in this press release for more information.
View source version on businesswire.com: https://www.businesswire.com/news/home/20230713792265/en/
For Investor Relations enquiries, please contact:
Max Schwartz, Director of Investor Relations
[email protected]
For Media enquiries, please contact:
Paolo De Luca, Chief Strategy Officer
[email protected]