Shares of Canada's largest cannabis company, Canopy Growth (NYSE:CGC), have lost around 70% of their value since reaching a peak this May. Heavy losses suffered by former shareholders can be a bargain opportunity for value-minded investors, but Canopy's so poorly managed that another dramatic fall from present levels is far more likely.

If you've been looking for an underappreciated marijuana stock with a real chance to provide market-beating gains, OrganiGram (NASDAQ:OGI) is the cannabis stock you've been looking for. Here's why.

Hands holding a marijuana plant.

Image source: Getty Images.

Efficiency

Canopy Growth operates 11 licensed cannabis production sites with over 5.2 million square feet of production capacity and it's on pace to sell around 44,000 kilograms of cannabis annually. That works out to around 8.5 grams per year for every square foot of cultivation space.

OrganiGram has just one production site operating with less than half a million square feet at the moment. The company's on pace to sell around 19,000 kg of cannabis this year, which works out to 38 grams sold annually for every square foot of operating space.

Quality

OrganiGram's unique triple-decker growing rooms are good for more than just packing lots of plants into less space, they're also churning out top-quality products. OrganiGram recorded a yield of around 162 grams per plant in its fiscal second quarter, while Canopy Growth averaged just 85 grams per plant during its own fiscal second quarter.

Larger flowers aren't necessarily better, but lower yields generally correspond with lower cannabinoid concentrations. The flowers that roll off from OrganiGram's production line are the only ones I've seen that a majority of consumers would go out of their way to purchase. 

Cannabis buds lying on a pile of cash on a table.

Image source: Getty Images.

Share-based compensation

Stock options granted to employees are a noncash expense, but that doesn't mean they're irrelevant. During the three months ended September, Canopy handed out CA$83.8 million worth of stock options, despite recording just CA$76.6 million in net revenue during the same period.

OrganiGram appears to hand out enough stock options to retain talent, but that's all. During its fiscal second quarter, OrganiGram reported CA$24.8 million in net revenue and paid a respectable CA$2.0 million in stock-based compensation.

Inventory writedowns

Cannabis begins losing potency the moment it's harvested. That means products that didn't sell fast enough are coming back to bite the producers that made them.

During the three months ended August 31, 2019, OrganiGram set aside $3.7 million for product returns and pricing adjustments. This isn't good, but it's far less troubling than the provision Canopy Growth recently recorded. Canopy set aside a stunning CA$38.6 million for excess and obsolete inventory during its fiscal second quarter. 

Provinces returning products they can't sell should make OrganiGram investors nervous if it continues, but it probably won't. Canada's retail network grew more slowly than nearly anyone anticipated, but the number of people living within a reasonable distance of a retail outlet is finally beginning to improve. Also, OrganiGram bought some cheap flower to fill a supply gap earlier this year and this was the reason behind the majority of expected returns and price adjustments.

Typical large cannabis growing operation.

Image source: Getty Images.

Looking ahead

OrganiGram is not a safe stock by any reasonable measurement, but it is the company most likely to survive and thrive in a hypercompetitive market for cannabis-derived goods.

In October, Health Canada began allowing producers to start growing the plants that will soon become a suite of new cannabis-infused products. That means OrganiGram, and its competitors should be able to launch cannabis 2.0 for recreational and medical customers soon. 

OrganiGram has plans to launch vape pens just in time for Christmas, then chocolates in time for Valentine's Day, and finally a beverage product in time for summer. Health Canada, provincial, and local authorities will most likely find a wrench to throw at OrganiGram's plans, but the new form factors could still lead to a significant sales bump.

What to look out for

Following its recent market beatdown, OrganiGram might be the best cannabis stock you can buy right now. That said, it's probably a good idea to let incoming Cannabis 2.0 disappointments wash over the entire industry before buying some shares for a well-diversified portfolio.