Canadian cannabis company OrganiGram Holdings (OGI -2.85%) released its earnings report for the first quarter of its fiscal year 2020 on Jan. 14. The pot grower's financial results were well received by investors, with its shares soaring by more than 30% on the heels of its earnings release. However, excitement has cooled down significantly since, and OrganiGram's shares are down by about 6.1% year to date.
This is after the company's shares slid by 31.4% last year. Still, OrganiGram could benefit from several industry-specific tailwinds, including the rollout of more retail cannabis stores in Ontario, and the potentially lucrative cannabis derivative market, which officially opened in Canada on Oct. 17, 2019. Is now a good time to buy shares of OrganiGram Holdings?
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OrganiGram's position in the Canadian market
OrganiGram Holdings is one of a handful of cannabis companies with supply agreements with every Canadian province. Also, the company's sole production facility -- which is located in Moncton, New Brunswick -- is projected to achieve a peak production capacity of 113,000 kilograms per year. True, that isn't particularly impressive when compared to some of OrganiGram's competitors.
For instance, Canopy Growth's (CGC -1.12%) projected peak production output is 550,000 kilograms per year, according to a Fool.com writer. Still, OrganiGram's projected production capacity ranks as one of the highest in Canada. Given its position in the Canadian market, OrganiGram expects to profit from a more favorable retail environment this year and beyond.
CEO Greg Engel said during the company's first-quarter earnings conference call:
The expansion of retail stores represents a significant growth opportunity for the industry and OrganiGram. It is estimated that Canadians currently spend only about 15% of what those in U.S. legal state spend per year on legal cannabis, which illustrates the potential of Canada's legal market.
Furthermore, OrganiGram is looking to take advantage of the derivative market. Back in December, the company shipped its first suite of derivative products to various Canadian provinces -- including Ontario and Nova Scotia -- to be sold in legally licensed retail cannabis stores. Spearheading the company's first derivative products was a set of vaping products, including Trailblazer Spark, Flicker, and Glow 510-thread Torch, which are all vape cartridges.
During OrganiGram's first-quarter earnings conference call, Engel spoke highly of the company's first round of derivative products, saying that OrganiGram is "pleased" with the market response to date. OrganiGram is planning to roll out more derivative products onto the market. During the second quarter, the company hopes to introduce its dissolvable powder products -- which contain "a measured dose of cannabinoids" and can be added to beverages -- as well as cannabis-infused chocolate.
OrganiGram could come out a winner in the market for derivative products, but investors will have to wait until the company releases its second-quarter 2020 earnings report to see the impact of these products on its financial results.
Patience required
During the first quarter, OrganiGram recorded net revenue of 25.2 million Canadian dollars, a 103% year over year increase. OrgniGram also reported a net loss of CA$863,000. In an industry in which red ink on the bottom line has been the norm rather than the exception, the company almost managing to break even is praiseworthy.
OrganiGram's financial results could improve further, with the rollout of more retail cannabis stores and the lucrative derivative market serving as potential tailwinds for the company. However, I think it'd be best for investors to stay on the sidelines for now, at least until OrganiGram shows that it can generate increasingly solid financial results.
