Please ensure Javascript is enabled for purposes of website accessibility

Why OrganiGram's Q2 Results Were So Ugly

By Keith Speights - Updated Apr 13, 2021 at 10:23AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

There were multiple culprits behind the cannabis producer's top- and bottom-line deterioration.

After a dismal stock performance in 2020, OrganiGram Holdings (OGI 4.76%) has been on fire this year. The Canadian cannabis producer's shares have soared more than 80% year to date coming into this week. OrganiGram stock even skyrocketed more than 350% at one point earlier this year. 

OrganiGram announced its second-quarter results before the market opened on Tuesday. The marijuana stock was slightly lower in early trading. Here are the highlights from the company's Q2 update.

Cannabis growing in a greenhouse

Image source: Getty Images.

By the numbers

OrganiGram reported gross revenue in the second quarter of 19.2 million Canadian dollars, a 29% year-over-year decline. The consensus analysts estimate called for gross revenue of CA$19.6 million. The company's Q2 net revenue after excise taxes totaled CA$14.6 million, down 37% year over year.

The cannabis producer announced a net loss in Q2 of CA$66.4 million. In the prior-year period, the company posted a much smaller net loss of CA$6.8 million.

OrganiGram's adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) in the second quarter looked somewhat better. The company recorded an adjusted EBITDA loss of CA$8.6 million in Q2, compared to an adjusted EBITDA loss of CA$59,000 in the prior-year period.

Behind the numbers

OrganiGram CEO Greg Engel acknowledged that the company's Q2 results "were challenged by industry dynamics, COVID-19 and staffing limitations at our facility." All three issues weighed on the company's financial performance.

Q2 net revenue fell mainly because of the company's much lower wholesale revenue and a lower average selling price. The strong wholesale revenue in the second quarter of 2020 especially impacted year-over-year comparisons. The lower average selling price reflected the intense price competition in the Canadian cannabis market.

However, OrganiGram's net revenue also slipped because of the COVID-19 pandemic. Several employees tested positive for COVID-19, resulting in missed sales opportunities. In addition, some provinces reduced their inventory levels in Q2, which translated to fewer product orders.

OrganiGram's gross margin fell into negative territory because of a higher cost of sales. This in turn caused the company's adjusted EBITDA to slide. The company's much greater net loss in Q2 stemmed in part from the negative gross margin. A change in the fair value of derivative warrant liabilities also weighed on OrganiGram's bottom line.

Looking ahead

Engle stated that the company is "currently tracking to generate higher revenue in Q3 2021 as our new product portfolio continues to gain traction and we become better staffed to fulfill demand." However, OrganiGram remains cautious because of the uncertainties related to COVID-19.

OrganiGram's recent acquisition of The Edibles & Infusions Corporation should boost its cannabis edibles revenue. Arguably the most important thing to watch with the company over the longer term, though, is its relationship with British American Tobacco. The tobacco giant recently bought a stake in OrganiGram. Engle said that the company is "extremely excited about developing innovative and appealing products to consumers in collaboration with BAT."

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

OrganiGram Holdings Stock Quote
OrganiGram Holdings
$1.00 (4.76%) $0.05
British American Tobacco p.l.c. Stock Quote
British American Tobacco p.l.c.
$41.46 (0.48%) $0.20

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 07/06/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.