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Why OrganiGram Stock Jumped 20% in May

By Howard Smith - Jun 3, 2021 at 5:17PM

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The Canadian cannabis company's share price slid early in the month after it announced a CEO change, but later events turned investor sentiment around.

What happened

May was a tale of two halves for OrganiGram Holdings (OGI -1.77%). The cannabis company released surprising news at the start of the month that brought its share price down. But the stock ended May up by 20.9% for the month, according to data provided by S&P Global Market Intelligence. The sharp reversal was driven by some good news from a large partner, as well as positive developments for the cannabis sector in general. 

So what

OrganiGram surprised investors early in May when it announced that CEO Greg Engel would be leaving that role immediately, and that his interim replacement would be board Chairman Peter Amirault. Engel will remain as a special advisor to the board of directors during an undefined transition period. No reason was given for the change.

Investors don't like uncertainty, and that news led to about a 5% drop in the share price. But starting around mid-month, the news became more positive. 

A person in a marijuana field looking at a small tablet computer.

Image source: Getty Images.

In March 2021, the Canadian pot grower announced that British American Tobacco (BTI 0.62%) was making a strategic investment of about $175 million in it. Along with the nearly 20% stake it purchased in OrganiGram, BAT also plans a research and development collaboration with it that will "focus on developing the next generation of cannabis products with an initial focus on CBD," the companies said in a joint statement. Because their fortunes are now somewhat linked, when BAT won an initial judgment in a patent infringement suit against a large tobacco competitor in mid-May, OrganiGram's shares jumped

Now what

Beyond the positive news from its partner, OrganiGram's also benefiting from its growing scale, and the perception of progress toward federal marijuana legalization in the U.S. In April, OrganiGram expanded beyond its single facility in New Brunswick with the acquisition of The Edibles & Infusions Corporation, a maker of cannabis-infused products including soft-chew edibles. The acquisition gives OrganiGram a second operating facility and a footprint in Western Canada.

Growing the business now should give it more flexibility to expand outside of Canada in the future. If the U.S. market becomes legally available, that would be a huge benefit for Canadian growers. Potential for more progress appeared on that front in May when U.S. Rep. Dave Joyce of Ohio and fellow Republican U.S. Rep. Don Young of Alaska introduced a bill dubbed the Common Sense Cannabis Reform for Veterans, Small Businesses and Medical Professionals Act. 

The congressmen cited actions being taken at the state level and said, "continued cannabis prohibition is neither tenable nor the will of the American electorate." It's notable that Republicans are sponsoring this bill, which adds more momentum to the drive to remove marijuana from the Controlled Substances Act. That would be a key step on the road to allowing Canadian cannabis companies to be able to do business in the U.S., as it would allow financial institutions and other companies to do business with cannabis companies.

Also in May, traditionally conservative Alabama became the 37th state to legalize medical marijuana use. Investors should feel good about the potential new market in the U.S., though there's no guarantee that progress toward legalization will continue. But the British American Tobacco partnership and the recent news about OrganiGram's expansion plans in Canada both offer reasons for shareholders to be optimistic. 

Howard Smith has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends OrganiGram Holdings. The Motley Fool has a disclosure policy.

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Stocks Mentioned

OrganiGram Holdings Stock Quote
OrganiGram Holdings
OGI
$1.11 (-1.77%) $0.02
British American Tobacco p.l.c. Stock Quote
British American Tobacco p.l.c.
BTI
$40.43 (0.62%) $0.25

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