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Why Organigram Stock Lit Up Today

By Howard Smith – Nov 23, 2021 at 12:59PM

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The Canadian cannabis company gained market share and swung to a positive gross margin.

What happened

Investors seemed to be taking a "sell the rumor, buy the news" approach with Canadian cannabis company Organigram Holdings (OGI -1.42%) over the past couple of weeks. Its shares declined by 25% during the two weeks leading up to its fiscal fourth-quarter earnings report that came out Tuesday morning. But investors liked the news, and the stock popped by as much as 15% in early trading. As of 12:51 p.m. ET, Organigram shares had pulled back somewhat, but remained up by 10.7%. 

So what

For the period, which ended Aug. 31, Organigram reported strong improvements even compared to just the prior quarter. Its took a 7% market share in recreational cannabis in its fiscal Q4, a jump of 160 basis points over fiscal Q3. And the company expects that pattern to continue, noting that its market share had grown to 7.9% as of October. 

cannabis hanging to dry in lab with two workers.

Image source: Getty Images.

Now what

Those market share gains helped boost its net revenue by 22% both sequentially and year over year. And the company is bringing its cost of sales down, which swung its gross margin from negative to positive. Adjusted gross margin was $3 million this quarter, compared to a loss of $700,00 in its fiscal third quarter. 

Additionally, management believes that the overall market recovery will help it continue to grow its revenue in the current quarter. As pandemic-related impediments continue to dissipate, and the company is able to supply increasing demand from higher production, Organigram expects its positive momentum to continue. That's good news for investors, and prompted the quick reversal of the stock's recent downward price trend. 

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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