E Organigram Q1 2021 Financial Results Are Unmasked And They Are Dismal

Management Outlook

Within the Q1 report management had the following to say in reformatted, edited and abridged comments about the near-future:

Tailwinds

1. "...The Company believes there are a few factors creating tailwinds to further industry growth, namely:

  • The legalization in October 2019 of Rec 2.0 products has attracted consumers who were not interested in smoking or vaping.
  • The number of brick and mortar retail stores has increased significantly particularly in the back half of calendar 2020. After doubling the number of retail store authorizations in September 2020 from 20 to 40 per month, the Ontario cannabis store retail regulator announced in early December 2020 that it was doubling the number again to 80 per month. Since July 2020, the number of retail stores in Canada’s 10 provinces grew by approximately 47% and more than tripled in Ontario alone.
  • The industry as a whole has made a concerted effort to match or beat illicit market pricing, particularly for dried flower, which has helped accelerate the conversion of consumers from illicit to legal consumption.

2. In mid-calendar 2020, ORGANIGRAM began a product portfolio revitalization to address what it believes to be some of the biggest consumer trends and preferences, including demand for value in large format, higher THC potency in dried flower as well as new genetic strains and novel products.

Headwinds

1. Accelerated industry growth from the accelerated store build out coupled with stronger than expected demand for many of the Company’s new products, resulted in competing priorities for ORGANIGRAM’s existing staffing and production levels.

  • This contributed to delays in product launches and hindered consistent order fulfillment, which resulted in some meaningful missed revenue opportunities in Q1 Fiscal 2021 and is expected to continue to impact Q2 Fiscal 2021. As such, management has decided to ramp up staffing.
    • By early Q3 Fiscal 2021, the Company plans to have hired 100 more positions, mostly in cultivation, and up to and additional 30 more positions in packaging.
    • The benefit from the ramp-up in staffing and increased cultivation production is not anticipated to start having an impact until Q3 Fiscal 2021.
  • Further, the Company believes it will still take time for the new products to reach their full potential and gain market share to drive meaningful sales growth.

2. The Company believes there is the potential for temporarily suppressed industry demand to impact net revenues in Q2 Fiscal 2021 as cannabis stores in certain densely populated parts of Ontario (Toronto and Peel) have been closed to physical retail traffic since November 23, 2020 and the rest of the stores in Ontario have been closed to physical traffic since December 26, 2020 due to the COVID-19 lockdown. The stores are still able to offer click and collect as well as delivery.

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