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

3. ...the Company's...new value segment products...have been well-received by the market, particularly SHRED which is the Company’s deepest value offering, droving the Company’s revenue growth in Q1 Fiscal 2021 in the Canadian adult-use recreational market over Q4 Fiscal 2020...

    • [This has] contributed to a decline in gross margins for ORGANIGRAM...
    • As such, the company is focused on further revitalizing its Edison mainstream brand, which attracts higher product gross margins, by launching new dried flower offerings with unique strains and higher potency THC.

4. Opportunities to scale up new genetics require a patient and deliberate process where cultivation protocols are trialed for each cultivar and adjusted through multiple grows before full roll-out to multiple rooms in the facility. The Company has successfully launched new genetics over the past 18 months...[and] these genetics help provide deep bench strength to the Edison portfolio.

    • ORGANIGRAM is committed to continue investing in new genetics and expects at least three new high THC genetics to come to market in the next few quarters.

5. A negative non-cash adjustment to cost of sales for unabsorbed fixed overhead costs in Q2 Fiscal 2021 is anticipated to persist as a result of the Company’s plans to cultivate less than its cultivation capacity. However, the magnitude of the charge is expected to decline in Q2 Fiscal 2021 from Q1 Fiscal 2021 as the Company begins to ramp up cultivation....

6. Some production inefficiencies are anticipated to persist in the near to medium term and impact gross margins while Organigram continues to launch new products and optimizes production and staffing.

Opportunities

There are a number of opportunities that the Company has identified which it believes have the potential to improve adjusted gross margins beyond Q2 Fiscal 2021:

  1. The Company expects to gain economies of scale and efficiencies as it scales up cultivation and packaging.
  2. The recent launches of new higher margin dried flower strains under the Edison brand, with more to come in Q3 and Q4 Fiscal 2021, have the potential to positively impact gross margins over time as these products gain traction in the market and comprise a greater proportion of the Company’s overall revenue.
  3. A greater proportion of the Company’s portfolio is being dedicated to higher volume SKUs, such as multi-pack pre-rolls and 1g vape cartridges, which attract higher margins.
  4. The Company continues to invest in automation to drive cost efficiencies and reduce dependence on manual labor. For example, a new pre-roll machine is expected to be fully commissioned and operational by the end of Q2 Fiscal 2021.
  5. As a result of a packaging task force project, a number of cost reduction opportunities has been identified which have the potential to benefit margins starting in Q4 Fiscal 2021.
  6. The Company continues to serve international markets (Israel and Australia) from Canada via export permits and looks to augment sales channels internationally over time...
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