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Organigram Holdings Inc. (Nasdaq: OGI) (TSX: OGI), a licensed producer of cannabis and a constituent in the munKNEE.com Canadian Cannabis LP Index, announced its results for Q3 of FY2023 ended May 31st, 2023, yesterday, as follows:

Q3 Financial Highlights

(All results are presented in Canadian dollars and compared to the previous quarter. Go here to convert into other currencies.)

• Net Revenue: DOWN 18.2% to $32.3M
  • Canadian Sales: INCREASED 6.3% to $30.6M
    • driven by continued success in hash and a rebound in flower
  • International Sales: DECLINED 84.1% to $1.7M
• Adj. Gross Margin: DOWN 54.5% to $6.1M
  • as a % of Net Revenue: DOWN to 18.9% from 33.9%
  • The decline was attributable to lower net flower revenue, a higher cost of sales, and the impact due to the restriction of sale imposed by Health Canada on Edison JOLTS.
• Selling/Marketing, General & Admin Expenses (SG&A): INCREASED 18% to $419.0M
  • The increase in expenses was primarily due to higher audit and legal fees, and ERP implementation costs.
• Adj. Earnings Before Interest, Depreciation & Amortization (EBITDA): DOWN to $(2.9)M from $5.6M
  • The Company increased its whole flower THC levels to meet consumer demand which reduced its flower yields, negatively impacting margins on all flower categories. In addition, the company experienced higher SG&A expenses during Q3.
• Net Profit (Loss): INCREASED 275% to $(213.5)M 
  • Impairment losses taken in Q3 amounted to $(191.2)M
  • Operating losses of $(22.3)M were UP $197% from the previous quarter as a result of the Company being negatively impacted by THC-inflation given its strength in flower categories.
• Cash-on-Hand: DOWN 26.8% to $52.7M
  • The Company believes its capital position is healthy and that there is sufficient liquidity available for the near to medium term.
• Current and Long-Term Debt: DOWN 18% to $180M

Q3 Operational Highlights

Go here for details.

Management Commentary

Beena Goldenberg, Chief Executive Officer, said:

• “...We are very pleased with the growth of our Canadian recreational business and our outlook moving into next year remains positive with the foundation now in place to deliver continued growth.”

Derrick West, Chief Financial Officer, said:

• “Our results for the third quarter were impacted by a reduction in sales in two of our higher margin categories of international sales and ingestible extracts.
• Further, to address the impact of THC inflation we were forced to adjust our pricing to remain competitive and accelerated adjustments to growing conditions to increase whole flower THC levels to meet consumer demand. This temporarily reduced our flower yields, negatively impacting our margins on all flower categories.
• In the last month of the quarter, however, we returned to above-average yields while maintaining increased whole flower THC levels. We believe that based on this progress we will return to positive Adjusted EBITDA in Q4 Fiscal 2023.”

Outlook

The following outlook provides a description of management's expectations regarding the Company's Q4 Fiscal 2023 performance:

• Net Revenue: The Company expects Q4 Fiscal 2023 net revenue to be higher than that of Q3 Fiscal 2023 as a result of growth in its expanded product line across multiple categories, with a heavy focus on infused and tube-style pre-rolls.
• Adjusted gross margins: The Company expects to have adjusted gross margins increase in Q4, 2023, with cost savings initiatives realized, improved throughput from automation, increased flower yields, increased sales in the higher-margin province of Quebec, and increased sales from higher-margin derivative products.
• Adjusted EBITDA: The Company expects to achieve positive Adjusted EBITDA in Q4 Fiscal 2023.
• Cash Flow: Expected increases in sales will result in increases to receivables and this will negatively impact cash from operating activities. As such, the Company forecasts a remaining cash capex spend of approximately $10 million for Fiscal 2023 and if completed as planned during Fiscal 2023, the Company expects to generate positive free cash flows by the end of calendar 2023.

Stock Performance

Organigram's stock price declined by 53.2% during Q3 (March, April, May) but went up 5.4% in June, and is up another 2.6% so far in July. The stock jumped 21% yesterday in anticipation of favorable Q3 results but quickly declined to its previously day's level given the dismal financial results reported.

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