Analyzing OrganiGram’s Cannabis 2.0 Products

On January 14, OrganiGram Holdings (NASDAQ:OGI) reported its earnings for the first quarter of fiscal 2020. For the quarter, the company reported revenues of 25.2 million Canadian dollars—higher than analysts’ estimate of 19.6 million Canadian dollars. The company’s recreational and medical business in Canada contributed 16.7 million Canadian dollars or 66.3% of the total revenue. So, the Canadian market is still the company’s major revenue contributor.

On October 17, 2019, Canada legalized the sale of cannabis-derived products or Cannabis 2.0 products. With a 60-day notice period for Health Canada to approve the products, many individuals expected cannabis companies to introduce their next-generation products after December 17, 2019. OrganiGram introduced some of its Cannabis 2.0 products.

OrganiGram’s upcoming Cannabis 2.0 products

OrganiGram is focusing on vapes, edibles, and beverage categories. In the vape category, the company has already introduced Trailblazer Torch 510-thread vape cartridges in the Canadian market. The company has designed the cartridges to accommodate a standard 510-thread battery. OrganiGram offers these products in three variants—Spark, Flicker, and Glow. The company started shipping the products on December 17. OrganiGram plans to introduce Edison + Feather this month. Meanwhile, the company plans to introduce Edison + PAX Era distillate cartridges in the second quarter of 2020.

In Phase 5 of the Moncton facility, OrganiGram plans to include inedibles and derivatives facilities. The company is working to increase the extraction capacity using both CO2 and hydrocarbons and also distillation for edibles and vape pen formulations.

In December, the company received approval for the operations area in Phase 5 of the facility, which houses a state-of-the-art chocolate line. During the first-quarter earnings call, the company’s management announced that it has already installed and commissioned its chocolate production line. Management added that the company completed the trials and testing to check for a consistent amount of cannabinoid in the products. OrganiGram expects to introduce cannabis-infused chocolates by March. The company is also considering options for co-manufacturing and white label opportunities.

Moving to the beverage category, OrganiGram has developed a dissolvable powder product using its proprietary nano-emulsification technology. Customers can mix the unflavored dissolvable powder formulation with the beverage of their choice. The powder offers more discretion, easy portability, and a longer shelf life.

Why are Cannabis 2.0 products important?

In May 2019, Deloitte estimated that the market for edibles and other alternative cannabis products would reach 2.7 billion Canadian dollars. The global professional services firm projected that the edibles market alone would reach 1.6 billion Canadian dollars, while the beverage market could reach 529 million Canadian dollars. So, we expect the Cannabis 2.0 market to provide an excellent opportunity for OrganiGram to expand its business. These next-generation products have higher margins. So, we expect the products to improve OrganiGram’s margins.

OrganiGram’s stock performance

After losing 34.1% of its stock value last year, OrganiGram has recovered some this year. YTD, the company’s stock price has increased by 21% as of Wednesday. The company’s stock price rose due to the impressive first-quarter performance and stronger cannabis sector. OrganiGram has outperformed its peers this year. YTD, Aphria (NYSE:APHA), Cronos Group (NASDAQ:CRON), and Canopy Growth (TSE:WEED) have returned 11.5%, 9.8%, and 16.1%, respectively. Meanwhile, Aurora Cannabis (NYSE:ACB), which is going through a tough phase, has lost 3.9% of its stock value.