Organigram Announces Record Q3 Financial Results

Published: July 30, 2018

Organigram Announces Record Q3 Financial Results

Organigram Holdings Inc., the parent company of Organigram Inc., a leading licensed producer of medical marijuana based in Moncton, New Brunswick, announced its financial results for the three and nine-months ended May 31, 2018.

Operational Highlights

  • Organigram began harvesting from its Phase 2 expansion facility (23 grow rooms) on April 20, 2018 bringing its target production of dried flower equivalent to 22,000 kg/annum;
  • In May the Company launched its adult recreational brand strategy which included house brands such as The Edison Cannabis CompanyANKR Organics and Trailer Park Buds;
  • In May Organigram received a “License for Controlled Drugs and Substances” from Health Canada making the Company a Licensed Dealer;
  • In May the Company received its “Permit to Export Cannabis” license which allowed Organigram the ability to make its first international medical shipment to Australia (completed in July);
  • Shortly after quarter-end the Company began use of its Phase 3 expansion filling six of the 16 grow rooms with the remaining rooms filled in June and July bringing its target production of dried flower equivalent to 36,000 kg/annum; and
  • Announced strategic investments in: Hyasynth Biologicals, Alpha-Cannabis Germany, and Eviana (see previous press releases for more details) which all are expected to close in the calendar third quarter.

Financial Highlights

  • Record net sales for both the three-months and nine-months ended May 31, 2018 of $3.7 million and $10.1 millionrespectively vs. $1.9 million and $3.6 million respectively for 2017;
  • Record sale volume of cannabis oil for the three-months ended May 31, 2018 (768,400 milliliters) up 39% from Q2/18 (552,250) and up 452% from Q3/17 (139,200 milliliters);
  • Record sales volume of dried flower (303,428 grams) for the three-months ended up 28% from Q2/18 (237,650 grams) and up 55% from Q3/17 (196,129 grams);
  • Record yields per plant in the quarter ended May 31, 2018 (see MD&A for further details);
  • Cost of cultivation per gram of dried flower harvested of $0.80 per gram “all-in” (direct labour and materials, allocated overhead and depreciation) and $0.58/gram excluding depreciation. Note that cost of cultivation is a non-GAAP measure used by management internally and does not include indirect production, packaging or shipping costs (see financial statements and MD&A for further details);
  • Registered medical patients climbed to a record 15,316 by the end of Q3 up 18% since Q2 (12,957);
  • Impairment of goodwill on its 2017 acquisition of Trauma Healing Centres in the amount of $1.2 million related to “right sizing” of the business opportunity;
  • Net interest expense of $3.7 million for the quarter primarily attributable to the interest expense on $115 million of convertible debentures issued on January 31, 2018; and
  • Net income of $2.8 million, an increase of 162% compared to $1.1 million in Q2-2018 and a loss of $2.3 million in Q3-2017.

Summary of Financial Results

Three-months ended

May 31

Inc.

(Decr.)

Nine-months ended

May 31

Inc

(Decr.)

(in $000 except EPS)

2018

2017

2018

2017

Gross sales

$ 3,705

$1,917

93%

$ 9,612

$ 5,593

72%

Sales recovery (return)

$ 21

$-

n/m1

$ 490

$(2,026)

n/m

Net sales2

$ 3,726

$1,917

94%

$ 10,102

$3,567

183%

Cost of sales (incl. indirect production)

$ 1,671

$2,097

-20%

$ 5,012

$5,905

-15%

Gross margin (excluding FV adjustment)

$ 2,055

$(180)

      n/m

$5,090

$ (2,338)

n/m

FV adjust. on bio assets and inventories

$ 10,066

$(578)

      n/m

$ 15,172

$ (1,634)

n/m

Gross margin

$ 12,121

$(758)

      n/m

$ 20,262

$ (3,972)

n/m

General and admin

$1,556

$ 790

97%

$ 4,743

$2,245

111%

Sales and marketing

$1,754

$691

154%

$ 4,033

$2,063

95%

Share-based compensation (non-cash)

$1,156

$222

421%

$ 3,056

$787

288%

Impairment of goodwill

$1,156

$   –

n/m

$ 1,156

$ –

n/m

Net financing costs (income) 3

$3,679

$ (115)

n/m

$4,778

$ (211)

n/m

Net income (loss)

$ 2,820

$(2,346)

n/m

$ 2,496

$(8,856)

%

EPS (basic)

$ 0.023

$(0.023)

n/m

$ 0.021

$ (0.093)

n/m

EPS (diluted)

$0.021

$(0.023)

n/m

$ 0.019

$ (0.093)

n/m

Sales volume of:

Dried cannabis flower (gr)

303,428

196,129

55%

736,153

598,060

23%

Cannabis oil sold (ml)

768,400

189,600

305%

1,739,250

406,000

328%

1 Not meaningful

Net sales consist of gross sales and sales recovery (return) and includes dried flower and cannabis oil sales, sales of accessories and revenues from the Company’s wholly-owned subsidiary Trauma Healing Center.

3 Net financing costs consist of financing costs less any investment income earned.

Balance Sheet Highlights

At the end of the third-quarter 2018 the Company reported:

  • $156 million in cash and short-term investments (up from $34 million at the August 31, 2017 year-end);
  • $26.9 million in combined biological assets and inventories (up from $5.4 million at year-end);
  • $83 million in property, plant and equipment (up from $45 million at year-end);
  • $9 million in current liabilities (up from $6 million at year-end);
  • $98 million in long-term debt and convertible debentures (up from $3 million at year-end);
  • 124.6 million outstanding shares (103.5 million at year-end); and
  • 140.5 million fully-diluted shares (114.2 million at year-end) – including 7.8 million options (6.3 million at year-end), 8.1 million warrants (4.3 million at year-end), and 21.2 million shares (–Nil at year-end) if the convertible debentures are converted at their conversion price of $5.42.

Outlook

  • Phase 4a (26 grow rooms) and 4b (27 grow rooms) construction expansions began in Q4 including a substantially complete 40-megawatt (peak capacity) substation worth $4 million – total cost of Phases 4a and 4b (including the $4 million spent on the substation) estimated to be $70 million bringing target production capacity to 89,000 kg/annum;
  • Phase 4c (24 grow rooms) which has an estimated cost of $40 million would bring target production capacity to 113,000 – construction scheduled to begin in January 2019;
  • Organigram expects to close its previously announced investments by the end of the quarter and is looking to augment its domestic and global capabilities with further investments and/or acquisitions; and
  • Company is confident it will be able to announce further provincial agreements in the adult recreational market in the current quarter.