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 Company, ANKR 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

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.