Organigram Reports Record First Quarter Fiscal 2023 Results

Organigram Holdings Inc., a leading licensed producer of cannabis, announced its results for the first quarter ended November 30, 2022 (“Q1 Fiscal 2023”). All financial information in this press release is expressed in thousands of Canadian dollars (“$”), except for references to $ millions.

“Our first quarter of fiscal 2023 demonstrates the success of our expansion at Moncton and continuing productivity improvements in fiscal 2022,” said Beena Goldenberg, Chief Executive Officer. “In the quarter, we achieved a record harvest and the lowest cost of cultivation in the history of the Company. We maintained our market position and are confident our disciplined approach to operations and innovation will drive further success in the rest of the year.”

1 Adjusted gross margin, adjusted gross margin % and Adjusted EBITDA are non-IFRS financial measures not defined by and do not have any standardized meaning under IFRS; please refer to “Non-IFRS Financial Measures” in this press release for more information.

2 Excluding non-cash share-based compensation.

“In Q1 Fiscal 2023, we achieved the highest adjusted gross margin in the Company’s history at $13 million, continued the trend of positive Adjusted EBITDA and delivered positive net income and cash flow,” added Derrick West, Chief Financial Officer. “With the expected completion of the expansion at our Lac-Supérieur facility and continuous improvements in automation and cultivation, we have built a long-term platform to serve increasing market demands and generate value.”

Key Financial Results for the First Quarter 2023

• Net revenue:
  • Compared to the prior period, net revenue increased 43% to $43.3 million, from $30.4 million in Q1 Fiscal 2022. The increase was primarily due to an increase in adult-use recreational and international revenue, partly offset by a decrease in medical sales.
• Cost of sales:
  • Q1 Fiscal 2023 cost of sales increased to $31.6 million, from $27.9 million in Q1 Fiscal 2022, primarily as a result of the increase in sales volume in the adult-use recreational market.
• Gross margin before fair value changes to biological assets, inventories sold, and other charges:
  • Q1 Fiscal 2023 margin improved to $11.7 million from $2.5 million in Q1 Fiscal 2022, positively impacted by higher net revenue, lower cost of production and a reduction in inventory provisions and unabsorbed overhead costs.
• Adjusted gross margin⁴:
  • Q1 Fiscal 2023 adjusted gross margin was $12.8 million, or 30% of net revenue, compared to $5.5 million, or 18%, in Q1 Fiscal 2022. The improvement in quarterly results was primarily due to lower cultivation costs that was the result of higher plant yields, ongoing cost efficiency improvements and the benefit of a lowered per unit costs that were achieved due to increased scale of operations at the Moncton facility.
• Selling, general & administrative (SG&A) expenses:
  • Q1 Fiscal 2023 SG&A expenses increased to $15.7 million from $12.6 million in Q1 Fiscal 2022. SG&A expenses as a percent of net revenue has decreased from 42% to 36%. The increase in expenses was primarily due to the higher spend to support the growth in the business.
• Adjusted EBITDA⁵:
  • Q1 Fiscal 2023 Adjusted EBITDA was $5.6 million compared to negative $1.9 million in Q1 Fiscal 2022. The improvement is primarily attributable to the increase in adjusted gross margins due to the higher volume of products sold and lower cultivation and post-harvest costs.
• Net income (loss):
  • Q1 Fiscal 2023 net income was $5.3 million, compared to a net loss of $1.3 million in Q1 Fiscal 2022. The transition to positive net income is primarily due to higher gross margin from increased revenues, lower per-unit production costs and a decrease in inventory provisions and unabsorbed overheads.
• Net cash provided by (used in) operating activities:
  • Q1 Fiscal 2023 net cash provided by operating activities was $3.5 million, compared to $9.3 million cash used in Q1 Fiscal 2022, which was primarily driven by the decrease in accounts receivables and positive Adjusted EBITDA.

The following table reconciles the Company’s Adjusted EBITDA to net income (loss).

The following table reconciles the Company’s adjusted gross margin to gross margin before fair value changes to biological assets and inventories sold:

Canadian Recreational Market Introductions

Holy Mountain

• HOLY MOUNTAIN, the Company’s newest value brand, was announced on November 22, 2022. It features an initial lineup of dried flower strains along with value pressed hash. With the introduction of HOLY MOUNTAIN, Organigram now offers value-priced flower in an expanded range of sizes, starting with 3.5 gram offerings at launch.

Monjour Twilight Tranquility

• Introduced in November, Twilight Tranquility is sugar-free soft chew in pear, plum and lavender flavours. Each soft chew contains the cannabinoids CBD, CBN and CBG. Sold in packs of 25.

Infused Pre-rolls

• In Q1 of Fiscal 2023, the Company introduced a number of pre-rolls infused with hash. Two examples are Edison Grape Crescendo, infused with bubble hash, and Tremblant Sweet Cherry, infused with hash.

Research and Product Development

Product Development Collaboration (“PDC”) and Centre of Excellence (“CoE”)

• The CoE development and scientific process is supporting discovery and development efforts on novel vapour ingredients, substrates and will guide the optimization of the existing traditional extract and distillate ingredients. The supporting scientific data also provides an industry leading vapour data set that will serve as part of a foundation for future development activities, including consumer safety, product quality and performance. The state-of-the-art Bio Lab facility has been operational since June 2022 and is conducting work for the CoE. It is hoped that the work being undertaken, including development of genetic toolboxes for research of key cannabis traits, will accelerate R&D activities and has already been used to support several plant science discoveries that will eventually benefit Organigram’s existing own plant portfolio and long term growing strategies.

Plant Science, Breeding and Genomics R&D in Moncton

• The Plant Science team continues to move the garden towards unique, high terpene and high tetrahydrocannabinol (“THC”), in-house grown cultivars, while also leveraging the newly commissioned Biolab for ongoing plant science innovation focusing on quality, potency and disease-resistance marker discovery to enrich the future flower pipeline.

International

• In Fiscal Q1 2023, the Company completed three international shipments totaling $5.9 million to Israel and Australia.
• Recent political changes and cannabis election ballot initiatives for medical and recreational use in the United States suggest that the potential movements to U.S. federal legalization of cannabis (THC) remain difficult to predict. The Company continues to monitor and develop a potential U.S. entry strategy that could include THC, cannabidiol (“CBD”) and other minor cannabinoids. The Company is also monitoring recreational legalization opportunities in European jurisdictions based on the size of the addressable market and recent regulatory changes with a particular focus on Germany.

Liquidity and Capital Resources

• On November 30, 2022, the Company had unrestricted cash and short-term investments balance of $95 million compared to $99 million at August 31, 2022. The decrease is primarily a result of capital expenditures of $8.4 million which was partly offset by cash generated in operating activities of $3.5 million.
• For Fiscal 2023 the Company has budgeted $29 million in capital expenditures for the three facilities. This spend would relate to the completion of the expansion at the Laurentian operations and also include automation investments at the Winnipeg edibles and Moncton flower facilities.
• Organigram believes its capital position is healthy and that there is sufficient liquidity available for the near to medium term.

Capital Structure

Outstanding basic and fully diluted share count as at January 11, 2023 is as follows:

Outlook⁶

Net revenue

• Organigram currently expects Fiscal 2023 revenue to be higher than that of Fiscal 2022. This expectation is largely due to ongoing sales momentum, stronger forecasted market growth, the Company’s expanded product line in multiple segments, greater capacity to meet demand at the Moncton Campus, increased throughput at the Winnipeg facility and contributions from the Lac-Supérieur facility.
• In addition, the anticipated continuation of shipments to Canndoc in Israel and Cannatrek and Medcan in Australia is expected to generate higher sequential revenue in Fiscal 2023 as compared to Fiscal 2022. The Company believes it is better equipped to fulfill demand in Fiscal 2023 with larger harvests expected compared to Fiscal 2022. This is supported by the new multi-year agreement with Canndoc that contemplates shipping up to 20,000 kilograms of dried flower, announced on November 17, 2022.
• The Company expects Q2 of Fiscal 2023 revenue to be higher than Q2 of Fiscal 2022.

Adjusted gross margins⁷

• The Company expects to achieve similar adjusted gross margin rates throughout Fiscal 2023 with further cost saving initiatives being put into place to help offset anticipated price compression.
• Organigram has identified the following sales mix opportunities which it believes have the potential to further improve adjusted gross margins over time:
  • International sales, which have historically attracted higher margins and are expected to represent a greater proportion of the Company’s revenue;
  • Sales from the Holy Mountain brand, which will include several product categories, in a number of higher margin formats with national distribution on most SKUs
  • The launch of new products across different derivative categories with expected attractive long-term margin profiles; and
  • The larger volume of higher margin sales expected from the Lac-Supérieur Facility, achievable from the increased capacity post construction.

Adjusted EBITDA

• The Company expects to maintain positive Adjusted EBITDA throughout Fiscal 2023.

Cash flow

• The Company generated positive cash flows from operating activities during Q1 Fiscal 2023, which was achieved primarily due to positive Adjusted EBITDA and a reduction to receivables. While the Company expects to continue to generate positive Adjusted EBITDA, periods when the Company achieves significant increases to sales will result in increases to receivables and this will negatively impact cash from operating activities. The Company has a $29 million capex budget for Fiscal 2023 and if completed as planned during Fiscal 2023, the Company expects to generate positive free cash flows (“FCF”) by the end of calendar 2023.

About Organigram Holdings Inc.
Organigram Holdings Inc. is a NASDAQ Global Select Market and TSX listed company whose wholly-owned subsidiaries include Organigram Inc. and Laurentian Organic Inc. licensed producers of cannabis and cannabis-derived products in Canada, and The Edibles and Infusions Corporation, a licensed manufacturer of cannabis-infused edibles in Canada. Organigram is focused on producing high-quality, indoor-grown cannabis for patients and adult recreational consumers in Canada, as well as developing international business partnerships to extend the Company’s global footprint. Organigram has also developed a portfolio of legal adult-use recreational cannabis brands, including Edison, Big Bag O’ Buds, SHRED, Monjour and Trailblazer. Organigram operates facilities in Moncton, New Brunswick and Lac-Supérieur, Québec, with a dedicated manufacturing facility in Winnipeg, Manitoba. The Company is regulated by the Cannabis Act and the Cannabis Regulations (Canada).