How much will the Organigram (OGI.V) product recall cost the company?

The numbers are still accruing, but as of today’s Q1 2017 financials, at least $499k of product has been lost, a situation that isn’t helping the company’s $750k loss on the quarter.

On sales of $2.23 million (yes, that seems low to me too), the company shipped 260k grams of dried bud and 77k ml of cannabis oil in registering its loss.

Organigram claims: “After adjusting for the change in fair value of inventory and biological assets, gross margin for the quarter was more than 65% and the Company generated adjusted EBITDA of $272,839 and cash flow of $510,015.”

But the recall loss could be much larger going forward. Or not much larger. We don’t know.

As a result of the recall, the unrealized fair value adjustment of inventory includes a loss of $499,857 for the three-month period ended November 30, 2016 and there may be further adjustments to the unrealized fair value of biological assets and inventory.

CEO Denis Arsenault, predictably, spun it as positively as he could, reasoning that the whole shamozzle is a positive.

“Organigram, like many of the first movers in this emerging industry, has experienced incredible growth in our business, operating infrastructure, and within our team. We have also faced challenges and setbacks as the regulations that govern our industry and the market in which we operate continues to evolve. Thanks to the prompt action of our team, the understanding and loyalty of our patients and investors, the support of our licensed testing counterparties, and the collaboration and oversight of our industry’s regulators, the Company has been able to address these challenges and setbacks immediately and definitively.”

Definitively may be stretching it, considering there are still losses to be calculated, and the origin of the non-approved, non-organic pesticide found in the product, at levels higher than those approved in food use, and of a nature that emits hydrogen cyanide when burned, have still yet to be determined.

Organigram is working closely with Health Canada to determine the origin of the non-permitted ingredients.

That shouldn’t be too difficult, since the non-permitted ingredients have been apparently used since February 2016. Toss me your log books, Denis, and I’ll have a squizz.

— Chris Parry

Written By:

Chris Parry

A multi-Webster Award winner for excellence in BC journalism, Parry is the founder and publisher of Equity.Guru, which he built with the specific plan to blend old school reporting with stock promotion, in a way that puts the emphasis on truth, high standards, and ethics. Parry is a veteran of TV, radio, and print, and consults with public companies to help them figure out their storylines, lay down achievable milestones, and improve their communication with shareholders, while also posting regular deep dive analysis of companies in the public spotlight.

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