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Read the quotes on the latest news release from ACMPR licensee Organigram (OGI.V) and you’d think they’re doing just fine, despite a $2.3 million loss this past quarter. But the devil’s in the detail, and the details are perilous, especially when lined up next to comparables.

Organigram is pleased with the results and progress made during the quarter from an operational perspective and management is confident that these actions build the foundation for long-term success for the Company. This focus on product quality contributed to a 25% net increase in registered patients in Q3 when compared to Q2.

Cool cool cool. So if your patients are up 25%, I’m guessing your sales are too, right?

But wait, there’s more: OGI is selling oils these days, with nearly as many milliliters sold (189k) in Q3 as grams of dried flower (186k). Considering the mark-up on oils, revenues must be exploding, right?

Additionally, the Company continued to make significant headway in increasing its overall production capacity and ensuring that it is prepared to be a market leader in the proposed adult-use recreational market in anticipation of a late-June 2018 adult recreational program launch date.

Huzzah! So many good things! All of which would point to sales being way more than a year earlier. Right?

RIGHT?

Operating Metric Q3 2017 Q3 2016
Grams Sold (Flower) 196,217 213,270
Milliliters Sold (Oil) 189,600 0
Net Sales 1,917,499 1,806,849
Net (Loss) Profit (2,345,586) 367,720
Adjusted EBITDA (1,504,713) 903
Cash Flow (1,168,606) (49,635)

What’s that now?

Organigram’s new CEO Greg Engel yammers on for a bit about how much he’s spent on the company’s new quality control program, without specifically referencing the product recall that saw the company yank weed all the way back to February last year, when they were caught (knowingly or otherwise) spiking it with pesticide.

But what all this really means is, patient numbers are a terrible metric to measure the potential success, or otherwise, of any weed company. Sure, Organigram has a lot of patients, but how many of them went through the product recall and will never buy from the company again? How many are taking part in class action lawsuits against the company? How many are buying only when their other vendor is out of stock? How many spend $25 a month, as opposed to the $200 they might spend elsewhere? How many patients have moved to the newly licensed guys, like Supreme (FIRE.V)?

Organigram is pushing more product out, and higher margin product at that, and somehow their sales are flat over last year. That’s BAD. That tells you the brand is hurting. It’s damaged, perhaps permanently so.

Even worse – the company admits it trashed around $1.6 million worth of product that it’s new QA system deemed not worthy of sale.

Think about that for a second – that QA program DIDN’T FIND THE PRODUCT UNWORTHY UNTIL IT WAS HARVESTED. they didn’t trash $1.6 million of seeds, or clones, or seedlings. They grew it, spent the cash on power and fertilizer and pesticide (probably), then harvested and decided it was crap.

That’s a lot of bad weed being produced in the OGI facility. Sure, they caught it this time, rather than sending it out to patients and Aurora (ACB.V) for resale, but they still produced it. What is going on at the ‘organic’ licensee?

They can headline their news releases with “increased product quality” all they like, but when you’re having to incinerate part of your harvest because it’s unsalvageable, and you’re banking a $1.6 million loss in doing so, that doesn’t point to increased quality, it points to increased problems.

Nowhere in the news update does the CEO explain why his product is failing to pass QA, which could lead a cynic to wonder if it’s failing the old pesticide test again, or the absence of the old pesticides are leading to bugs, mold, or time/space wormholes to another dimension.

The stock only fell 3.2% on the news, because weed investors are weird, or perhaps because the situation at the company continues to indicate that the only way forward is to merge or be acquired, and maybe – just maybe – that’ll bring a premium to the share price.

Personally, I was prepared to see what new management could do after former CEO Denis Arsenault was booted sideways, but the signs are not good. the stock price is lower than it was in the post recall days and I can’t see a scenario where it heads upwards any time soon.

 

Disclaimer: ALWAYS DO YOUR OWN RESEARCH and consult with a licensed investment professional before making an investment. This communication should not be used as a basis for making any investment.

Chris Parry

Chris Parry is a two-time Webster Award winning journalist who has been featured in the pages of The Vancouver Sun, The Province, National Post, Spin, Hollywood Reporter, FHM, Stuff, and Stockhouse. He was the first business journalist to identify and focus on the move to marijuana as an investment opportunity, and started Equity.Guru as a venue for honest, no punches pulled coverage of the North American public markets.

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