OrganiGram reported its fourth-quarter and fiscal 2019 earnings last week. The company’s balance sheet saw a significant increase in its PPE (property, plant, and equipment) to 219 million Canadian dollars compared to the balance of 98 million Canadian dollars the previous year. Most of the additions were related to the company’s production capacity expansions. The expansions were related to adult-use cannabis sales. How did these investments turn out for the company?
OrganiGram reported a net loss
The company reported an operating margin of 5.6% during the year. However, OrganiGram’s costs related to borrowing impacted the bottom line and resulted in a net loss of 5.9 million Canadian dollars during the year. Last year, the company reported a net income of 27 million Canadian dollars. Many companies in the cannabis market reported losses, which disappointed investors.
The costs are likely associated with OrganiGram’s recreational cannabis sales. The sales will help the company capture the market in the Canadian cannabis sector. OrganiGram hopes that the sales will provide some comfort for investors. So far, the stock has fallen almost 37% this year.
Most cannabis companies have reported disappointing sales growth during the year. They blamed the slow retail rollout in the cannabis market. Also, black market sales continue to overshadow the legalized market. Based on management’s commentary last week, OrganiGram (OGI) (OGI.TO) expects the Ontario retail stores to grow three times in size.
OrganiGram’s cash management
OrganiGram’s cash situation is still an issue. The company doesn’t get much cash from its operations. OrganiGram funds its operations and expansion plans with external financing sources. The company used a blend of debt and equity to raise cash in 2018. About 58 million Canadian dollars came from long-term debt, while 35 million Canadian dollars came from stock options and warrants.
The cannabis sector is considered to be a high-risk investment due to its uncertain outlook. There isn’t a timeline or certainty about retail store rollouts in Ontario. Notably, the demand for Cannabis 2.0 is anyone’s guess. We don’t want to come back after a year with empty hopes—like Cannabis 1.0 turned out.