VIDEO: Is OrganiGram Undervalued Compared to its Competition?
OrganiGram Holdings Inc. (TSX.V: OGI, OTCMKTS: OGRMF) CEO Greg Engel talks about their focus on quality as well as some of their unique strategies such as 3-tiered growing. Cubic FT is a metric to consider in evaluating OrganiGram as opposed to just Square FT. Greg also opines and why they may be considered ‘undervalued’ in the larger Cannabis space and attributes it in part to be because they can go ‘under the radar’ being based out of the East Coast of Canada (New Brunswick).
James West: Greg, thanks for joining me today.
Greg Engel: Thanks for having me, James.
James West: Greg, Organigram has been around pretty much since the beginning yet remains, by all accounts, an undervalued marijuana operation. Why is it so undervalued, and what’s happening that might change that?
Greg Engel: I think we’ve made a lot of changes recently. So potentially on the value, being an East Coast-based company has got some real pluses for us operationally in terms of lower costs, lower power costs, and a great employee base, and accessing some government-assisted funding in New Brunswick. We may have been a bit off people’s radar a little bit by being on the East Coast, but we really are a national player in scope; I mean, a third of our patients are from Western Canada, a third of them are in Ontario, so on the medical side, we’re really a key national player.
What we’ve done to make changes, to kind of really pick up our position in terms of getting n people’s radar, is we’ve done two recently bought deals. One was announced yesterday. So between the two of them, raising over $150 million.
James West: Great.
Greg Engel: And we were fully funded already for a series of expansions that we’re going through right now. So we have initial 102,000 square feet of three-tiered growing, and that’s one of the things that makes us very different.
James West: Cubic foot becomes more important than square foot.
Greg Engel: Exactly. So you don’t want to talk square footage, you want to talk about canopy space and how much you’re growing. So it’s a great….so that’ll come online for us in January. We have a pending Health Canada approval, but we’re going through that process. That’ll bring us up to 16,000 kilos in production annually going forward. Then we’ve got another expansion that’ll be online by the end of May, that’ll bring us up to 25,000 kilos. So from an indoor producer perspective, that puts us in the top 2-3 in terms of indoor production, and we’re really shifting to a high-quality, premium flower.
And the bought deal that we announced in December is going to fund an additional expansion in Moncton, which will bring up our capacity over the next 18-24 months to almost 65,000 kilos.
James West: Wow, okay. So you’re definitely amping up the capacity –
Greg Engel: Absolutely.
James West: And you’re going to be a global player by the sounds of it. Have you made any moves into other markets at all, internationally?
Greg Engel: Yeah, it’s a great question. So our previous Chief Operating Officer, Larry Rogers, has moved into VP of International and Business Development role, and part of the bought deal that we just announced yesterday, well, a significant portion of that funds will go to potential international expansion, as well as possible expansion in other jurisdictions within Canada; we’re actively pursuing those right now, looking at what makes sense for us.
So between the two of them, and also possibly hemp production – we’ve seen some other companies make those moves – we’ve been working closely with a few hemp companies to evaluate that. We haven’t finalized any of those agreements.
Our approach on the international perspective, we’ve seen a lot of companies that are exporting currently. We’re looking at export opportunities, but I think the more prudent play is to really look at, can you find a facility or build a facility in a jurisdiction that makes sense and gives you access to a European market? Really it’s Europe that is the key that people are looking at, not to say Australia’s not important and other jurisdictions aren’t.
So that’s what we’re very active in doing right now, is evaluating where would we domicile a facility in Europe, and then how would we approach kind of expansion within the new marketplace.
James West: Hmm. Interesting. Well, that’s an ambitious strategy. Do you worry at all, in your position as CEO, about the proliferation of licenses that Health Canada has implied that they’re going to triple the number of ACMPR licenses granted in 2018?
Greg Engel: It’s a great question. I think one of the things that investors and the public need to consider when they’re looking at companies is that there’s a steep learning curve in terms of growing medical cannabis and growing cannabis on a large scale. All the existing companies, including, as I said, Organigram – we started back in 2014, one of the original licensees under the MMPR – so getting to the point where you’re producing a consistent product, a high quality product, takes a long time. So I think many of those new cultivation licenses that are coming into place or will come into play in the future, many of those players are going to have a learning curve that’s going to really leave them behind for a significant period of time. It’s going to be challenging for them to catch up to the existing players in many aspects.
James West: Do you think that’s sufficient to offset the implied glut of marijuana coming down the pipe? If even a percentage of those new growers get capacity online, I mean, we’re already looking at 2 million kilograms in funded capacity from the publicly traded ACMPR growers; we can’t see what the progress is of the non-public ones, the 80 that exist now. But if they’re implying at least another 160, I mean, to me that just looks like an avalanche of marijuana coming towards the market.
Greg Engel: I think your point’s well taken in terms of, it’s not just about producing volume, right? And that’s why our real focus at Organigram is to focus on quality. So I joined the company as CEO in March, I’ve been in the marketplace for three years as previous CEO of another licensed producer, and my approach has been to really focus on improving our quality, increasing quality. The recent Canadian Cannabis Awards with Lyft, we actually won two of the six product categories, including Top Sativa. We’d never been nominated in the past. So it really shows kind of our shift to quality. And for us, that’s a differentiator.
We also recently launched a premium hand-trimmed flower in the medical space called the Edison Project by OGI, and part of that launch was to see, you know, is there a product at a high price, at a premium price of $15 per gram, but it is a differentiator product, and is the marketplace willing to accept that. The response has been overwhelmingly positive to that, to date.
James West: What is the essence of the differentiation cause for the premium price?
Greg Engel: So it’s a combination of a couple of factors. One is, it’s hand-trimmed, so 100 percent hand-trimmed. It’s also very large flowers. We kind of treat the plant as a source; not everything on the plant is the same. So we’re taking harvest in certain strains, and taking the very large, significantly large flowers, in terms of bringing those to market. And then in terms of the profile of them, they’ve got high terpene profiles, which is desirable certainly in a medical market, but we know will be very desirable in the adult rec market.
So our second key element is going to be in terms of branding and differentiation. We all talk about brands in the space; we’re very focused on leveraging a relationship that we have with TGS, with the Green Solution in Colorado, where we, as the market moves into edibles and extract base, vaporizer cartridges, vaporizer pens, those areas, that partnership will allow us to bring those products with proven formulations, with proven variability in terms of what the cannabinoid profile is, in a manner that is in a child-resistant package, that’s been tested, in a manner that we believe we’ll be able to do faster than other companies. And that’s a brand that’s well-established in the US.
James West: Right. Okay, so that’s interesting. So you’re making moves into the US edibles market; you’ve got this strategy for Europe; you’ve got all these different things going on. Are you confident that it’s just a matter of time till the market appreciates that Organigram is where there’s still a lot of compressed value, perhaps?
Greg Engel: Well, I think two things. So one, I’ll just clarify, we have a partnership with the company in Colorado, and that really is a knowledge transfer and technique transfer and product transfer.
James West: Oh, okay.
Greg Engel: So we’re not invested in them per se, we just have an agreement with them in terms of how that’s structured. But to answer your question, in terms of, I think one of the challenges we face, as I alluded to up front, producing on three levels – a lot of people look at what’s square footage, and everybody makes announcements about their square footage. What they should be looking at, and many of the analysts are looking at in the space as you know, is what’s your funding capacity. What do you have capital built out, and are you hitting the timelines in terms of what that build-out is, and then again, how do you convert that to, you know, your product and your brands and things.
So certainly when I meet with investors and I present at conferences – I presented at a conference here in Toronto yesterday – you know, the response is incredibly positive, and we’ve got investors that have been with us from the start and continue to build their positions, and are in this for the long term.
James West: Okay. Well that’s a great update, Greg. Thanks for coming in today.
Greg Engel: No problem. Thanks, James, appreciate it.
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