Organigram CEO Greg Engel on Growing Cannabis in New Brunswick

James West

Organigram Holdings Inc (CVE:OGI)(OTCMKTS:OGRMF) CEO Greg Engel joins James for an update on the buildout of the company’s next phase of growing capacity, and emphasizes their preparation for Canada’s legal recreational marijuana market, slated to go live on July 1st 2018.


James West:    Greg, thanks for joining me today.

Greg Engel:    Thanks for having me today.

James West:    Greg, why don’t you give us an update on what’s going on with Organigram these days?

Greg Engel:    Yeah. So we’re working hard right now to be prepared for the launch of the adult recreational program in the Canadian market next year, so as we’re seeing significant growth today in the medical market, but we certainly anticipate that next year’s launch of the adult recreational cannabis market’s going to be significantly larger than the current medical market. So really a lot of our efforts are going into building out our facility, so we’re adding another 100,000 square feet of three-tiered production by the end of this year, and then next year we’ll have another almost 40,000 square feet that’ll bring us up to around 200,000 square feet of production, which is a pretty large facility overall.

James West:    Sure. So that’s all still in Moncton?

Greg Engel:    All still in Moncton; we’ve been expanding kind of in our existing footprint, and the key for us is that that’s fully funded, so we’ve got the capital to do that buildout, and that’s going to bring us up to 16,000 kilos by the end of this year annually and about 26,000 kilos by the end of next year. So big production out of our facility.

James West:    Okay. I wouldn’t be credible if I didn’t ask, what kind of hit did you take in your client registrations after the issue with the pesticides?

Greg Engel:    Yeah, certainly we did see a bit of a slowdown in terms of our patient base, but we’ve been working very hard in improving our quality and focus on quality production right now, and if you went to Lift, for example, to look at reviews of our product, you’re seeing kind of 4.5 out of 5 is our rating right now. so producing a high quality product, and we’ve been really happy with kind of the uptake that we’ve had with patient numbers coming back with us or new patients coming to Organigram over the last four or five months.

James West:    Okay, so is the focus for Organigram primarily on the recreational market that is imminent, or are you equally balanced between medical and recreational, or is it predominantly medical? It sounds like it’s at least partly recreational.

Greg Engel:    It’s a great question. So today, we’re very focused on the medical space; I mean, certainly that is the area that we’re able to sell in today, but a big part of our efforts, as I said, are going into preparing for the adult recreational program next year, not only from production perspective but also in terms of the product mix. What we’re waiting for, and we’re working hard lobbying government at a Federal level, is what forms are we going to have available for the adult recreational program.

We’ve certainly heard consistently that one of the key objectives for the federal government is to eliminate the black market, so in order to do that, we’ve got to have forms beyond just a smoke-able and vaporizable form, or oral oils that we have today. I think one of the most important ones is going to be vaporizable products, vaporizer pens and products like that, at the product launch next year.

James West:    Sure. All the stuff that the illegal dispensaries already have.

Greg Engel:    Yeah, and I think we’ve seen, if we go to states like Colorado and we look at kind of mix, I mean, we have a partnership with a company there called The Green Solution or TGS, and if we look at their product mix and sales, vaporized products play a very significant and growing portion of their sales. And for us, that partnership allows us to not only access kind of the technology and the know-how, but even things like the packaging, so as we want to bring those products to market in Canada we’re well positioned to be able to do that.

James West:    Okay, so the enforcement against illegal dispensaries in Ontario is pretty consistent and kind of relentless. Is that the same as what is going on in the Maritimes, or is the Maritimes more like the West Coast, where they’re actually trying to integrate and license formerly illegal dispensaries?

Greg Engel:    I would say, again, I only follow what I see in the news, I guess, the same way you do; so certainly there has been enforced activity against illegal dispensaries in Atlantic Canada. You know, I think it kind of goes city by city and region by region, but I certainly don’t see any aspects where any of those dispensaries would play a part in the legal marketplace in the future, as we’ve heard out of Ontario last week in their announcement as well.

James West:    So do you think that the Ontario government’s position is sort of the default one that has to happen federally in order to eliminate the black market, and do you think the black market is really stamp-out-able, to use want of a better phrase?

Greg Engel:    No, you know, I think two key things: one is, the federal government has consistently stated that their goal in launching this program is to eliminate the black market and ensure a consistent, safe and regulated supply of product, so that’s why they’re looking at licensed producers like Organigram for production and sourcing product.

I think the second thing though, even if you look at a US state, and I use Colorado because it’s had a program up and running the longest, we still see estimates that 10 to 15 percent of the market is served by the black market. So you know, you’re never going to eliminate black market completely, but the goal is to certainly over time is to grow and develop the legal market for access for consumers.

James West:    Okay. How much of Organigram’s client base is Maritime, and how much of it is all across Canada?

Greg Engel:    That’s a great question. So we certainly over-index in Atlantic Canada and the Maritimes because we’re based there, and certainly there’s a high brand recognition and people recognize Organigram as being an East Coast company, but we’ve got a major portion – I would say we’re kind of a third in Ontario, a third in Atlantic Canada, and a third in Western Canada is our current patient base. So pretty well distributed across the country, but again, we over-index versus other companies in Atlantic Canada just because the brand name awareness that we have is keener.

James West:    Okay. How are you going to deal with the limit on advertising to continue to market against behemoths like Canopy and Aphria?

Greg Engel:    Well, I think a couple key things on that: so we’re partnering, there’s 16 licensed producers that are working together, including those companies. We’re partnering with Ad Standards Canada to develop a framework for advertising; we believe, and this is a group, for example, that oversees self-regulation of the alcohol advertising in Canada. So we believe working with Advertising Standards Canada to develop an advertising framework positions us well so that we have some self-regulation of what is allowable and what isn’t allowable, and we’ve had multiple meetings with the federal government on those draft guidelines. So we believe responsible advertising should be allowable, and I think some of the things that’ll be important is, for example, in a retail location, we’re highly supportive of having an age-gated entry, so no minors allowed into a retail location, whether or not it’s a Crown Corp or a private run location.

But then once you’re through and into the location, there’s no reason that you shouldn’t see branded packaging, and have advertising, and even self-information kiosks that people can look at. And I think those are some of the key things that consumers are looking for, when you look at what’s important and talk to people from markets like Colorado or Washington.

James West:    Mm-hmm. Do you have a strategy in place, or in mind, for edibles and other products like that?

Greg Engel:    Yeah. So we’ve heard to date that edible products are not going to be part of the initial launch in the summer of 2018, but that in the next 12 to 18 months following that, we should see edible products. So again, that’s part of our partnership with The Green Solution out of Colorado. They’ve got over 225 SKUs that they provide in all of their retail locations; a major portion of those are edible products. So again, that gives us a big advantage of having formulations and technology and packaging, and the know-how. And our team spends time in Colorado, and we have had people from TGS up to our facility.

As that market opportunity comes closer, then we’re in a position to kind of bring whatever product to the market will allow to the market. We’d originally planned to build out a facility dedicated to edibles for now, in terms of having that ready if it had been available, but we’ve deferred that out slightly, and we’ll wait to see what timeline the government gives us on edibles.

James West:    Mm-hmm. So I guess that only applies to recreational; you released an edible CBD product, Shubie, in August, and obviously that’s got implications probably exclusively for medical marijuana?

Greg Engel:    Yeah, so that’s a high CBD product that’s over 20 percent CBD, and I think there was a real need for us in the market of having a high CBD product. There’s people that want product from the medical perspective that have little or no THC in it, so no psychoactive effect, and it’s really – and we’ve had great response from that product. It’s an oil for oral ingestion, and so far, we set a record sales day on our oils the day that we launched our product because there was a high demand and a pent-up demand for it. We’re getting great patient feedback on that since we launched it.

James West:    Right. Okay, Greg, well that’s a great update. We’re going to leave it there for now. I’ll come back to you in a couple quarters’ time and see how things are progressing. Thank you for your time today.

Greg Engel:    Great! Thanks for having me again, James. Appreciate it.

James West:    No problem. Bye for now.

Greg Engel:    Take care.


James West

James West

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I employ a Capital Efficiency Model that dictates money should never be exposed for longer than is absolutely necessary to the possibility of being lost. Thus, I routinely sell half my position when a stock doubles from my entry price, and I sell stocks that lose 20%, unless there are...
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