Is OrganiGram Holdings A Buy Or Sell?

Legalization of recreational marijuana is gaining widespread acceptance, both in the United States and in a variety of countries around the world.

By the end of 2018, recreational marijuana was legal in 10 US states and the District of Columbia.

Canada implemented legislation legalizing recreational marijuana nationwide, and other countries may soon follow. For example, New Zealand will have a national referendum on the issue in 2020.

Medical marijuana has made even larger strides in the legal arena, as studies have conclusively shown that the drug is an effective treatment for certain forms of epilepsy.

It is frequently prescribed for patients experiencing the pain, nausea, and weight loss associated with serious illness, and physicians have successfully used marijuana to manage the symptoms of autism, multiple sclerosis, glaucoma, Crohn’s disease, nerve pain, and certain mental health conditions.

Medical marijuana is legal in 33 US states and the District of Columbia, and the number of other countries that permit medical use is increasing rapidly.

More than 30 countries support the use of medical marijuana, including Thailand, South Korea, the United Kingdom, Australia, Germany. and Israel.

Overall, the trend is clear. There is growing global demand for marijuana, and analysts believe the market has virtually unlimited potential.

The Complexities of Investing in Medical Marijuana

Investors have a long list of options for getting involved in this blossoming industry.

Startups and established companies are targeting all aspects of the supply chain, from cultivation to sales.

Some organizations are taking a big picture approach by acquiring a variety of businesses to ensure end-to-end market leadership.

With so many players trying to make their mark, choosing the best investment is a challenge.

The biggest issues facing investors who are entering the medical marijuana market are two-fold.

First, most companies are basing their strategic plans on predictions that demand will increase substantially as marijuana is legalized in new markets.

As with any prediction, the expected numbers may never materialize. For example, some marijuana distribution companies doing business in US states where the drug is legal have discovered that competition from lower-cost black market marijuana sales is depressing revenue.

The second concern for new investors is evaluating share prices. Many businesses in the cannabis industry have seen tremendous growth in stock prices over the past year. While some analysts believe that additional markets will boost share prices further, others have stated that current prices reflect expectations for future growth.

The bottom line is that decisions about investments in the marijuana industry should be made using the same criteria that is used to evaluate investment opportunities in other industries.

Quality of leadership, growth prospects, and current financials paint a complete picture of the likelihood that an individual company is likely to offer significant returns in both short-term and long-term time frames.

OrganiGram Holdings: An Overview

Many investors are focused on OrganiGram Holdings, because this company boasts a variety of advantages over competing organizations. For example, OrganiGram [OTC: OGRMF] was able to boost production capacity to 36,000 kilograms per year by the end of 2018, and if all goes as planned, production capacity will grow to 119,000 kilograms per year by October of 2019.

One of the biggest advantages OrganiGram [TSXV: OGI.V] has is the efficiency of its production process.

In 2018, the company succeeded in bringing the cost of growing cannabis from CA$2.65 per dried flower to just CA$0.80.

This permitted a low selling price of CA$7.00 per gram of dried flowers, which was nearly impossible for most competitors to match.

Perhaps more important, OrganiGram’s quality has not suffered during the push to decrease production costs.

The product is still recognized by consumers and industry organizations for its excellence.

Pros and Cons of Investing in OrganiGram Holdings

Early sales figures indicate that OrganiGram is leading the market in three Canadian provinces – New Brunswick, Nova Scotia, and Prince Edward Island. It also holds a healthy market share in three more – Manitoba, Newfoundland, and Ontario.

Quebec is the only province where OrganiGram has failed to establish a strong position.

All indications are that market share will increase, especially once Canadian law allows edibles.

In preparation for this legislation, which is expected in late 2019, OrganiGram is working with established food product developer Canada’s Smartest Kitchen (CSK) to create a line of cannabis-infused chocolates.

When it comes to disadvantages, OrganiGram has its share. For example, the company’s price-to-sales ratio is far higher than analysts like to see.

This is largely due to the fact that the Canadian market didn’t open until mid-October 2018, so it was virtually impossible to accumulate any substantial sales figures before that date.

If the increased sales expected from the Canadian market materialize, the price-to-sales ratio is predicted to drop to a more palatable figure in 2019.

It is also important to note that while the price-to-sales ratio is high compared to that of other businesses across industries, within the cannabis industry, it is not such an outlier.

In fact, many analysts consider OrganiGram’s current price to be a bargain, making it a solid choice for investors who want to put money into cannabis stock now.

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.