VIDEO: Organigram Holdings Inc (CVE:OGI) Quarterly Results

Organigram Holding Inc (CVE:OGI) (OTCMKTS:OGRMF) (FRA:0OG) CEO Greg Engles talks to James about the company’s financials and their positive earnings per share.  Greg talks about how the key for them is their increased yields and their increasing number of patients.  They are now able to achieve over 400 grams per square foot on an annualized basis largely because of their proprietary software.  They treat various strains of cannabis differently and tailor their nutrients based upon the needs that Organigram has discovered.

TRANSCRIPT:

James West:    Hi Greg, thanks for joining us today.

Greg Engles:   Thanks for having me, James.

James West:    Greg, great financial quarter. Let’s talk a bit about that. You reported earnings of $0.09 per share.

Greg Engles:   Yeah, we had a positive contribution this quarter of, actually, $0.01 per share in terms of total, but you know, it was the first time in over a year that we’ve had a positive contribution, really driven by a couple of key things for us: one is, we’re seeing an increased number of patients in terms of, our patient population continues to grow month-over-month and we surpassed 13,000 patients in the quarter.

We’ve also seen significant improvements in our yields, and that’s a big factor for us as a company. Not only did we produce a premium indoor product, but we also are seeing a dramatic increase in our yields, which is allowing our cost of goods to be reduced.

James West:    Right. So your cost of goods is why the yields are important?

Greg Engles:   Absolutely. So if you think of how cost of goods are calculated, right, there’s only two ways that you can improve your cost of goods: one is to reduce your costs, and the other is to improve your yields, because then you’re offsetting what you’re contributing against the costs that go into the production.

So we actually are now seeing, and we reported last month, forward-looking projection changes in terms of what our production expectations will be. So we’re now kind of the average that the standard looks at in the industry is grams per square foot annually; we are now basing the kind of average standard of 400 grams per square foot annually, which is, to my understanding, one of the best in the industry.

James West:    Absolutely.

Greg Engles:   And with that, it’s really had a big impact on our cost of goods, because you’re now allocating the labour and the input costs and everything else, against a much more fulsome product at the end of the day.

James West:    That’s really interesting. So what is the main reason that your yield per plant, or yield per square foot, has increased so much in the last year?

Greg Engles:   That’s a great question. Part of it is our systematic approach; we’ve developed our own software called Organigrow, and we actually use our own software to really measure everything that we’re doing with the plants. We treat each strain very differently; we focus in, in terms of how that strain specifically, what the input materials are, how we manage it through its life cycle, and then we give it different nutrients. We actually treat each strain very differently. So that’s one part of our systematic approach.

And then as we, over time, continue to improve our three-level growing technology, I think that’s one of the key differentiators for us: we’re seeing improvements with that, and we’re getting the same yield on the upper left hand side on the third level as we are on the lower right hand side on the bottom level, and that is a big part as well. So, just consistency of plants and input materials in everything we do, and again, it’s having a huge impact on our costs.

So we’re now seeing kind of a cash cost and an input cost based on labour and materials of just over $1.00 per gram. So even when you put depreciation and allocate against that, you’re still well below $1.50 per gram. So big change for us as a company with premium indoor product.

James West:    Sure, and great implications for future profitability.

Greg Engles:   Absolutely. So I think as we move into the adult recreational market, and as competition grows in the space, one of the key aspects is not only what we’re able to get as an average selling price, but what can we do in terms of costs. So having that offset of having a premium product at a very cost-competitive pricing in terms of our production is going to be a big differentiator for us.

James West:    Okay. So this has been the result of, obviously, an ongoing sort of re-focusing of all of the assets and the whole idea behind Organigram. I mean, it’s really come 360 degrees since 2017. What is really going to drive profitability in the near future? What’s your main sort of driver?

Greg Engles:   If we look ahead, we’re now starting to build up inventory for the adult recreational market, right? We’ve got agreements in place with New Brunswick and PEI, we’re very active in the core Canadian markets, you know, Ontario, Alberta, Nova Scotia, other provinces, to look to kind of position ourselves to have a significant product impact there. So building that inventory, and when we see the launch of the adult rec market this summer at some point, we certainly are comfortable that we’re going to have a sufficient fill, and that’s one of the big factors in this space is: are companies going to be able to contribute and have the product available when the various liquor boards, whether or not they’re the retailer or the wholesaler, or the new cannabis boards as we call them, are looking for product?

So that’s going to be a big driver, but we’re going to see continuous improvement as well as a company. You know, everything that we’re doing is really about producing a premium quality product, but we’re looking at how do you improve efficiency. So we’ve put a lot of automation in, in terms of packaging, waste destruction, potting, everything that we’re doing. So again, that will help drive down costs. So it’s all about producing a premium product at a very reasonable, low cost, and that will help on a profitability perspective.

James West:    Sure. I want to ask you about the biological assets accounting, because you gave me a fantastic answer before we started to roll – the first logical explanation that I’ve heard in regards to biological assets accounting. And you explained to me that that originally came from the forestry industry.

Greg Engles:   Well, if you think of how kind of IFRS and biological assets work, you’ve got an attributed value to your product in its growth cycle, because if in forestry, when you have a 50-year growth cycle, if you weren’t doing it, forestry companies would never make money, because they’d always be forward-looking so far in terms of their growth cycle.

So it’s been applied to various industries, including the cannabis industry, and that’s important where we have to ascribe a value to the plant and the product throughout its growth cycle and even once it’s harvested, before we actually sell it. There’s an offset against sales, as you know, in terms of when you sell the product, but you do build a value, because it is a market-ready product at the end of the day when you’re putting it into inventory. So that’s a key factor.

James West:    Right, you bet. Okay, that’s great. We’ll leave it there for now, we’ll come back to you in probably less than a quarter, and we’ll continue the conversation. Congratulations on a great quarter, Greg. Thanks for coming in.

Greg Engles:   Great. Thanks, James.

Original article: VIDEO: Organigram Holdings Inc (CVE:OGI) Quarterly Results

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