Why Investors Should Avoid OrganiGram

Cannabis investors have had an acute interest in OrganiGram (NASDAQ:OGI) stock lately. It shot up by 277% in the first ten days of February. Since then, it has shed nearly 50% of its value. 

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In the last month, OrganiGram is actually up 63%. So the obvious question now is where the company’s stock price is headed next. 

What Were OrganiGram’s Catalysts? 

To comprehend why I believe that OrganiGram’s shares are not currently worth buying, it’s necessary to understand why OGI stock rose in the first place. 

OrganiGram made an announcement on Feb. 2, around the time when its shares started rallying. Specifically, on Feb. 2, the company announced that its SVP of Operations, Matt Rogers, was stepping down at the end of May. Until Rogers leaves the company, he “will work closely with Nathalie Batten, Organigram’s newly named Plant Manager,” the company stated. Batten had joined the company in November 2020 as a consultant. 

Three weeks before the Feb. 2 announcement, OrganiGram appointed Marni Wieshofer to its board of directors. Another InvestorPlace columnist, Will Ashworth, recently gave his take on why OrganiGram has to promote competent leaders to important positions.  

OGI stock climbed after those two announcements. Then, in conjunction with its fiscal fourth-quarter earnings release, Canopy Growth (NASDAQ:CGC) stated that it expects cannabis to be legalized on the federal level in the U S. As a result, the Canadian company is looking to accelerate the rollout of its U.S. business. 

This news pulled all cannabis stocks higher, sending OGI stock to its recent high on Feb. 10. 

Is OrganiGram’s Business Sound?

Last year, many investors largely failed to evaluate companies’ operations and financial health before buying their stocks. Given the continued enthusiasm about Reddit, Robinhood, and the gamification of stocks, the phenomenon looks likely to continue in 2021. 

But potential investors owe it to themselves to really take a careful look at companies’ financial statements before jumping into the latest stock that popped. 

OrganiGram’s most recent earnings report indicates that investors should be wary about OGI stock. The company has obvious revenue, profitability, and operational issues . In its first quarter, which ended on Nov. 30, OrganiGram net revenue tumbled 23% year-over-year, while its cost of sales soared 47% YOY. 

The large top-line decline, coupled with the increase in the company’s cost of sales, indicates that its operations certainly need to be improved. 

OrganiGram’s Loss Jumped Last Quarter

Perhaps no metric more obviously points to OrganiGram being a ship headed in the wrong direction than its net loss. In Q1 of fiscal 2020, the company posted a net loss of $863,000. 

Last quarter, OrganiGram’s net loss came in at $34.336 million. That is a large difference. The other very glaring issue from the company’s Q1 earnings is a line item called “fair value changes to biological assets & inventories sold.” This figure tumbled to -$12.832 million last quarter from $1.85 million during the same period a year earlier, indicating potential problems with its inventory management methods.

The Verdict on OGI Stock

Stay away from OrganiGram’s shares. After looking at the numbers behind the business, I have no idea why the share price had risen in the first place. Even if Redditors latch onto the name or some other strange new phenomenon strikes the markets, lifting OGI stock in the process, the shares are not worth buying. There are lots of interesting cannabis stocks to consider. I don’t believe that OrganiGram is currently in that category. 

On the date of publication, Alex Sirois did not have (either directly or indirectly) any positions in the securities mentioned in this article. 

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