Why Shares of OrganiGram Popped Today

What happened

Shares of OrganiGram Holdings (NASDAQ:OGI), a Canadian cannabis company, were up more than 4% today. The stock closed at $2.46 on Friday, opened at $2.47 on Monday and climbed to $2.58 by the close. Though the stock is still a long way from its 52-week high of $6.46, it has had a good run of late and is up more than 93% for the year.

Image source: Getty Images.

So what

On Friday, Sen. Cory Booker, the New Jersey Democrat who is one of the sponsors of the Cannabis Administration and Opportunity Act, which would deschedule marijuana use at the federal level, tweeted that he expected to talk with President Joe Biden to gain support for the legislation. Descheduling marijuana would mean a significant reduction in regulations regarding the drug. 

While this would likely help the entire cannabis industry, it is just one more tipping point lately for OrganiGram, which is coming off a strong third quarter, in which it reported a jump of gross revenue of 31% and net revenue of 13%, year over year.

The company is also in a solid cash position with $222 million and little debt, which positions it to quickly ramp up sales if cannabis is legalized nationwide. In April, the company said it repaid $58.5 million in outstanding balances under a credit agreement, giving it annual interest savings of $2.7 million. OrganiGram strictly sells in Canada for now, but the U.S. is a much larger market.

Now what

The company has to show it can continue to build on its revenue numbers and improve its profit margins. It has built revenue every year, but saw gross margins of negative 4% in the third quarter, down 27% year over year. The company said it expects to see improved margins in the fourth quarter because of increased automation, lower cultivation costs from higher plant yield, and other economies of scale. As it is, the company might soon be in the black. In the third quarter, it lost $4 million in net income, an improvement of 96% compared to the same period in 2020.

If OrganiGram can top its third-quarter numbers, the stock will likely get another boost, even before federal medical legalization.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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