Investors have pinned their hopes on “green gold” turning a fortune ever since Canada legalized recreational cannabis in 2018. Unfortunately, the legal cannabis industry has been burned by volatile supply and sales issue, a plethora of confusing (and occasionally contradictory) regulations, and good old-fashioned hype.
While some companies are exploring other avenues of business besides bud, Organigram — Canada’s second-largest licensed producer — is doubling down. Under the leadership of CEO Beena Goldenberg, a veteran of the natural and organic food business, Organigram is taking a more methodical approach to growing its business and, thus far, its business strategy appears to be flowering.
In July, Organigram reported a 90 per cent hike in quarterly gross revenue. But Organigram is still struggling against its own business headwinds, including a multimillion-dollar loss in its latest quarter.
Goldenberg spoke to the Star about Organigram’s earnings, her wish list for Ottawa, and partnering with a tobacco company:
We’re coming up on the fourth anniversary of recreational cannabis legalization in Canada. Do you think it’s been successful?
Interesting question. In some ways, I do. We are in a more advanced place around cannabis legalization than any other country in the world. However, I think we haven’t gone all the way to meeting the absolute goals of legalization — eliminate the illicit market — because we’ve not allowed the legal market to address some of the things the illegal market addresses.
Simply put, the pricing in the illicit market is still a lot cheaper than the legal market because of the taxes and regulation attached to selling in the legal market. There are regulations that cap THC in edibles at 10 milligrams per package. You can go to the illicit market and get 100 milligrams, easily. While we have regulations that restrict some things in the legal market, you’re basically keeping consumers in the illicit market.
But it’s early days. I’m optimistic things will continue to evolve and, at some point, we’ll have a very healthy industry — likely with a lot fewer players, but ones that can manage through these difficult times will be around for the long term.
The market is oversaturated in Canada. How are you going to ensure you’ll be one of the players still standing in the next five to 10 years?
First of all, I think the market will end up matching the beer market — where you’ll have 15 per cent of the market be craft players, but all of the larger licensed producers will consolidate. There’s a lot of oversaturation on the LP side. At the end of the day, the provinces are going to want to work with providers that can be a one-stop shop and have the portfolio of products that meet their needs, are reliable, and can fill orders on a regular basis.
Why do I think Organigram will make it? We’re now the number two licensed producer in the country and have come with a share point of number one, so we’re a very important player today. We have seen significant growth on our market share in the last year from the sixth-biggest player. And we have a strong balance sheet. We have cash, we don’t have debt, we’re in an enviable position, and we have a strategic partnership with British American Tobacco. It’s great to have such a strong relationship with our strategic investor.
I’m curious about how the partnership with British American Tobacco came around. Are there other cannabis companies partnering with tobacco manufacturers?
Absolutely. Cronos Group has a large investment by Altria. Auxly has an investment by Imperial Tobacco. We all know about Constellation investing in Canopy Growth. The tobacco and alcohol industries have invested in the cannabis space. These are big companies that saw legalization coming and wanted to get in. At British American Tobacco, they have a division called Beyond Nicotine. They recognize their cigarette business is going to go away over time and they’re very interested in getting into cannabis right now.
Right now, cannabis is an illegal substance in the U.K., so the investment in Organigram really was to get ahead of potential legalization in the U.S. We have seconded employees from BAT out in Moncton who are working on research. They really want to know what they’re getting into and have good data.
How would you address people who might be concerned you’re partnering with a tobacco company?
They are a shareholder — they own not quite 20 per cent of the company. I respect shareholders. They’ve invested in us, so I have a lot of time of day for that. I can’t speak to their strategy, but the fact they have a Beyond Nicotine group and recognize that they want to expand and do things scientifically, with the proper research, speaks volumes about where the company is going versus what they’ve done in the past.
I understand the criticism. I can’t say I ever thought I’d be working with a tobacco company, but I’ve really been impressed with their approach — recognizing where they are today and where they have to get to and approaching it in a very sophisticated way. And I think that’s something the cannabis industry has been missing. We’re not able to make claims because there are a lot of questions around cannabis health products. We don’t have enough research. These kinds of partnerships could bring a lot of money to the cannabis industry and really take it to the next level.
A lot of cannabis companies aren’t seeing a lot of sales growth — or they’re shutting down. Organigram’s most recent sales totals were up something like 90 per cent year-over-year. How did you make that happen?
I think the focus we had was on providing consumers with quality products, within the right value. That’s a simple statement, but it really comes down to what consumer packaged goods are all about. Make sure you’re providing the consumer great value in a product and its value is equated between price and quality.
In our case, our top selling SKUs are in our Shred brand. It’s a milled flower brand. It’s priced comparatively with the illicit market, but the product is very fresh. We produce it, we harvest it, we sell it. The consumers are getting a great experience. It’s consistent — and, as a result, we’ve seen really strong growth behind that brand.
We have been expanding our capacity as our business has grown. Some of our peers had way too much capacity for their sales. We’ve been expanding our capacity as our sales have grown. We just recently completed the expansion of our Phase 4C, which added another 30,000 to 35,000 kilograms of flower into our business. We are now just over 80,000. I think we’re just in a different place than several of our competitors.
On the other hand, I noticed Organigram had a loss of $2.8 million in its last quarter. Do you know when you’ll be profitable?
We have turned the corner on adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA). We have had two quarters of positive adjusted EBITDA and I expect it will continue to be positive. We are at a point where our margins are able to offset our costs and we’ll continue to grow. There’s huge operating leverage we’ll see out of our expansion that further improves our profitability.
The net loss for most cannabis companies started originally with big investments in facilities that were made back in the early days of legalization that carried forward, but I feel pretty confident that, as we look forward to next year, we will get to operating cash flow positive and then to free cash flow positive. This is all coming with the operating leverage we have with our business growth and performance.
You mentioned the maximum THC content of edibles earlier — are there any other regulations you’re hoping to change?
It starts with the excise tax approach. Back when legalization occurred, there was an assumption we would be able to sell a gram for $10 with a $1 per gram tax. What’s happened is we’ve seen price compression. We’ve seen product sometimes sold for $4 to $6 per gram, and we’re still paying the dollar per gram tax. You’re losing 35 per cent right off the top. This is what has made the industry so challenged in terms of becoming profitable. There are costs associated with growing the flower, costs with distributing it, competitive pressures.
We talked about some of those things with the government. There was also discussion about why medical cannabis is taxed at all. There isn’t usually tax on any medication. And we do plan to go back to Ottawa on Oct. 17, on the fourth anniversary of legalization, to share our stories and the challenges of our industry — and hopefully see some movement.
The Cannabis Act was supposed to be reviewed on the three-year anniversary of legalization. It was delayed because of COVID, like everything else, and we have to push for that review to be done and the changes to happen.
What’s your favourite strain of cannabis?
I don’t inhale, so I don’t use flower. But I like some of our edible products. We have some great products. We have Shred’ems gummies pop flavour. The POP! Crazy Cream Soda is one of my favourite SKUs. Everybody has their preferences.
There’s a lot of crossover between cannabis entrepreneurs and the psychedelics industry. If Organigram could get all the necessary regulatory approvals to engage in it, would you?
Right now, we don’t have any plans to pursue that space. I think, right now, we’re committed to executing on what we think is an aggressive strategic growth plan within the cannabis space, both in Canada and internationally. We’ve seen some of our competitors getting into alcohol and retail and sports nutrition. Our goal is to remain focused and really see where we can take the industry we’re in.
Now, all that being said, we recognize there is some interesting opportunities in psychedelics, and we’ll continue to monitor the space as it develops. But I would say we are really laser focused on cannabis right now.
This interview has been edited for length and clarity.
JOIN THE CONVERSATION