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AGP starts Organigram at buy; PT $4

Organigram

Alliance Global Partners initiated coverage of Organigram Holdings (TSX:OGI) with a “buy” rating and price target of $4 (Canadian). The stock closed at $2.11 on July 6.

“We view Organigram’s low-cost indoor [cannabis] cultivation system as positioning the company well to capitalize on the Canadian adult-use market long-term, despite the near-term hurdles seen in the marketplace,” writes analyst Aaron Grey. 

In addition, “we believe Organigram’s lean SG&A profile positions the company to be less reliant on [bricks and mortar] expansion to reach and maintain profitability versus some competitors,” he added.

“Given Organigram’s recent positive trends in adult-use sales as well as our belief that the company will realize more normalized profitability in 2021, we believe the stock should trade at least in-line with the Canadian cannabis average,” Mr. Grey said, adding that his $4 price target is based on a multiple of 4.5 times estimated calendar 2021 sales. 

Mr. Grey said Organigram has launched a number of products since the beginning of Cannabis 2.0, including vape products via a 510 vape cartridge, disposable vape pen, and Pax Era cartridge pods, as well as edibles. 

The company also has a dry powder solution, compared to liquid beverages of some competitors, that Organigram believes allows for better onset of action of 10-to-15 minutes. “We view OGI’s 2.0 offering as strong relative to competitors out of the gate, but acknowledge competition will intensify,” Mr. Grey said. 

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