Organigram Reports Record Fourth Quarter and Full Year Fiscal 2022 Results

Continues trend of record quarterly net revenue and positive Adjusted EBITDA while growing share of adult recreational market

Q4 FISCAL 2022 FINANCIAL HIGHLIGHTS

• Continued record growth in net revenue, reaching $45.5 million, the highest in the history of the Company, up 83% from $24.9 million in the same prior-year period and 19% from $38.1 million in Q3 Fiscal 2022.
• Adjusted EBITDA¹ of $3.2 million, the third consecutive quarter of positive Adjusted EBITDA, compared to negative Adjusted EBITDA of $4.8 million in the same prior year period.
• Adjusted Gross Margin¹ of $10.4 million or 23%, compared to $3.0 million or 12% in the same prior year period, reflecting improvements from increased efficiencies and higher sales volume.

FISCAL 2022 FINANCIAL HIGHLIGHTS

• Net revenue of $145.8 million, an increase of 84% over $79.2 million in Fiscal 2021.
• Adjusted EBITDA¹ of $3.5 million, compared to a loss of $27.6 million in Fiscal 2021.
• Adjusted Gross Margin¹ of $33.4 million or 23%, an increase of 837% over $3.6 million or 5% in Fiscal 2021.

SALES AND OPERATIONAL HIGHLIGHTS

• In Q4 Fiscal 2022, held #3 position among Canadian licensed producers with 8.2% market share compared to 7%, in the same prior-year period. In October, Organigram achieved the #2 market position.²
• According to OCS shipped sales data, Organigram achieved the #1 market position in Ontario since January, 2022 and maintained it throughout the balance of the fiscal year³.
• Organigram achieved the #1 market position in the Maritimes, since January 2022, until the end of the fiscal year³.
• Continues to hold #1 position in dried flower, the largest category of the Canadian cannabis market, the #3 market position nationally in gummies² and the #1 position for hash in the Quebec market⁴.
• Introduced 18 SKUs in Q4 Fiscal 2022 for a total of 85 in market.
• Generated a 11% increase in yield per plant in Q4 Fiscal 2022, compared to the same prior year period, as a result of environment improvements which contributed to reduced cultivation costs of 23% in Fiscal 2022 versus Fiscal 2021 and provided additional flower to address growing consumer demand.
• In Q4 Fiscal 2022, completed 4C expansion at Moncton growing facility, increasing annual capacity from 45,000 kilograms at the end of Fiscal 2021 to 85,000 kilograms of dry flower at the end of fiscal 2022, which will drive further cost reductions through operating leverage.
• Shipped $6.0 million of high margin flower to Australia and Israel in Q4 Fiscal 2022. In Fiscal 2022, Organigram shipped $15.4 million of flower internationally, compared to $0.4 million in Fiscal 2021.

TORONTO–(BUSINESS WIRE)–Organigram Holdings Inc. (NASDAQ: OGI) (TSX: OGI), (the “Company” or “Organigram”), a leading licensed producer of cannabis, announced its results for the fourth quarter and year ended August 31, 2022 (“Q4 Fiscal 2022” or “Fiscal 2022”).

“In Fiscal 2022, our innovative product launches, comprehensive retail distribution, sales execution, and operational excellence helped Organigram become a leading consumer products company in the cannabis sector,” said Beena Goldenberg, Chief Executive Officer. “During the year, we increased and optimized production to meet consumer demand, drove market share gains nationally and solidified our position as serious competitors in several new categories. In Fiscal 2023 we expect continued success as we build on the high recognition of our brands, our track record of innovation and our proven ability to execute.

“We are pleased with record net revenue and the third consecutive quarter of positive Adjusted EBITDA achieved in Q4 Fiscal 2022. This is a reflection of our disciplined approach, the execution by our team and our success at integrating acquisitions,” added Derrick West, Chief Financial Officer. “We enter Fiscal 2023 well-capitalized and with a proven strategy to continue to generate shareholder value.”

Key Financial Results for the Fourth Quarter and Fiscal 2022

• Net revenue:
  • Compared to the prior period, net revenue increased 83% to $45.5 million, from $24.9 million in Q4 Fiscal 2021. The increase was primarily due to an increase in adult-use recreational revenue, partly offset by lower average net selling price (“ASP”) due to product mix and a decrease in medical revenue.
  • For Fiscal 2022, net revenue increased 84% to $145.8 million from $79.2 million in the previous year primarily due to an increase in recreational and international revenue, partially offset by a decrease in medical sales.

• Cost of sales:
  • Q4 Fiscal 2022 cost of sales increased to $36.7 million, from $25.9 million in Q4 Fiscal 2021, primarily as a result of the increase in sales volume in the adult-use recreational market.
  • For Fiscal 2022, cost of sales was $119.0 million, compared to $103.6 million in the previous year.

• Gross margin before fair value changes to biological assets, inventories sold, and other charges:
  • Q4 Fiscal 2022 margin improved to $8.8 million from negative $1.0 million in Q4 Fiscal 2021.
  • In Fiscal 2022, margin improved to $26.8 million from negative $24.4 million in Fiscal 2021. Quarterly and annual improvement were both positively impacted by higher net revenue, lower cost of production and a reduction in inventory provisions and unabsorbed overhead costs.

• Adjusted gross margin⁵:
  • Q4 Fiscal 2022 adjusted gross margin was $10.4 million, or 23% of net revenue, compared to $3.0 million, or 12%, in Q4 Fiscal 2021.
  • In Fiscal 2022, adjusted gross margin was $33.4 million, or 23% of net revenue, compared to $3.6 million, or 5% in Fiscal 2021.
  • The improvement in quarterly and annual results was largely due to higher overall sales volumes and improved efficiency, net of the impact of a lower average selling price.

• Selling, general & administrative (SG&A) expenses:
  • Q4 Fiscal 2022 SG&A expenses increased to $15.7 million from $12.4 million in Q4 Fiscal 2021.
  • In Fiscal 2022, SG&A expenses increased to $59.8 million, compared to $45.7 million in Fiscal 2021.
  • Annual SG&A expenses as a percent of net revenue has decreased from 57.8% to 40.9%.
  • Both quarterly and annual increases were primarily due to acquisitions and the higher spend to support the growth in the business.

• Adjusted EBITDA⁶:
  • Q4 Fiscal 2022 Adjusted EBITDA was $3.2 million compared to negative $4.8 million in Q4 Fiscal 2021.
  • Adjusted EBITDA was $3.5 million for Fiscal 2022, compared to negative $27.6 million in Fiscal 2021.
  • The improvement in quarterly and annual results is primarily attributable to the increase in adjusted gross margins due to the higher volume of products sold and lower production costs.

• Net loss:
  • Q4 Fiscal 2022 net loss was $6.1 million, compared to a net loss of $26.0 million in Q4 Fiscal 2021.
  • In Fiscal 2022, net loss was $14.3 million, compared to $130.7 million in Fiscal 2021.
  • The quarterly and annual decrease in net loss is primarily due to the increased revenues, lower production costs and a decrease in inventory provisions and unabsorbed overheads.

• Net cash used in operating activities:
  • Q4 Fiscal 2022 net cash used in operating activities was $19.7 million, compared to $7.7 million in Q4 Fiscal 2021.
  • In Fiscal 2022, net cash used in operating activities was $36.2 million, compared to $28.6 million in Fiscal 2021.
  • The year over year increase to cash used in operating activities is primarily due to the higher working capital needs resulting from the growth in revenues.

The following table reconciles the Company’s Adjusted EBITDA to net income (loss).

The following table reconciles the Company’s adjusted gross margin to gross margin before fair value changes to biological assets and inventories sold:

Canadian Recreational Market Introductions

SHRED Dankmeister XL Bong Blends

• Launched in July 2022, SHRED Dankmeister is a new offering in the popular SHRED milled flower line up that provides a coarser grind to suit bong and pipe smokers.

Sour Blue Razzberry

• An addition to the SHRED’ems gummy line in an electrifying sour raspberry flavour with a 2:1 ratio of CBD to THC. There are now eight SHRED’ems SKUs in market.

Holy Mountain

• Launched subsequent to quarter-end, HOLY MOUNTAIN, the Company’s newest value brand, features an initial lineup of dried flower strains along with value pressed hash. With the introduction of HOLY MOUNTAIN, Organigram now offers value-priced flower in an expanded range of sizes, starting with 3.5 gram offerings at launch.

Research and Product Development

Product Development Collaboration (“PDC”) and Centre of Excellence (“CoE”)

• The Organigram and BAT CoE has completed all key spaces including the R&D Laboratories, enhanced Analytics, Quality Assurance and Control laboratory, GPP production space, Sensory Testing Laboratory and state-of-the-art Biolab for advanced plant science research. The CoE has undertaken initial stage development and safety studies on first generation edibles and novel beverages as part of its work. As part of the development, the CoE has created and assessed numerous delivery systems and created over 60 unique formulations to develop differentiated products in the future.

Plant Science, Breeding and Genomics R&D in Moncton

• Organigram’s cultivation program; a key strategic advantage for the Company has continued its expansion with the addition of a dedicated cultivation R&D space. The new space has accelerated rapid assessment and screening, delivering 20-30 unique cultivars every two months while freeing up rooms for commercial grow. The Plant Science team continues to move the garden towards unique, high terpene and high THC, in-house grown cultivars, while also leveraging the newly commissioned Biolab for ongoing plant science innovation focusing on quality, potency and disease-resistance marker discovery to enrich the future flower pipeline.

International

• In Fiscal Q4 2022, the Company completed three international shipments totaling $6.0 million to Israel and Australia. In Fiscal 2022, seven international shipments were made for total shipped sales of $15.4 million.
• Recent political changes and cannabis election ballot initiatives for medical and recreational use in the United States suggest that the potential movements to U.S. federal legalization of cannabis (THC) remain difficult to predict. The Company continues to monitor and develop a potential U.S. entry strategy that could include THC, CBD and other minor cannabinoids. The Company is also monitoring recreational legalization opportunities in European jurisdictions based on the size of the addressable market and recent regulatory changes with a particular focus on Germany.

Liquidity and Capital Resources

• On August 31, 2022, the Company had unrestricted cash and short-term investments balance of $99 million compared to $184 million at August 31, 2021. The decrease in cash of $85 million was the result of the following: $49 million invested in capital expenditures across three facilities, $8 million in cash consideration towards the acquisition of Laurentian Organics Inc. (“Laurentian”), $3 million investment into Hyasynth Biologicals with the balance related to supporting the increase in the working capital assets.
• For Fiscal 2022 the Company has budgeted $29 million in capital expenditures for the three facilities. This spend would relate to the completion of the expansion at the Laurentian operations and also include automation investments at the Winnipeg edibles and Moncton flower facilities.
• Organigram believes its capital position is healthy and that there is sufficient liquidity available for the near to medium term.

Capital Structure

Outstanding basic and fully diluted share count as at November 28, 2022 is as follows:

Outlook⁷

Net revenue

• Organigram currently expects Fiscal 2023 revenue to be higher than that of Fiscal 2022. This expectation is largely due to ongoing sales momentum, stronger forecasted market growth, the Company’s expanded product line in multiple segments, greater capacity to meet demand at the Moncton Campus, increased throughput at the Winnipeg facility and contributions from the Lac-Supérieur facility.
• In addition, the anticipated continuation of shipments to Canndoc in Israel and Cannatrek and Medcan in Australia is expected to generate higher sequential revenue in Fiscal 2023 as compared to Fiscal 2022. The Company believes it is better equipped to fulfill demand in Fiscal 2023 with larger harvests expected compared to Fiscal 2022. In addition, on November 17, 2022, the Company entered into a new multi-year agreement with Canndoc that contemplates shipping up to 20,000 kilograms of dried flower.

Adjusted gross margins⁸

• The Company expects to see an improvement in adjusted gross margins in Fiscal 2023 and has put measures in place that it expects will further improve margins over time.
• The overall level of Fiscal 2023 adjusted gross margins versus Fiscal 2022 will also be dependent on other factors, including product category and brand sales mix.
• Organigram has identified the following opportunities which it believes have the potential to further improve adjusted gross margins over time:
  • Economies of scale and efficiencies gained as a result of moving from an annual capacity of 45,000 to 85,000 kilograms of dry flower at the Moncton facility, in addition to enhanced growing and harvesting methodologies, and design and environmental improvements, which have resulted in higher-quality flower and improved yields;
  • Expansion of the Lac-Supérieur facility which is expected to increase capacity for annual hash production from 1 million to over 2 million units;
  • Continued investment in automation at all three sites, which will drive cost efficiencies and reduce dependence on manual labor;
  • Revitalization of the Edison brand, including product innovation, packaging and post harvest processing and increased investment in building brand equity within the premium segment, geared toward securing higher margins;
  • Additional innovative product launches to support other key brands: SHRED, Monjour, Holy Mountain and Tremblant to create new potential avenues for growth; and
  • Full-year margin contribution from the Laurentian acquisition.

Adjusted EBITDA

• The Company expects significant growth in Adjusted EBITDA in Fiscal 2023 over Fiscal 2022.

Cash flow

• The Company expects to have positive cash flows from operating activities during Fiscal 2023 and positive free cash flows (“FCF”) during calendar 2023.

Fourth Quarter and Full Year Fiscal 2022 Conference Call

The Company will host a conference call to discuss its results with details as follows:

Date: November 29, 2022

Time: 8:00 am Eastern Time

To register for the conference call, please use this link:

https://conferencingportals.com/event/RUyBPhzX

To ensure you are connected for the full call, we suggest registering a day in advance or at minimum 10 minutes before the start of the call. After registering, a confirmation will be sent through email, including dial in details and unique conference call codes for entry. Registration is open through the live call.

To access the webcast:

https://events.q4inc.com/attendee/926817268

A replay of the webcast will be available within 24 hours after the conclusion of the call at https://www.organigram.ca/investors and will be archived for a period of 90 days following the call.

Non-IFRS Financial Measures

This news release refers to certain financial performance measures (including adjusted gross margin and Adjusted EBITDA) that are not defined by and do not have a standardized meaning under International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board. Non-IFRS financial measures are used by management to assess the financial and operational performance of the Company. The Company believes that these non-IFRS financial measures, in addition to conventional measures prepared in accordance with IFRS, enable investors to evaluate the Company’s operating results, underlying performance and prospects in a similar manner to the Company’s management. As there are no standardized methods of calculating these non-IFRS measures, the Company’s approaches may differ from those used by others, and accordingly, the use of these measures may not be directly comparable. Accordingly, these non-IFRS measures are intended to provide additional information and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with IFRS. Adjusted EBITDA is a non-IFRS measure that the Company defines as net income (loss) before: financing costs, net of investment income; income tax expense (recovery); depreciation, amortization, reversal of/or impairment, (gain) loss on disposal of property, plant and equipment (per the statement of cash flows); share-based compensation (per the statement of cash flows); share of loss from investments in associates and impairment loss from loan receivable; change in fair value of contingent consideration; change in fair value of derivative liabilities; expenditures incurred in connection with research & development activities (net of depreciation); unrealized (gain) loss on changes in fair value of biological assets; realized loss on fair value on inventories sold and other inventory charges; provisions and impairment of inventories and biological assets; provisions to net realizable value of inventories; COVID-19 related charges; government subsidies; legal provisions; incremental fair value component of inventories sold from acquisitions; transaction costs; and share issuance costs.

Contacts

For Investor Relations enquiries, please contact:
[email protected]

For Media enquiries, please contact:
Paolo De Luca, Chief Strategy Officer

[email protected]

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