A buy rating from equity research firm Jefferies could as well be the validation needed to affirm OrganiGram Holdings Inc (OTCMKTS:OGRMF) 2019 prospects. Having started the year on a roll, the stock has continued to climb the ladder, pullbacks having emerged as buying opportunities.
Share Price Analysis
The stock has continued to edge higher on the company announcing a supply deal with Quebec. The stock sentiments have also inched higher on the conversion of $98 million worth of debentures into common shares, consequently relieving the company of interest rate payment burden.The company has also cemented its prospects in the industry on hitting the one million milestone, on pre-roll cannabis production. Increased automation in all production processes is one of the reasons why the company is flying high when it comes to cannabis production. OGRMF Daily ChartThe stock has since powered through a tight range of between $6 and $3 a share range, in what is tuning out to be a breakout year. After powering through the $6 a share level, OrganiGram needs to stabilize above the critical resistance level to continue powering high.Pullbacks look set to experience strong support at the $6 a share level, below which the stock could tank back to the $5 a share level. In our view, OrganiGram remains well positioned to continue surging, helped by improving fundamentals.
About OrganiGram
Through subsidiaries, OrganiGram produces and sells dried cannabis as well as cannabis oil in Canada. The company also offers shipping services for cannabis play cuttings as well as dried flowers and pre-rolls to retailers and wholesalers.
Quebec Deal-Buy rating
Equity research firm Jefferies initiating coverage is one of the reasons why the stock is flying high in the cannabis sector. The firm has since reiterated a 'buy' rating on the stock with a share price target of C$10.The positive rating comes on the heels of OrganiGram signing a letter of intent to become a cannabis supplier in Quebec. The supply agreement strengthens the company’s position as a leader in the burgeoning recreational cannabis marketplace. The agreement brings to ten the number of Canadian provinces that the company is open to pursuing sales opportunity.
“Organigram’s growth strategy has always focused on establishing a strong national footprint and building our brand presence with the Edison Cannabis line nationally. We are proud to work with our partners across the country to help ensure Canadians have access to a reliable supply of premium cannabis products for both medical and adult recreational use," said Greg Engel, Organigram’s Chief Executive Officer.
Production Capacity Expansion
In response to the ever-growing demand for cannabis products, OrganiGram has moved to strengthen its cannabis production capabilities. Expansion of the Moncton Campus in New Brunswick has come into play, as the company looks to increase its growing rooms to 91. Additional grow rooms should go a long way in tripling the company’s annual cannabis production capacity to 113,000 kg.
"At Organigram, we are proud to be among a select group of licensed producers who have been able to rise to the challenge of large-scale pre-roll production," says Greg Engel, CEO, and Organigram. "Our operations team has done an amazing job introducing automation to important parts of our process, building our overall capacity while retaining our focus on product quality,” said Mr. Engel.
The company is also working round the clock to maintain a healthy balance sheet. Conversely, it has confirmed the conversion of $98 million worth of debentures into common share. With the conversion, the company has relieved itself of the burden of having to pay $4.9 million in cash interest payments. The conversion also eliminates a significant liability from the balance sheet.
Bottom Line
OrganiGram is one of the cannabis plays that are making moves in line with renewed investor interest about stakes in the sector. The stock is already up by more than 100% for the year, and still powering higher.Improved underlying fundamentals, as well as operational efficiency when it comes to cannabis cultivation and production, affirms the company’s long-term prospects. Equity firm Jefferies initiating coverage of the stock with a buy rating and a C$10 price target all but points to what could be a stellar year for the stock.In our view, OrganiGram remains well positioned to continue climbing the ladder in line with the bullish momentum in the sector.We will be updating our subscribers as soon as we know more. For the latest updates on OGRMF, sign up below!Disclosure: We have no position in OGRMF and have not been compensated for this article.
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