International Expansion And Cannabis Beverages Will Drive Long Term Upside Potential

Catalysts

About Organigram Global

Organigram Global is a leading Canadian cannabis producer with a diversified portfolio spanning dried flower, pre-rolls, vapes, edibles, beverages and international medical cannabis exports.

What are the underlying business or industry changes driving this perspective?

• Scaling international medical cannabis exports to Germany, Australia and the U.K., with pending EU GMP certification expected to remove intermediaries and support higher pricing, which should lift both revenue and gross margins.
• Expanding capacity and potency at the Moncton and La Superieur facilities through LED upgrades, nutrient optimization and seed based genetics, which should reduce cost per gram and support structurally higher gross margins and EBITDA.
• Growing high repurchase, brand led share in key Canadian categories such as vapes, pre rolls, flower and edibles, which should drive durable domestic revenue growth and improved earnings visibility.
• Leveraging regulatory momentum and consumer adoption of cannabis beverages in Canada and the U.S., alongside a broader ingestibles innovation hub in Winnipeg, which should expand higher margin product revenue and support net margin expansion.
• Realizing Motif integration synergies and London distribution center efficiencies, including lower COGS, freight and SG&A, which should push adjusted gross margin toward managements 40% target and increase free cash flow.

Assumptions

How have these above catalysts been quantified?

• Analysts are assuming Organigram Global's revenue will grow by 14.7% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 3.5% today to 0.0% in 3 years time.
• Analysts expect earnings to reach CA$5.6 thousand (and earnings per share of CA$0.0) by about December 2028, down from CA$7.8 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting CA$3.0 million in earnings, and the most bearish expecting CA$-3.2 million.
• In order for the above numbers to justify the price target of the analysts, the company would need to trade at a PE ratio of 103635.3x on those 2028 earnings, up from 39.8x today. This future PE is greater than the current PE for the CA Pharmaceuticals industry at 14.5x.
• Analysts expect the number of shares outstanding to grow by 6.42% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.12%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• International growth is heavily predicated on obtaining EU GMP certification and expanding high margin exports to markets like Germany and Australia, and prolonged regulatory delays or stricter compliance standards could stall this expansion, limiting revenue growth and constraining margin improvement.
• The company is materially increasing cultivation and extraction capacity, and if domestic or international cannabis pricing softens or demand underperforms expectations, Organigram could be left with excess capacity, pressuring average selling prices and compressing adjusted gross margins and earnings.
• Ongoing integration of Motif, ERP upgrades and expansion of multiple facilities add operational complexity, and further disruptions like the earlier OTIF issues or slower than expected realization of targeted synergies could elevate operating costs and delay the planned improvement in adjusted gross margin and free cash flow.
• The long term growth thesis leans on regulatory liberalization and consumer adoption of cannabis beverages and other ingestibles in Canada and the U.S., and if policy momentum slows or mainstream consumers are slower to convert from alcohol and illicit channels, category growth could underwhelm, reducing mix driven margin expansion and limiting net revenue growth.
• International medical cannabis and U.S. hemp derived products are exposed to shifting global regulations and competitive dynamics, and adverse policy changes or more aggressive competition could erode pricing power in export channels, putting downward pressure on revenue growth, adjusted EBITDA and overall profitability.

Valuation

How have all the factors above been brought together to estimate a fair value?

• The analysts have a consensus price target of CA$3.0 for Organigram Global based on their expectations of its future earnings growth, profit margins and other risk factors.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of CA$3.6, and the most bearish reporting a price target of just CA$2.4.
  
• In order for you to agree with the analysts, you'd need to believe that by 2028, revenues will be CA$338.2 million, earnings will come to CA$5.6 thousand, and it would be trading on a PE ratio of 103635.3x, assuming you use a discount rate of 6.1%.
  
• Given the current share price of CA$2.3, the analyst price target of CA$3.0 is 23.3% higher. Despite analysts expecting the underlying business to decline, they seem to believe it's more valuable than what the market thinks.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.