Organigram Global, Inc. Q2 FY2024 earnings call

• Innovation is a key focus, with progress on nano-emulsion technology (preliminary clinical study results received), THCV products (retail sales over $3.7 million since launch), and seed-based production (transitioning Moncton facility, aiming for 30% seed-based production by end of 2024 with cost savings of 30%-40% per gram).
• International expansion: $83 million Jupiter Strategic Investment Pool, investments in U.S. companies like Open Book Extracts, and progress in export business with EU-GMP licensing at Moncton facility. Secured new supply agreements in Australia and the UK, and saw return to international sales growth over the last three quarters.
• Domestic market: Maintains leadership in multiple product categories (e.g., number one in milk flower, hash, ingestible extracts), strong brand performance (SHRED, Monjour, etc.), and regional growth in Atlantic Canada and Quebec.

Recreational net revenue grew 21% year-over-year in Q2 fiscal 2024, with gross revenue reaching $57.4 million (an 8.6% increase from the prior year period). International sales decreased but have shown recent growth. Cost of sales decreased 12% year-over-year to $26.4 million. Adjusted gross margin rate was stable at 31% in Q2. Adjusted EBITDA was a loss of $1 million in Q2 vs. a $5.6 million adjusted EBITDA in the same prior year period. Net loss for Q2 was $27.1 million compared to $7.5 million in the prior year. The company's cash position is strong, with pro forma cash expected to reach nearly $200 million by the end of February 2025, including proceeds from BAT investments and a recent financing.

The company confirms that adjusted EBITDA for fiscal 2024 will exceed that of fiscal 2023. The back half of fiscal 2024 is expected to benefit from increased international sales, cost savings from seed-based production, and operational efficiency improvements (e.g., power reduction initiatives, warehouse optimization).

• Canadian government's reluctance to provide excise duty relief for the cannabis industry, with excise duties representing up to 35% of sales. The recent federal budget did not address excise framework improvement.
• Outstanding receivable from an Israeli customer, leading to a $4.2 million reserve in SG&A. Delayed payment due to events in Israel in October 2023.
• Dependence on reputable third-party providers for market share data, and regulatory uncertainties in international markets.

Q: Greg, you mentioned expecting adjusted EBITDA to exceed prior years. Can you provide more detail on the puts and takes to get there?

A: In the second quarter, factors like lower international sales and mix skewed towards IPRs impacted margins. In the back half, seed-based production cost savings (30%-40% per gram), operational efficiency improvements (e.g., reducing clone bench time, power reduction), and increasing international sales will contribute to EBITDA improvement.

Q: Can you speak to the OBX investment and the U.S. hemp-derived beverage and edibles market?

A: The company is excited about the hemp-derived THC market for ingestibles. The OBX investment provides line of sight into the market. They are evaluating using nano-emulsion technology and navigating compliance with listings while exploring opportunities in beverages and edibles.

Q: Can you provide more detail on the reserve taken for the receivable from the Israeli customer?

A: The receivable was due at the end of October 2023, but payment was delayed due to events in Israel on October 7th. The product shipped was not an issue, and the company intends to work with the customer to establish a payment plan and resume shipments to Israel.

Q: What are your expectations regarding Germany's second pillar of legalization and EU-GMP certification?

A: Germany's second pillar progress is exciting, enabling pilot programs similar to Switzerland. The EU-GMP preliminary audit at the Moncton facility was successful in February, and the company is waiting for the final audit to be scheduled, hoping it occurs this summer.

Q: How will rescheduling in the U.S. impact the U.S. strategy?

A: The DEA rescheduling is seen as a positive macro tailwind. It benefits the company's U.S. investee companies and provides opportunities for expanding the global footprint, though compliance with listings remains a consideration.