After falling more than 10% on weak second quarter financial results, Organigram Holdings Inc. (OGI: TSX) (OGI: Nasdaq) has come off its lows and this is a trend that we are closely following.
Earlier this week, Jefferies raised its price target on Organigram to US$2.86 from US$2.76 (to CAD$3.57 from CAD $3.48). Although the price target increase was relatively small, we consider Jefferies to be one of the better broker-dealers to be focused on the cannabis sector and are glad to see that the firm is positive on the Canadian cannabis producer.
Jefferies’ price target hike implies that there is more than 10% upside to current levels (as of April 21, 2021) and we will monitor how the market responds to the increase. Going forward, we believe the market will be focused on how Organigram is able to execute on a strategic partnership and consider this to be an important pillar of the story.
Prior to the earnings report, Organigram was trending higher and we attribute this to the formation of a strategic partnership with British American Tobacco (BTI). The tobacco conglomerate invested more than $175 million in the Canadian cannabis producer and we will monitor how the story advances from here.
After the relationship with British American Tobacco was announced, Raymond James Financial raised its price target on Organigram to CAD$6 from CAD$3. The higher price target is based on the assumption that the company will capture more market share of the Canadian recreational cannabis market. Raymond James expects Organigram’s market share to almost double by 2025 (from 6.5% to 12.5%) and we find this to be significant.
Going forward, Organigram and British American Tobacco will focused on developing cannabidiol (CBD) products and will monitor how the relationship expands over time. We expect Organigram to use the capital to ramp revenues and production capacity in Canada and will monitor how the management team is able to execute.
Raymond James analysts believe that Organigram has bottomed out from a revenue generation standpoint and expect the cannabis company to benefit from having a stronger balance sheet as a result of British American Tobacco’s investment.
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