Organigram acquisition gets thumbs up at Haywood

Following the company’s most recent acquisition, Haywood analyst Neal Gilmer has maintained his “Buy” rating on Organigram (Organigram Stock Quote, Chart, News, Analysts, Financials TSX:OGI).

On April 1, OGI announced that it would enter the U.S. market via the acquisition of beverage company Collective Project Limited for $(C) $6.2-million.

“The acquisition of Collective Project marks yet another strategic milestone towards Organigram’s global leadership ambitions,” CEO Beena Goldenberg said. “Not only does this acquisition represent our first commercial entry into the fast-growing hemp-derived THC beverage market in the U.S., it also fast tracks our entry into the cannabis beverage category in Canada, a category that we believe is on the cusp of growth at home as well.”

Gilmer says the pickup makes sense.

“The acquisition immediately provides OGI with a footprint in the U.S. in the hemp derived THC market. CPL is already listed at Top Ten Liquors in Minnesota and Total Wines in North Carolina, South Carolina and Indiana. By entering the U.S. through the hemp-derived THC market, which is regulated under the 2018 Farm Bill, OGI will be in a position to consolidate revenues from the U.S. Furthermore, it provides OGI exposure to the beverages category in Canada. The beverage category is the last major category gap for OGI and will immediately provide it with 5.6% of the beverage category with opportunity for OGI to drive expansion and distribution gains beyond CPL’s current footprint.

In a research update to clients April 1, Gilmer maintained his “Buy” rating and price target of $2.50 on OGI.

“This acquisition provides expansion into the beverage category that can provide further upside in the Canadian market, while also providing a U.S. footprint in the fast-growing hemp-derived THC market. OGI solidified its balance sheet last year at a notable premium to market with the investment from BAT that better positions it to execute on its growth strategy. In an industry with limited access to capital we view an increased investment from a strategic partner positively, ahead of new product launches that should drive market share and revenue growth, while also insulating it from the challenging market with a strong cash position.