Organigram Expands Capacity at Moncton Facility, But is it Needed?

Organigram Holdings (TSXV: OGI) announced this morning that they have received Health Canada approval to expand their grow space by an additional 17 rooms. The expansion brings the total capacity of the facility to an estimated 61,000 kilograms of dried cannabis flower a year.

The expansion itself adds 14,000 KG per year to the capacity of Organigram’s Moncton facility. The licensing officially closes off the expansion known as 4A, with the company now moving into phase 4B which will see a total of 33 additional rooms come online, for an estimated additional 28,000 KG. Organigram expects to have a total of 119,000 KG online by the end of 2019, with the third phase of phase four expected to be licensed in the final month of the year.

“Organigram’s continued expansion reflects ongoing growth in the cannabis marketplace, including increasing demand as new retail stores come online in Alberta, Ontario, Quebec and British Columbia. The expansion of our facility and production capacity will help ensure we have additional product for extraction for the launch of the edibles and derivatives market before the end of 2019.”

Greg Engel, CEO of Organigram

The news of the expanded production space and increased capacity comes on the heels of a report this weekend published by The Globe and Mail, which identifies that the Ontario Cannabis Store has removed cap restrictions on certain cannabis products.

Cannabis retailers in Ontario are currently required to source their product from the Ontario Cannabis Store (OCS), for which they are limited to 25 KG of product per week. As a result of inventories building, nine SKU’s have been exempted from this cap, allowing retailers to purchase as much of the product as they believe they can sell.

The trouble is however, that retailers have identified they don’t want the product as it simply doesn’t sell – they are typically low THC and CBD products that many claim are for “new users”. The overstocked nature of these products appears to extend to retailers as well.

Of these nine products, at least one was identified as being Organigram’s Trailblazer Glow, which is a hybrid bud. Based on social media sentiment, it’s likely that others may be Organigram’s product as well due to poor reviews of their Edison line of product as well.

Thus, investors are left asking the question of whether or not the expanded production is needed. While Organigram proudly boasts that it has one of the lowest costs of production for an indoor facility in the industry, it appears that based on consumer habits this is at the behest of a quality product. An expanded footprint may only add to this persistent issue.

Information for this briefing was found via Sedar and Organigram Holdings. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.