Benzinga | Jul 13, 2021 06:09AM EDT

Organigram Says Expects Q4 Revenue To Be Higher Than Q3

Outlook5

Net revenue

Organigram currently expects Q4 2021 revenue to be higher than Q3 2021 largely due to: stronger forecasted market growth as COVID-19 restrictions lift (permitting cannabisOutlook5

Net revenue

* Organigram currently expects Q4 2021 revenue to be higher than Q3 2021 largely due to: stronger forecasted market growth as COVID-19 restrictions lift (permitting cannabis retail stores to reopen to foot traffic) and the number of retail stores continues to grow; and the Company is better able to fulfill demand for its revitalized product portfolio with increased staffing.

* Revenues to date and purchase orders received from customers support the Company's expectation of revenue growth from Q3 2021 to Q4 2021; however actual results could vary from estimates from the date hereof until year-end.

* In addition, the Company expects to generate a new and incremental revenue stream from the first sales of soft chews expected in Q4 2021.

Adjusted gross margins

* The Company expects to begin to see a sequential improvement in adjusted gross margins in Q4 2021 largely due to lower product cultivation costs (from higher plant yields) and other economies of scale as it continues to ramp up cultivation and realizes the benefit of ongoing cost efficiency improvements including increased automation such as the new pre-roll machine which reduces the reliance on manual labour.

* The overall level of Q4 2021 adjusted gross margins versus Q3 2021 adjusted gross margins will also be dependent on other factors including, but not limited to, product category and brand sales mix.

* Although the sequential improvement to adjusted gross margins is anticipated to be marginal in Q4 2021, the Company has identified the following opportunities which it believes have the potential to further improve adjusted gross margins over time: The Company expects to gain further economies of scale and efficiencies as it continues to scale up cultivation. The Company is also planning changes to its growing and harvesting methodologies as well as design improvements at the Moncton Campus which are expected to result in higher quality flower and reduced production costs. The expenditures associated with this work (as well as the completion of Phase 4C) are anticipated to be incurred starting in Q4 2021 with completion targeted in Fiscal 2023. See the "Liquidity and Capital Resources" section of this press release. The recent launches of new higher margin dried flower cultivars under the Edison and Indi brands with more expected to come have the potential to positively impact gross margins over time as these products gain traction in the market and are expected to comprise a greater proportion of the Company's overall revenue. International sales have historically attracted higher margins and are anticipated to represent a greater proportion of the Company's revenues once the Company resumes shipments to Canndoc Ltd. (currently expected in Q1 2022 -- see "International" section below). The Company continues to launch more multi-pack pre-rolls and 1g vape cartridges and these higher volume SKUs attract higher margins. The Company continues to invest in automation to drive cost efficiencies and reduce dependence on manual labour.

SG&A expenses

* Q4 2021 SG&A is expected to be higher than Q3 2021 largely due to more research and development work at the CoE and increased selling and marketing expenses as stores reopen to foot traffic and the retail network expands.