For much of the COVID-19 pandemic, the leaders of Canada鈥檚 biggest cannabis companies have spouted lofty ambitions linked to a U.S. pot market they strongly believe is on the brink of federal legalization and will be their ticket to profitability.
While many have made bold predictions and signed a dizzying number of deals to help them break through south of the border, Organigram Holdings Inc. has taken a more modest approach.
But don鈥檛 count the New Brunswick-based cannabis company out, says its new chief executive.
鈥�(The U.S.) has to figure into everyone鈥檚 game plan,鈥� said Beena Goldenberg, a food industry veteran who took the helm of Organigram on Sept. 9.
鈥淲hen I was in consumer packaged goods, we always looked to the U.S. There鈥檚 that old 10:1 rule, which is (the U.S. is) going to be 10 times the size of Canada, so you can鈥檛 ignore it.鈥�
Goldenberg 鈥� the only female CEO of a major publicly-traded Canadian cannabis company 鈥� is still settling into the role she took over from Greg Engel, who moved to to Vancouver psychedelic startup Clairvoyant Therapeutics.
Engel spent four years in Organigram鈥檚 top job. He left months after a British American Tobacco subsidiary bought a 19.9 per cent stake to spur production development at the company based in Moncton, N.B.
He ran Organigram conservatively and avoided much of the overbuilding that rivals Canopy Growth Corp., Tilray Inc. and Aurora Cannabis Inc. came to regret when cannabis demand fell short of expectations.
Organigram hasn鈥檛 been unscathed. It cut hundreds of workers in the last two years, as it tried to better align production capacity with market conditions.
Its most recent quarter brought a $4-million loss, an improvement over the $89.9 million loss recorded during the same quarter last year.
鈥淥rganigram, I think, has always been very careful on spending and on operating expenses,鈥� said Goldenberg.
鈥淏ut we probably left some sales on the table because we weren鈥檛 building up the capacity and our demand grew faster than our capacity, which is why we鈥檙e now spending money.鈥�
Goldenberg likely won鈥檛 stray from Organigram鈥檚 prudent template, but will reshape operations with her experience running Hain-Celestial Canada and Canopy鈥檚 Supreme Cannabis.
Topping her to-do list is overseeing a $38-million investment to expand capacity and grow Organigram鈥檚 Edison Cannabis Co., Trailblazer, Indi, Shred and Big Bag o鈥� Buds brands.
鈥淥ur demand is outstripping our supply, so it鈥檚 a problem, but it鈥檚 a good problem to have,鈥� said Goldenberg.
As the company catches up, ATB Capital analyst David Kideckel warns increased competition, oversupply, value brand proliferation and early production inefficiencies could strain margins, but not for long.
鈥淥rganigram has launched 84 new SKUs since July 2020, and plans on launching up to 20 more SKUs by the end of Q4/FY21e,鈥� he wrote in a July note.
鈥淲e believe that new product introduction will gradually improve the company鈥檚 sales and margin outlook.鈥�
Premium offerings such as Edison, Organigram鈥檚 chocolate truffles and mint lozenge line, will be key as in-store shopping returns and budtender advice becomes more vital.
鈥淧eople, having tried the value products, are looking for something that鈥檚 an experience, that鈥檚 a little bit better, maybe a better flavour or aroma,鈥� Goldenberg said.
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But the value category can鈥檛 be forgotten, said Lisa Campbell, chief executive at cannabis marketing company Mercari Agency.
She鈥檚 noticed premium products are less popular in Alberta and British Columbia than in Ontario, but says Organigram鈥檚 value brand Shred has widespread appeal.
鈥淪hred is a product that cannabis retail stores will actually hoard,鈥� she said. 鈥淭hey will buy 10, 20 cases at a time, so they definitely have a really loyal following.鈥�
She warns, however, that companies like Organigram should be careful about their long-term pricing.
鈥淲e鈥檙e seeing a lot of companies that are just selling product below cost, and it really negatively impacts the entire market,鈥� said Campbell.
鈥淚t has a ripple effect and it鈥檚 like a race to the bottom.鈥�
That race is taking place in an increasingly consolidated market.
In recent months, Tilray merged with Aphria Inc., while Canopy snatched up Wana Brands, AV Cannabis Inc. and Supreme.
Hexo Corp. also got in on the action when it bought Zenabis Global Inc. and Redecan.
Organigram acquired the Edibles & Infusions Corp. in April.
Goldenberg thinks that pace will continue for the highly-fragmented industry, though some companies will get more intentional about purchases.
Ultimately, she thinks most won鈥檛 last.
鈥淪maller players will either be gobbled up or will go away, and the bigger players will eventually get bigger,鈥� she said. 鈥淭hat鈥檚 what happens in any market as it matures.鈥�
Those that last will be closely watching the U.S., which allows medical cannabis in about 36 states and recreational use in 13, but has not deemed it permissible under federal law.
Studies show broad support for decriminalizing cannabis, a view also favoured by U.S. President Joe Biden, but Goldenberg doesn鈥檛 think federal legalization is on the near horizon.
鈥淚 don鈥檛 believe legalization鈥檚 coming imminently. I think it鈥檚 going to take time,鈥� she said.
鈥淭he market has changed so much in a year or two years, so who knows what it鈥檒l be like two years from now.鈥�
Tara Deschamps, The Canadian Press
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