Earnings Call Transcript - OGI Q1 2026

Operator, Operator

Hello, everyone. Thank you for joining us, and welcome to the Organigram Global Q1 Fiscal 2026 Earnings Call. I will now hand the call over to Max Schwartz, Director of Investor Relations. Please go ahead.

Max Schwartz, Director of Investor Relations

Very much, Kaira, and good morning, everyone. Thanks for joining us today. As a brief reminder, this call is being recorded, and a replay will be available on our website within 24 hours. Today's call will include forward-looking information, forward-looking statements, and actual results could differ materially due to a number of risk factors outlined in our filings and the cautionary statements included in our Q1 fiscal 2026 press release and MD&A. We'll also reference certain non-IFRS measures such as adjusted EBITDA, adjusted gross margins and free cash flow. Definitions and reconciliations are available in our disclosed materials. Unless otherwise noted, market share data is sourced from Hifyre, Weedcrawler, provincial boards and retailers and our own internal sales tracking. Discussing results today are James Yamanaka, CEO of Organigram; and Greg Guyatt, CFO of Organigram Global. And as a reminder, any investor inquiries not addressed on today's call can be directed to [email protected]. And with that, I'll now turn the call over to James. Please go ahead, James.

James Yamanaka, CEO

Thank you, Max, and good morning, everyone. Thanks for joining us today. This is my first earnings call as CEO of Organigram, and I've been encouraged by what I've seen so far. The scale of our operations, the quality of the team and the depth of capability across the business make it clear why Organigram has grown into Canada's leading cannabis company. Over the past month, I focused on understanding where Organigram is genuinely strong and where processes can be fine-tuned. I've traveled to our key facilities, met with colleagues across the organization, and I'm learning a great deal while also noting where my 20 years of experience in global strategy within highly regulated markets can be applied. Being part of a leading company in a developing industry is genuinely exciting for me. Unlike in more mature industries where the market dynamics are less fragmented and tend to move more gradually, cannabis is still very much taking shape. Canada sits at the center of that evolution with global leadership in research, product development, cultivation science, quality and export activity, areas where Organigram has built meaningful strength while thoughtfully managing the risks associated with maturing markets, regulatory uncertainty and fragmentation. I'm optimistic about the long-term growth of the cannabis industry, and I'm confident in Organigram's ability to compete and lead as that growth continues. With that, let's turn to some of the developments since last quarter. In Canada, we continue to hold the #1 market share position with 11.3% total share in Q1 and 11.7% over the past 12 months. Compared to last quarter, we saw market share decline of approximately 500 basis points, largely due to the impact of the 8-week BC General Employee Union strike, which ended on October 26. After a brief period of inventory restock, our recovery in BC is now complete, and we've regained historical distribution levels. Competition in vapes and IPRs also contributed to the fluctuation in market share, partially offset by growth in flower and concentrate. Nationally, 3 of our brands, SHRED, BOXHOT and Big Bag O' Buds maintained their top 10 brand status in Q1, generating over $67 million in retail sales. In Canada's largest markets, we continue to compete strongly, holding the #1 position in Ontario, British Columbia and Alberta. In Quebec, we moved up to the #3 position with 9.9% market share for the quarter, exiting December at 10.1%, driven by the success of our vape launches. We also continue to outperform in most other provinces in Q1. Notably, we held 33.1% market share in New Brunswick, 21.9% in Newfoundland, 30.4% in Saskatchewan and 12.2% in Nova Scotia. Category performance varied during the quarter compared to the prior year period. Vapes and IPRs remain the most competitive segments. We maintained the #1 position in overall vapes with a 20.4% market share, while in overall pre-rolls, we moved to the #2 position at 7.7%, primarily reflecting increased competition in IPRs. In beverages, market share increased 80 basis points year-over-year to 5.9%. In concentrates, BOXHOT Whipped Diamonds and Organigram Innovation became the #1 dabbable concentrate in Canada, contributing to a 15.5% category share. In edibles, we gained 2.4 points year-over-year to reach 17.9% share with SHRED becoming the #2 gummy brand in the country in December. Finally, in whole flower, market share increased 90 basis points year-over-year to 7.3%, driven by continued strength in our Big Bag brands. Our new innovation pipeline is beginning to reach distribution in the second quarter. This includes new competitive coated IPRs and the launches of SHRED Soda and SHRED Shots, powered by a fast-acting soluble technology developed in the product development center. A key differentiator for SHRED Shots relative to comparable products is our on-package claim of a 15-minute onset. We believe this meaningfully lowers the barrier to trial for consumers, supports retailer decisions around shelf space and with a smaller liquid format paired with a fast, predictable dose, positions shots as a discrete and convenient option that competes effectively with other ingestible categories, including gummies. Turning to operations, we continue to make progress in plant science and scale. In Q1, we harvested over 28,000 kilograms of flower, representing a 43% year-over-year increase. This growth was a result of improving yields driven by our LED lighting conversion project, which was partially funded by opportunities in New Brunswick, as well as ongoing refinements to our nutrient programs. Alongside these gains, continued progress in our breeding efforts drove average flower THC levels to a quarterly high of over 29%. Achieving that level of potency at our operating scale is meaningful. In addition, 38% of lots tested in Q1 exceeded 30% THC. Today, we are also announcing a proprietary breakthrough in powdery mildew resistance. Our plant science teams have identified a genetic marker that can be screened in early seeding populations, allowing us to avoid investing time and capital in plants that will never express this resistance trait. Previously, confirming mildew resistance required approximately 90 days. With this discovery, screening can now occur within 10 days, enabling early removal of out-of-spec populations and reducing downstream crop loss and waste. This screening tool is proprietary and applicable across a wide range of genetics, unlike existing markers that are limited in scope. When combined with our seed-based breeding initiatives, which represent approximately 30% of harvest in the quarter, these advances support more stable genetics, higher realized yields and improved cost efficiency, contributing to our expected margin expansion over time. On the manufacturing side, we continue to optimize our hydrocarbon extraction and pre-roll production. 100% of our extraction is now hydrocarbon-based, with capacity up 87% year-on-year and lower associated costs. Focusing on hydrocarbon extraction allows us to meet increasing derivative needs internally while expanding B2B opportunities. In Winnipeg, we have completed commissioning of our beverage line and are beginning in-house production for a portion of our beverage portfolio to support its expansion. As we move further into fiscal 2026, the benefits of these improvements should begin to flow more meaningfully through our P&L, as lower cost inventory moves through a more efficient distribution due to the ongoing optimization of our recent ERP upgrades. Moving to our international business, in Q1, we generated $5 million in international sales, up 55% from Q1 fiscal 2025. We did see an unanticipated sequential decline in the international volumes during the quarter. This was primarily driven by a higher-than-expected proportion of flower that did not meet international specifications. While some level of out-of-spec product is expected, we've taken steps to remediate this temporary issue, return to normal operating parameters and reduce the risk of future variability. We remain optimistic about international momentum and continue to expect meaningful international sales growth in fiscal 2026 as demand remains elevated. Regarding our expected EU GMP certification, we are preparing follow-up responses and information from the regulator in response to feedback received in January 2026. Following provision of this information, the company expects to await confirmation of certification or any required next steps. On international branded sales, we continue to make progress. In Australia, we shipped input materials for vape production and distribution in December, completing the first production run in January and now are in the process of launching. In the U.S., we launched Collective Project and Fetch in Illinois and Wisconsin through new distribution partners, expanding our retail footprint to 11 states. We are also continuing to pursue marketing and distribution expansion for our Happily gummies. In both cases, our penetration in the U.S. has been slower than anticipated, reflecting a rapidly evolving market with increasing competition and ongoing regulatory developments. With Collective Product, Fetch and Happily products collectively available in over 20 states through direct-to-consumer and retail channels, we do anticipate incremental growth in line with the market, but we are not relying on the U.S. market for growth. We continue to closely monitor regulatory changes in the U.S. and are following recent efforts from lawmakers to amend or extend existing limitations on intoxicating hemp products. So overall, we are pleased with our year-over-year growth and despite sequentially lower international sales, typical seasonality and the impact of the BC labor strike, we maintain adjusted gross margins in line with our record-breaking Q4 and fiscal 2025. As the year progresses, we remain confident in our ability to deliver against our previously issued guidance.

Greg Guyatt, CFO

Thank you, James. Great to have you on board for our first earnings call together. Good morning, everyone. Before getting into the numbers, I'll briefly frame Q1. Results reflected strong year-over-year revenue and adjusted EBITDA growth alongside the usual seasonal reset from Q4, as we discussed last earnings call, with some incremental pressure from the operational and market factors James mentioned. Importantly, none of these dynamics change our expectations for the rest of the year. Our business has historically delivered stronger fundamental performance in the second half of the fiscal year, particularly in Q3 and Q4. Based on our recent visibility and execution plans, we remain on track to deliver against our full year guidance. With that, let's turn to the quarter. In Q1, net revenue increased 49% to $65.3 million from $42.7 million in the same prior year period, primarily due to growth in our Canadian business, the integration of Motif, and higher international sales. International sales for Q1 were $5 million, up 51% over Q1 last year. Sequentially, net revenue decreased 21%. The decrease was primarily due to our seasonally lower Q1. As James mentioned, Q1 was also negatively impacted by the BC employee strike, increased competition in vapes and pre-rolls, and sequentially lower international sales. Adjusted gross profit for the quarter increased 67% to $23.9 million versus $14.3 million in Q1 last year due to our significantly higher revenue base, international sales growth and incremental efficiency gains. We are pleased to report that despite seasonal and competitive impacts on revenue, as well as lower levels of high-margin international sales, adjusted gross margin remained stable sequentially at 38%, an increase of 500 basis points over Q1 last year. Adjusted gross margin was supported by higher yields, lower cultivation costs and Motif synergy realization as we started to sell through lower cost inventory. This demonstrates that our investments in efficiency are having a positive impact on cost per gram and margins, which we anticipate continuing to expand as international volumes scale throughout the year. In Q1, G&A costs were $15 million versus $11.2 million in the prior year period. The 33% year-over-year increase in G&A is primarily associated with the consolidation of Motif's costs for the full quarter, incremental ERP and professional fees, and higher depreciation and amortization, but partially offset by cost savings initiatives. As we're in the final phases of ERP implementation, we expect the associated costs with that project to roll off after the second quarter. As a proportion of net revenue, G&A costs represented roughly 24% of net revenue in Q1, which was down approximately 200 basis points from the same prior year period. Sales and marketing costs were $9 million versus $5.8 million in the same prior year period. Similar to G&A, the year-over-year increase is primarily attributable to supporting the addition of Motif and Collective Project brand portfolios. Sales and marketing costs represented 14% of net revenue, up approximately 500 basis points year-over-year. Overall, SG&A declined by 200 basis points year-over-year as a percentage of net revenue, reflecting continued scale and operating leverage, partially offset by higher trade investment to support competitive activity. Our expectation remains that SG&A costs will continue declining incrementally relative to net revenue as the year progresses, all else being equal. Total operating expenses for the quarter were $26.7 million or 42% of net revenue, a year-over-year decrease of 600 basis points, primarily due to lower proportional G&A costs and lower R&D spending. Adjusted EBITDA in Q1 was $5.3 million, up 273% from $1.4 million in the prior year period, driven by increased scale, higher international sales and proportionately lower operating expenses. Sequentially, adjusted EBITDA declined primarily due to our lower international sales, the now resolved revenue disruption in British Columbia and, as previously mentioned, our normal seasonal dynamics. Net income for the quarter was $20 million compared to a net loss of $23 million in the same prior year period. The $43 million year-over-year improvement was primarily due to changes in the fair value of derivative liabilities and top-up rights associated with our follow-on BAT investment. From a cash flow perspective, in Q1, cash provided by operating activities before working capital changes was $0.3 million compared to cash used of $6.3 million in the prior year period, demonstrating improved cash generation from the core business, supporting our full year guidance of positive free cash flow. Cash used by operations after working capital changes was $16 million versus cash used of $4.2 million in Q1 last year. The increase in cash used was driven by investments in working capital related to higher inventory levels as we completed the migration of our new ERP enhancements and the timing of excise duties and Health Canada licensing payments that occurred in the first quarter. Finally, as of quarter end, we held total cash and short-term investments of $63 million, including $7.6 million of unrestricted cash. We are confident in our ability to generate cash from operations and free cash flow in the near term and are assessing nondilutive sources of capital to support liquidity and financial flexibility. To wrap up, in Q1, we delivered strong year-over-year growth in revenue and adjusted EBITDA, maintained stable sequential margins at 38%, and continue to demonstrate operating leverage as the organization continues to scale. Our margin performance this quarter underscores the progress we're making on efficiency, cost structure and Motif integration, and we expect these benefits to become increasingly visible as higher-margin international volumes scale through the back half of the year. While working capital weighed on cash usage in the quarter, cash generation from the core business continues to improve, and we remain confident in our ability to deliver positive free cash flow for the full year. We remain on track to deliver against our full year guidance of revenue exceeding $300 million, supported by improving fundamentals, expanding margins and a disciplined approach to capital and liquidity. With that, we'd be happy to open the call for questions.

Max Schwartz, Director of Investor Relations

Sorry all, we'll get to questions in a moment. Our moderator is just having an issue on their end. Just give us one moment to resolve.

Unknown Executive, Moderator

This is Devin from Q4. I'm going to sub in for Kaira right now. She's just having some technical difficulties. So going ahead with the Q&A, we have Aaron Grey currently on stage. Aaron, if you're muted locally, just please unmute yourself. You're still on stage.

Aaron Grey, Analyst

Can you guys hear me, okay?

Unknown Executive, Moderator

There we go. Yes, we can hear you.

Aaron Grey, Analyst

Okay. Perfect. All right. Fantastic. James, welcome aboard. Great to have you back in the industry now. So I guess first question for me is, now that you've kind of started to get your feet, I know it's still early days, but it sounds like you've been growing a lot of facilities and getting a better feel for the business. It would be great to kind of hear in terms of where are you seeing some of the lower-hanging near-term opportunities versus some of the initiatives that might be more long-term in nature? And how we should think about maybe how your level setting prioritization of those initiatives?

James Yamanaka, CEO

Thank you for the opportunity. I'm pleased to be here. It's been about a month since I took on this role, and during this time, I've been visiting various facilities and meeting with our team. My key observation is that we have a strong company with talented people and robust capabilities, positioning us well for future growth. Regarding our priorities, I don't foresee any major changes after my first month. Our focus will remain on consumers, innovation, and international expansion to drive business growth. In the short term, our priority is operational execution, emphasizing precision in our operations, managing our cost structure, enhancing margins, and ensuring we meet market expectations. In the long run, my extensive international experience is intended to help us identify future opportunities while carefully managing risks and avoiding overextension. We need to capitalize on growth prospects without compromising our fundamentals. Ultimately, our main goals are effective execution, improving our margins, and strategically expanding into international markets to ensure sustainable growth.

Aaron Grey, Analyst

Okay. Great. I appreciate that color. Second question for me, just...

Unknown Executive, Moderator

Our next question comes from the line of Kenric Tyghe with Canaccord Genuity.

Kenric Tyghe, Analyst

James, congrats on the appointment. With respect to international volumes, could you provide some insight on perhaps a little more color around what happened? And second to that, also on any indications of what was left on the table on the back of those flower issues. Essentially, what actions have you taken to address and perhaps what did it cost in the quarter?

James Yamanaka, CEO

Yes. I think the first thing to note is that the requirements on international flower and the process that you can take in terms of processing the product are far more stringent in a lot of the international markets and particularly in Germany, which is the fastest-growing and largest of the international markets at the moment. What has happened is, as we mentioned, we had a fantastic increase in yields over the past year, which has meant we've had a lot more flower on hand, which has caused some issues in microbial growth. We have identified what we believe are the core drivers. We're working on it to fix it. I do believe it's a temporary issue, and we should get back to supplying the market in the future. So that's what it is today. You asked as well about the exact effect. I might have to refer over to Greg for that, if there is an answer for that, Greg?

Greg Guyatt, CFO

Yes. Sure, James. Kenric, we think that the impact of that was probably about $3.5 million on revenue of international. So if you think about the fact that we hit $5 million in Q1, which is a 50% improvement over last year, if we sort of had the normal on spec for flower, it would have been a pretty significant improvement relative to last year.

Kenric Tyghe, Analyst

Appreciate the granularity.

Operator, Operator

We have a question again from Aaron Grey with Alliance Global Partners.

Aaron Grey, Analyst

I have a quick follow-up on the international market discussion. Can you potentially reallocate that product? Also, regarding the Canadian market, do you feel more optimistic about the recovery? It seems like the situation was twofold. First, it appears that there was a significant improvement in BC. Secondly, we noted an increase in competition in vapes and pre-rolls. Could you elaborate on these two issues and how we should view the recovery in the Canadian market?

James Yamanaka, CEO

Sure, I'll address those points in different order. Regarding BC, yes, we have returned to the traditional distribution levels, so we expect sales to rebound in BC. Concerning the non-spec international market, we believe we have identified the main factors affecting us, particularly related to the team's efforts on yield, which have caused some challenges. We are prioritizing this issue and are confident in resolving it, as we don’t see it as a fundamental problem. Lastly, as noted in my earlier statement about increased competitiveness, we have new product launches planned. We will respond with innovations and aim to regain our market position. However, this segment is quite competitive, so we need to carefully consider our investment in regaining market share while also maintaining margins and making informed decisions for growth.

Greg Guyatt, CFO

Aaron, Greg here. May I'll just jump in with a little bit of extra color on your question about the international flower that was out-of-spec, and can it be reallocated to other markets? Absolutely. So we have taken that flower and repurposed it towards the Canadian market. And there's no issues with it. It just didn't meet the needs for our international customer. So we're not expecting any inventory write-offs as a result of that.

Aaron Grey, Analyst

Perfect.

Operator, Operator

Our next call comes from Brenna Cunnington from ATB Capital Markets.

Brenna Cunnington, Analyst

So just regarding the pending EU GMP certification, it's good that you got like some feedback, some news is better than new news, right? We know that it's hard to predict, like as we all know, regulators are unpredictable at best. But what type of timeline might we see for this coming through?

James Yamanaka, CEO

Yes. Currently, we've received some feedback from the regulators in January, and they had additional questions. We are collaborating closely with them to address those issues and answer their questions. We are pushing forward as quickly as we can in conjunction with them. However, since we are dealing with regulators, I can't provide a specific timeline at this moment. We are actively working on their specific questions and clarifications to expedite the process as much as possible.

Operator, Operator

Our next question comes from the line of Pablo Zuanic from Zuanic and Associates.

Pablo Zuanic, Analyst

Can I ask a question regarding route-to-market in Europe? I understand you work obviously with Sanity Group in which you have an investment, BAT also has an investment in them, but you also work with other distributors. So I'm just trying to understand going forward, as you enter other markets, do you go direct? Do you go through Sanity? If you can just expand in terms of how you think about that.

James Yamanaka, CEO

Okay. I'll start off with that, and maybe I'll hand over to Greg, who obviously has more time in the business than I do. I think the answer is that it will be a mix. Some of it, obviously, we sell to Sanity Group, which we do have an investment in. But as opportunities arise, there will be other models in different markets. So sometimes it will be direct sales, sometimes it will be to Sanity. And it will just depend on what the regulations require and what the best option, the most cost-effective and sustainable way depending on the market it is. So I don't have a direct answer that would be consistent across all of them. Greg, do you have any comment on that?

Greg Guyatt, CFO

Yes, thanks, Pablo. We ship directly to Germany through our partner, Sanity, and we currently also ship directly to the U.K. Regarding other European markets like Czechia, Poland, and others that are emerging, we have the capability to ship there directly. We maintain a strong relationship with Sanity Group, and we continually discuss the best go-to-market strategies. For now, we ship directly to all the markets in which we compete.

Pablo Zuanic, Analyst

Okay. And then just a quick follow-up regarding the U.S. I know it's hard to predict how the regulatory environment will evolve there, but you are one of the few Canadian LPs that's actually operating in the U.S. market indirectly, right, through the 2 brands that you mentioned. In my opinion, the U.S. market would consolidate very quickly. So how do you get ahead of that? I mean, can you make investments? Can you set up guardrails to do that and preserve your NASDAQ listing? Just trying to understand, again, how do you think about accelerating M&A in the U.S. market? And how do you protect your NASDAQ listing as you do that?

James Yamanaka, CEO

The NASDAQ listing limits our ability to fully invest in the U.S. due to the state-specific nature of regulations and the absence of federal oversight. This presents a constraint on our investment capabilities in the U.S. Currently, the U.S. accounts for a relatively small portion of our business, contributing less than 1% of our revenues, and is not a critical component of Organigram's growth strategy. Regarding regulations, it is uncertain what direction they will take. We are actively engaging with lawmakers, and we hope to arrive at a positive resolution. In the meantime, we are developing plans to safeguard our existing U.S. operations and to ensure we are prepared for any potential changes in federal regulations in the future. Greg, do you have any additional thoughts on this?

Greg Guyatt, CFO

Yes. Thanks, James. I think you hit most of the key points there. The one additional thing I would add is given the regulatory uncertainty; we're not investing really heavily in the U.S. right now. We're kind of waiting to see what happens. We're continuing to support the existing business, investing in sales and marketing and so forth. But really until we start to see some clarity around regulation, I think we're going to be prudent as to how much capital we deploy in that market, particularly given the size of that business for us today. Obviously, we hope that things get clarified in the coming months. But right now, I think we just need to kind of wait and see what happens, and we'll continue to focus on other international markets where we see the bigger growth opportunities for us in the short term.

Operator, Operator

Our next call comes from Kenric Tyghe from Canaccord Genuity.

Kenric Tyghe, Analyst

Apologies for the follow-up. Just with respect to the increased competition that you called out in pre-rolls, did that also translate into increased promotional intensity in the quarter? And was that increased competition across all markets and pretty broad-based? Or was it pretty narrow and only in specific markets?

James Yamanaka, CEO

On this one, Greg, can you provide some color? Again, I apologize, it's been a month in. Greg, do you have any color on that one?

Greg Guyatt, CFO

Yes. No problem, James. Yes, Kenric, I'd say it's a competitive space in general, like all the categories have pretty intense competition. I think when it comes to pre-rolls and IPRs, we're seeing the value proposition really evolving across the entire industry. Similar to what we've seen in prior quarters, the potencies are increasing, pricing has become more competitive. We're confident that we have great offerings coming and in the pipeline that are going to address those challenges, but that's sort of what we're seeing across the category, pricing coming down and potency being the key challenge. The rest of the industry, I mean, we're seeing sort of similar levels of competition across vapes versus what we had in the prior quarter. Flower is always competitive. We think we've got a really great foothold there. And then in the beverage space with the shots coming out, we're very optimistic about that and the current product portfolio. We think there are some good growth opportunities there. So really looking forward to the new offerings coming and higher potencies in across pre-rolls, which I think will position us really well to compete effectively in all of those categories.

Operator, Operator

There are no further questions at this time. I will now turn the call back to James Yamanaka, CEO, for closing remarks.

James Yamanaka, CEO

First of all, thank you for joining the call today, and thank you for the questions. I'm looking forward to more of these going forward. And as I get my feet on the table a bit more to be able to give you a little more clarity on some of the future of the business. So thank you very much for your attendance today, and I'll pass it back over to the moderator.

Operator, Operator

Thank you. This concludes today's call. Thank you for attending. You may now disconnect.