When Canada fully legalized its recreational marijuana on Oct. 17, 2018, it became the second country in the world – next to Uruguay – to make such bold move. It also became the very first G7 nation to legalize the recreational use of marijuana.
Market analysts were initially upbeat about the massive potential of the market. Many companies have also diversified into the sector with acquisitions and joint ventures being signed left and right. Investors have also been pumping money to practically all cannabis-infused products.
A few weeks into the legalization, however, problems came out: There was a rampant shortage of supplies, there were confusions over the actual provision of the legalization law, and there was a significantly high number of municipalities which rejected cannabis retailers within their jurisdictions. The latter was particularly pronounced in Ontario.
Soon, sentiments among analysts became mixed. Some remained positive about the market while some started doubting it. There were even those who already predicted a market bubble.
On Jan. 28, the debate showed strong signs of tilting toward the positive sentiments when Organigram Holdings reported a record-breaking net sales of $12.4 million for the first-quarter of 2019. This was an increase of 419 percent from the $2.4 million it posted during its first quarter in 2018 and a remarkable increase of as much as 287 percent from the $3.2 million it posted in its fourth quarter in 2018.
What’s particularly notable about its performance was that the reported figures were achieved in the three months that ended on Nov. 30, 2018. This means that the period covered and sales generated included the time from when adult-use recreational cannabis was legalized in October.
“With the launch of the adult-use recreational market coupled with ongoing medical sales, the Company not only experienced its highest sales quarter of all time, but it also surpassed in a single quarter what it has historically done in an entire year of sales on the medical side,” Organigram said in its announcement.
What does Organigram’s record-breaking revenue mean for the recreational cannabis market?
Organigram’s record revenue simply suggests that other cannabis companies could achieve similar success.
Together, these companies could look forward to a recreational market that could reach $8.7 billion a year, according to a prediction by Deloitte. The market also has the potential to bring in as much as $22.6 billion if all economic benefits are factored in.
Deloitte predicted that at its initial phase, sales of recreational marijuana alone could reach as much as $5 billion a year. That number could eventually balloon to $8.7 billion as more adults are expected to try marijuana now that it is already legal.
Indeed, November data from Statistics Canada showed that sales at cannabis stores increased 26.2 percent or $54.4 million in November 2018 from $43.1 million in October during the two weeks after the legalization.
What’s next for Organigram?
The company expects that its sales for its second quarter and the whole of fiscal 2019 will continue to be dominated by sales coming from its adult-use recreational segment.
The company will continue to prioritize projects that will position the company as sole supplier in the province of Quebec. The province will complete Organigram’s distribution arm to a total of 10 provinces.
For this year also, Organigram Holdings will increase the budget for the expansion of its Moncton campus which is already at its phase 4 in construction. The allocation will be increased from $110 million to $125 million.
The budget for Phase 4 of the Moncton campus expansion has increased from the original $110 estimate to $120 to $125 million due to the increased cost of steel, the timing of winter construction, and expedited timelines.
“We’ve always believed the Moncton campus would be a competitive advantage for us being able to produce high-quality indoor-grown product at a low cash cost of cultivation. Our first quarter results confirmed that,” Greg Engel, the Company’s Chief Executive Officer, said during the announcement.
With all these, Organigram expects net revenue for its second quarter to be at least twice with that of its first quarter. While the company reminds investors that changes may still happen, the company hinted in its announcement that they already have indications that this could be achieved. After all, they announced their 2019 outlook when the company is already almost two months into their second-quarter.