I Like Organigram Again!

I started 2024 with my model portfolio at 420 Investor loaded up with Organigram (OGI). Unfortunately, I got excited by the stock too early! I wrote about my change in view in February here, when the stock had rallied more than 100% off of its all-time low to $2.02 then. I had totally exited the name in my model portfolio.

Well, I am very long again. I added yesterday at $1.89, and it is at 20%, my maximum position size and the largest name currently in the model portfolio. I just wrote about it at Seeking Alpha in an article that was published on 4/21, calling it my favorite cannabis stock.

The company hasn't yet announced its fiscal Q2 reporting date, but the report is due in the first half of May. There are two things besides the slight pullback in price that have me more excited. First, the company surprised the market and raised more cash selling Units in late March. The units were sold at C$3.23 with warrants at C$3.65. What was nice about this was that it was a penny higher than where British American Tobacco (BTI) has recently invested (and will be investing more soon). It raised the cash level and was done above tangible book value. The company has a lot of cash and no debt.

From a technical perspective, there is a gap that is above the current price, which is below the deal price. This is the second reason I am excited now:

The gap is up to $2.49 and would represent a gain of 34%. That deal was priced effectively at $2.36.

OGI looks like it is up a lot, but the chart includes the all-time low set in late October. This 5-year chart shows how much the stock is down. BTI first invested in early 2021, and the stock is way down from there. It's nice to see them investing more! Here is that chart:

Cannabis stocks are very risky here. The New Cannabis Ventures Global Cannabis Stock Index is up 16.5% so far in 2024. There is no reason for the Canadian LPs to be rallying, but our Canadian Cannabis LP Index is up 10.9%. OGI, of course, is up 42%, but the six names in the GCSI are all up in 2024 except for Tilray Brands (TLRY), which I think is going a lot lower:

The reason investors are currently excited about cannabis stocks is mainly that the DEA may reschedule cannabis in the U.S. If they take it from Schedule 1 to Schedule 3, as the Department of Health & Human Services has recommended, then 280E taxation would end. If the DEA moves to Schedule 3 (and not Schedule 2), 280E taxation would end. This is an old law that causes American cannabis companies to pay taxes on gross profits rather than net income. The end of 280E would be fantastic, but I think investors are overly excited. There is no timeline, and the DEA may not move to Schedule 3. I don't believe that rescheduling or not rescheduling will have a direct impact on OGI.

So, OGI is up a lot more than cannabis stocks generally in 2024 so far, but it is cheap. In that article on Seeking Alpha, I shared my target for year-end, which is 49% higher. It trades again below tangible book value (0.9X). I like it again!