OrganiGram Holdings Inc Q2 2022 Earnings Call Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Tamy Chen - BMO Capital Markets Equity Research - Analyst : Great. First question I had is specifically on your rec sales. You described how you're continuing to see momentum and your share -- market share has continued to expand. So I'm just curious like why did your net rec revenues decline a little bit quarter-over-quarter?

Question: Tamy Chen - BMO Capital Markets Equity Research - Analyst : Okay, I understand. And then my follow-up question is, so if I look at the broader Hifyre even the (inaudible) retail sales data for the industry, it seems to be slowing down or stalling a little bit the last several months really since the fall. And I noticed that you also produced (inaudible) so I suppose that's attributed to the Omicron aspect. But I guess, 2-part question here with respect to what's been happening in the market. First is, you called it out for your fiscal Q3 that you're expecting market growth in your outlook. So are you seeing now that the industry is growing again to new high? And second part of the question is, based on where the market is today, and what you expect over the near term, do you still believe that once you're at the, I think, almost 80,000 kilogram capacity, the market can still more than absorb that from you?

Question: Tamy Chen - BMO Capital Markets Equity Research - Analyst : Yes, sure. I was just wondering where you see it going the near-term, perhaps even the medium term of the market? Are you still confident that once you reach your full capacity at Moncton, the market can still more than absorb that from you?

Question: Matt Bottomley - Canaccord Genuity Corp., Research Division - Analyst : Congrats on the print this morning. Maybe I just wanted to start maybe just at a higher level when it comes to what's happening in the Canadian market, just sort of piggybacking off of what Tamy was talking about as well. Just the fact that if you look at some of the incumbents in the space that started with close to 20% market share on recreational implementation in Canada, it's consistently been coming down where I think the leader in the space now has maybe a little over 10% market share. So where do you see this bottoming out even though that OrganiGram has been doing REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. APRIL 12, 2022 / 12:00PM, OGI.TO - Q2 2022 OrganiGram Holdings Inc Earnings Call very well and reaccelerating as of late. If you look at commoditized markets in the U.S. like Colorado, Oregon, market leaders there barely sort of eke-out 5%. So I'm just curious where you think this is going in Canada, barring any sort of major change in excise tax or federal regulations in terms of the ability to secure outsized market share?

Question: Matt Bottomley - Canaccord Genuity Corp., Research Division - Analyst : Great. Much appreciate it. And just one follow-up for me on the consolidation part. We've seen, over the last several years, half dozen or more acquisitions for these types of craft growers. Many of them have actually turned out quite favorably in terms of their penetration or market share being a little more sustainable when it comes to pricing. Is there any other product categories or SKUs or classifications you think are kind of next in line for the industry to consolidate? Or just sort of any other commentary on where you think M&A is going in the domestic element of Canada?

Question: Douglas Miehm - RBC Capital Markets, Research Division - Analyst : My first question really has to do with your strategic thinking being as it relates to pricing in the marketplace, it seems you've done an excellent job from that perspective. But do you think some of the pricing declines in the marketplace that we've seen over the last 12 months are over? Are we at a base? Or could we see some further erosion in overall pricing in the Canadian marketplace?

Question: Douglas Miehm - RBC Capital Markets, Research Division - Analyst : Yes. No, very helpful. As a follow-up, what we're finding, and I don't think this is a surprise, but bud tenders play a key role in focusing on what type of product people should buy. And what do you think -- and the parent preference for the smaller guy as well relative to larger LPs. So they do REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. APRIL 12, 2022 / 12:00PM, OGI.TO - Q2 2022 OrganiGram Holdings Inc Earnings Call support the craft growers probably to a more significant extent than the larger players. What's your thinking on that? I know that you probably describe your strains and your innovation, but is there anything else that you can add as well?

Question: Ty Collin - Eight Capital, Research Division - Analyst : Congrats on the really solid improvement in gross margin this quarter. Could you help us unpack the key moving pieces there in terms of what drove that gross margin improvement? Just how much of that was due to Laurentian, how much from the larger international shipments, how much from product mix, for example? I appreciate any color you could provide there.

Question: Ty Collin - Eight Capital, Research Division - Analyst : Great. And then just for my follow-up, a bit more of a market level question. Given some of the pressures on consumers' pocketbooks here between inflation and rising borrowing costs, are you seeing customers starting to trade down into value categories at all? And is that a risk to your plan to kind of emphasize more premium SKUs in your sales mix?