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New Brunswick-based cannabis grower and manufacturer Organigram Holdings posted a net loss of 213.5 million Canadian dollars ($162.1 million) for its third quarter, driven by a CA$191.2 million impairment loss.
The impairment charges for the quarter ended May 31 included CA$37.9 million in intangible assets and goodwill as well as CA$153.3 million in property, plant and equipment.
“A meaningful contributing factor to the conditions that led to the quantum of the impairment charge related to the impact to flower sales and margins due to THC inflation,” Organigram noted in a news release.
Organigram CEO Beena Goldenberg acknowledged on a Friday earnings call that THC inflation – the dishonest practice of labeling cannabis products with exaggerated THC levels – is not a new phenomenon.
But, she added, it “was more widespread in the last year.”
Goldenberg said nearly 50% of cannabis flower sales in the third quarter consisted of flower labeled as containing 26% THC or more.
“And the number of SKUs (stock-keeping units) that have THC labeled values above 26% has doubled in the last 10 months,” she said.
“Another stat that we look at is the number of SKUs labeled above 30% grew tenfold versus last year.”
Goldenberg said Organigram has been particularly impacted by THC inflation in the bulk 28-gram cannabis flower category.
“We see that there are some licensed producers who were averaging sales of flower in the 21% (to) 22% range … and now are showing 28% to 32%,” she said.
“This is not something that even the most advanced cultivation techniques could make happen,” Goldenberg continued.
“There is something – and I think it’s the increasing behavior – that’s really starting to impact the results.”
Goldenberg said Organigram had to cut flower pricing “so we could address the value equation to consumers.”
She said the Moncton-headquartered company is working to increase cannabis potency “in a proper way, with proper (THC) testing.”
“And at the same time, we have been talking to key stakeholders,” Goldenberg went on.
“We’ve been sending in comments to Health Canada, we’ve been talking to the (provincial cannabis wholesale) boards, and we’ve been talking to other labs and really looking at finding solutions to address this issue. ”
Organigram, which claimed a third-place position in Canadian recreational cannabis for May, said its adult-use net revenue grew by 7% from the second quarter to the third.
Total net revenue for the quarter was CA$32.8 million, a decline of 14% from the same quarter last year and a sequential decline of 17% from Organigram’s second quarter.
Goldenberg attributed the weaker quarterly financial results to:
- “Lower-than-expected growth in the flower category.”
- Delayed international cannabis shipments.
- The company’s inability to sell its Edison Jolts cannabis lozenge product in light of a disputed decision by regulator Health Canada.
She said a judicial review of Health Canada’s decision regarding Jolts will take place “in late July.”
Organigram recently consolidated its shares to maintain its U.S. equity listing on the Nasdaq exchange.
The company’s shares lost value in early trading on Friday morning in the wake of the quarterly report.
Organigram reported cash of CA$75 million as of May 31 and said it has “sufficient liquidity available for the near to medium term.”
Solomon Israel can be reached at email@example.com.