Why OrganiGram Holdings Stock Dropped Today

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What happened

Canadian marijuana grower OrganiGram Holdings (NASDAQ:OGI) has had an eventful month, as the stock rose about 15% in March. But some investors are taking profits today after the company announced a new acquisition has been funded with the sale of about 5 million shares of common stock. As of 10:45 a.m. EDT on Tuesday, shares were down about 5%.

So what

OrganiGram said today that it has acquired The Edibles & Infusions Corporation (EIC), a maker of “highly customizable, precise, and scalable cannabis-infused products, including edibles.” The acquisition gives OrganiGram a second operating facility, and a footprint in Western Canada. EIC’s manufacturing site is in Winnipeg, Manitoba, while OrganiGram’s lone manufacturing facility is in New Brunswick.

Images source: Getty Images.

The company is purchasing EIC with stock sold at Monday’s closing price of $3.47 per share in U.S. currency, for a total of about $17.5 million. And there could be up to another approximately $10 million in milestone payments that would also be funded through additional common-stock sales, OrganiGram said. 

Now what

OrganiGram expects to begin sales of EIC soft chews in its fiscal fourth quarter 2021. The acquisition brings exposure to a growing segment of Canada’s cannabis market. It said edibles currently make up about 4.4% of the country’s recreational cannabis market, mostly in the form of soft chews. OrganiGram expects the category to potentially grow to the 15% level that edibles have in the U.S. market. 

Last month, the company announced that British American Tobacco (NYSE:BTI) will invest about $175 million for an approximately 20% stake in OrganiGram. Investors who are selling today may be wondering why the company didn’t pay for the transaction in cash, rather than further diluting shareholders. 

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