For much of the COVID-19 pandemic, the leaders of Canada's biggest cannabis companies have spouted lofty ambitions linked to a U.S. pot market they strongly believe is on the brink of federal legalization and will be their ticket to profitability.
While many have made bold predictions and signed a dizzying number of deals to help them break through south of the border, Organigram Holdings Inc. has taken a more modest approach.
But don't count the New Brunswick-based cannabis company out, says its new chief executive.
"(The U.S.) has to figure into everyone's game plan," said Beena Goldenberg, a food industry veteran who took the helm of Organigram on Sept. 9.
"When I was in consumer packaged goods, we always looked to the U.S. There's that old 10:1 rule, which is (the U.S. is) going to be 10 times the size of Canada, so you can't ignore it."
Goldenberg — the only female CEO of a major publicly-traded Canadian cannabis company — is still settling into the role she took over from Greg Engel, who moved to to Vancouver psychedelic startup Clairvoyant Therapeutics.
Engel spent four years in Organigram's top job. He left months after a British American Tobacco subsidiary bought a 19.9 per cent stake to spur production development at the company based in Moncton, N.B.
He ran Organigram conservatively and avoided much of the overbuilding that rivals Canopy Growth Corp., Tilray Inc. and Aurora Cannabis Inc. came to regret when cannabis demand fell short of expectations.
Organigram hasn't been unscathed. It cut hundreds of workers in the last two years, as it tried to better align production capacity with market conditions.
Its most recent quarter brought a $4-million loss, an improvement over the $89.9 million loss recorded during the same quarter last year.
"Organigram, I think, has always been very careful on spending and on operating expenses," said Goldenberg.
"But we probably left some sales on the table because we weren't building up the capacity and our demand grew faster than our capacity, which is why we're now spending money."
Goldenberg likely won't stray from Organigram's prudent template, but will reshape operations with her experience running Hain-Celestial Canada and Canopy's Supreme Cannabis.
Topping her to-do list is overseeing a $38-million investment to expand capacity and grow Organigram’s Edison Cannabis Co., Trailblazer, Indi, Shred and Big Bag o’ Buds brands.
"Our demand is outstripping our supply, so it's a problem, but it's a good problem to have," said Goldenberg.
As the company catches up, ATB Capital analyst David Kideckel warns increased competition, oversupply, value brand proliferation and early production inefficiencies could strain margins, but not for long.
“Organigram has launched 84 new SKUs since July 2020, and plans on launching up to 20 more SKUs by the end of Q4/FY21e,” he wrote in a July note.
“We believe that new product introduction will gradually improve the company’s sales and margin outlook.”
Premium offerings such as Edison, Organigram's chocolate truffles and mint lozenge line, will be key as in-store shopping returns and budtender advice becomes more vital.
"People, having tried the value products, are looking for something that's an experience, that's a little bit better, maybe a better flavour or aroma," Goldenberg said.
But the value category can't be forgotten, said Lisa Campbell, chief executive at cannabis marketing company Mercari Agency.
She's noticed premium products are less popular in Alberta and British Columbia than in Ontario, but says Organigram's value brand Shred has widespread appeal.
"Shred is a product that cannabis retail stores will actually hoard," she said. "They will buy 10, 20 cases at a time, so they definitely have a really loyal following."
She warns, however, that companies like Organigram should be careful about their long-term pricing.
"We're seeing a lot of companies that are just selling product below cost, and it really negatively impacts the entire market," said Campbell.
"It has a ripple effect and it's like a race to the bottom."
That race is taking place in an increasingly consolidated market.
In recent months, Tilray merged with Aphria Inc., while Canopy snatched up Wana Brands, AV Cannabis Inc. and Supreme.
Hexo Corp. also got in on the action when it bought Zenabis Global Inc. and Redecan.
Organigram acquired the Edibles & Infusions Corp. in April.
Goldenberg thinks that pace will continue for the highly-fragmented industry, though some companies will get more intentional about purchases.
Ultimately, she thinks most won't last.
"Smaller players will either be gobbled up or will go away, and the bigger players will eventually get bigger," she said. "That's what happens in any market as it matures."
Those that last will be closely watching the U.S., which allows medical cannabis in about 36 states and recreational use in 13, but has not deemed it permissible under federal law.
Studies show broad support for decriminalizing cannabis, a view also favoured by U.S. President Joe Biden, but Goldenberg doesn’t think federal legalization is on the near horizon.
“I don't believe legalization’s coming imminently. I think it's going to take time,” she said.
"The market has changed so much in a year or two years, so who knows what it'll be like two years from now."
This report by The Canadian Press was first published Nov. 7, 2021.
Companies in this story: (TSX:OGX, TSX:WEED, TSX:ACB, TSX:HEXO)
Tara Deschamps, The Canadian Press