“There have been a lot of Canadian producers that only focus on selling premium flower. But the truth is that people are looking for the best quality product at the right price. In a high inflationary market, you have to be able to provide consumers with what they are looking for,” says Beena Goldenberg, CEO of Organigram. The Canadian cannabis company recently reported record first-quarter fiscal results. According to Beena, maintaining success in today’s market starts off on the top line, by understanding what the consumer is looking for. At the same time, when it comes to their bottom line, it’s all about getting their cultivation costs down to improve their margins. “In order to do so, we recently finished our facility expansion and increased our yield per plant by 30%.”
Beena Goldenberg
Understanding the consumer
Beena explains that Organigram has the advantage of producing high quality products at a low cost. “As a result, we can offer the right kind of pricing that attracts consumers and has them coming back. This is largely due to the fact that we have a tremendous in-door cultivation facility in Moncton, New Brunswick, with over 115 grow rooms. Because of that, we’re able to really dial in the environmental factors, such as the right lighting, watering and humidity, to get the most out of our cultivars and deliver consistently. We believe that this is a key measure, as consumers have told us that they come back to our brands because they know what to expect. Our customers know they get the same quality experience each time.”
According to Beena, a large part of giving consumers what they want has to do with innovation. “This is a market that needs something new all the time,” Beena says. “While you have some core SKUs that continually perform, you also have to keep bringing new special cultivars to the market. Therefore, innovation is an important aspect for us. Last year, we introduced our Jolts, which are high-THC lozenges that were well-received by the market. We have also just launched our Rip-Strip Hash, which you can pull off a strip to fit right into a joint. It’s important to constantly look at what consumers are asking for and keep innovating accordingly.”
Reducing cultivation costs
In order to improve their bottom line, Organigram completed an expansion of their Moncton facility last year. “By August, we were planting in all the new rooms. What that means is that we have better operating leverage by growing more flower,” Beena explains. “While the variable costs are going up, the fixed costs are getting spread. As a result, it drove our lowest cost per gram ever in the history of the company. This is, of course great to have at a time where pricing is under pressure because of the inflationary market. We are starting to see that flow through to our COGS, and as a result, it is improving both our overall margin and our cash flow.”
Before the expansion, Organigram’s annualized production was around 45,000 kgs of cannabis. The year before the facility expansion, they already increased the production to 55,000 kgs by repurposing some rooms and getting higher yields. For example, they switched their lighting from HPS to high-intensity LED lights and moved from water flooding to fractional watering. “The benefit of having smaller grow rooms is that you can run a couple of different rooms, finding out what exactly the plants are looking for. When you have a large greenhouse instead, for example, it’s all in the same kind of conditions.”
The expansion of the Moncton facility has now brought them to an annualized production of 85,000 kgs. “Last year, we struggled with our customer fulfillment, as our business was growing faster than our capacity. Until the expansion was finished, we had to restrict our export business as a result. Now with the added capacity, we have the flower available that we could look at expanding internationally as well.”
Automation
Besides optimizing cultivation, it is all about automation at their production facilities. “We put in a highly automated line at our gummy facility, which consistently increased the throughput. We also just put in an automated packaging line, that allows us to package our large format flower and SHRED. Now that this is automated, we have significantly reduced our labor requirement, while improving our throughput. Some might wonder whether you should be spending money on CapEx in today’s environment, as it’s all about the cash flow. Yet if it pays back quickly, it’s setting us up for future success. We have cash on our balance sheet, so it doesn’t make sense to hold onto it and not invest in the business to drive better margins. Therefore, we continue to invest in our facilities to make them best-in-class,” Beena adds.
For more information:
Organigram
www.organigram.ca