Organigram Reports Fiscal 2023 Results1

• Domestic share growth in several key categories continues to be driven by innovation excellence and industry-leading R&D.
• Organigram continues to take a leadership position in industry fighting THC mislabelling (inflation).
• Company fortifying itself with recently announced BAT-Jupiter $124.6 million private placement transaction strengthening balance sheet and setting the stage for long-term growth outside of Canada.

FISCAL 2023 HIGHLIGHTS

• At year-end, achieved the #2 position among Canadian licensed producers driven by success of growing pre-roll business²
• Held the #1 position in the milled flower, gummies, and hash categories²
• Held the #3 market position in Ontario, #3 in Quebec, and #1 in the Atlantic Canada²
• Held the #3 position in dried flower, the largest category of the Canadian cannabis market²
• Climbed from the #10 to the #3 position in pre-rolls between Q3 2023 and end of Q4 2023²
• Introduced 16 SKUs in Q4 Fiscal 2023 for a total of 143 SKUs in market
• Introduced ultra-high THC infused pre-rolls, launched tube-style pre-rolls, and launched first whole-flower-derived THCV products to Canadian market
• Completed expansion construction at Lac-Supérieur, with first harvest in December 2023
• Signed first UK supply agreement with 4C Labs Ltd. (“4C Labs”) to distribute medical cannabis to UK-based patients
• Signed first German supply agreement with Sanity Group GmbH (“Sanity Group”) to distribute medical cannabis to Germany-based patients
• Accelerated focus on vapes with strategic investment into Greentank for access to revolutionary vaporization hardware that solves consumer pain points and may increase perceived potency
• Made first US strategic investment into Phylos for exclusive access to high-THCV cultivars and to commence technical collaboration to augment Organigram’s growing and breeding methodologies
• Completed initial seed-based trials at the Moncton facility, accelerating the upcoming transition of a portion of grow rooms to seed-based production, a strategic advantage stemming from the Company’s investment in Phylos
• Shipped record $18.9 million in international exports in Fiscal 2023, up 25% from $15.1 million in Fiscal 2022
• Achieved meaningful shipped sales growth in several product categories in Fiscal 2023 compared to Fiscal 2022: gummies (100%), hash (113%), all pre-rolls (54%)
• Completed $29 million capex spend on facility enhancements to drive down production costs in Fiscal 2024 and meet consumer demand for craft cannabis and ready-to-consume products. Realized $4.3 million in savings during Fiscal 2023, with a further $10 million savings estimated for Fiscal 2024

TORONTO–(BUSINESS WIRE)–Organigram Holdings Inc. (NASDAQ: OGI) (TSX: OGI), (the “Company” or “Organigram”), a leading licensed producer of cannabis, announced its results for the fourth quarter and thirteen months ended September 30, 2023 (“Q4 Fiscal 2023” or “Fiscal 2023”).

“In Fiscal 2023, our continued focus on innovative products that address consumers’ evolving preferences toward convenience drove our growth across several ready-to-consume categories like pre-rolls and edibles, and we ended the year in the #2 market position which we held as of November 30th,” said Beena Goldenberg, Chief Executive Officer. “Our success in innovation is exemplified by being awarded KIND’s ‘Most Innovative Product’ for the second year in a row. We won in 2022 for Edison JOLTS and this year for our SHRED X Rip-Strip hash. In Fiscal 2024 we expect improved margins from efficiencies tied to our completed facility upgrades and growth in higher margin categories such as craft flower and vapes, while the $124.6 million financial commitment from BAT expedites our plans for international growth.”

FISCAL 2023 FINANCIAL HIGHLIGHTS

• Net revenue of $161.6 million, an increase of 11% over $145.8 million in Fiscal 2022
• Adjusted gross margin¹ of $40.2 million, an increase of 20% over $33.4 million in Fiscal 2022
• Adjusted gross margin percentage¹ of 25% compared to 23% in Fiscal 2022
• Adjusted EBITDA¹ of $6.0 million, compared to $3.5 million in Fiscal 2022
• Ended Fiscal 2023 with $51.8 million in cash and negligible debt

KEY FINANCIAL RESULTS FOR FISCAL 2023

• Net revenue increased 11% to $161.6 million from $145.8 million in the previous year primarily due to an increase in recreational and international revenue, the extended reporting period, partially offset by a decrease in medical sales
• Cost of sales was $136.4 million, compared to $119.0 million in the previous year, primarily due to higher net revenue, and the extended reporting period
• Gross margin before fair value changes to biological assets, inventories sold, and other charges declined to $25.2 million from $26.8 million in Fiscal 2022, due to higher inventory provision and net realizable value adjustments
• Adjusted gross margin³ was $40.2 million, or 25% of net revenue, compared to $33.4 million, or 23% in Fiscal 2022. The improvement was primarily due to increased sales in higher margin categories and higher international sales
• SG&A expenses increased to $72.4 million, compared to $59.8 million in Fiscal 2022.
• Annual SG&A expenses as a percent of net revenue increased from 41% to 44.8%, primarily due to the implementation of the Company’s enterprise resource planning (“ERP”) program
• Adjusted EBITDA⁴ was $6.0 million for Fiscal 2023, compared to $3.5 million in Fiscal 2022
• Net loss was $248.6 million, compared to $14.3 million in Fiscal 2022, primarily due to impairments on PP&E, intangibles, and goodwill
• Net cash used in operating activities before working capital changes was $38.8 million, compared to $36.2 million in Fiscal 2022. The year over year increase to cash used in operating activities is primarily due to the higher ERP implementation expense in the current period.

“We are pleased with our year-over-year Adjusted EBITDA growth of 71% and remain optimistic about our growth potential on the back of many successfully completed initiatives in Fiscal 2023,” added Paolo De Luca, Interim Chief Financial Officer and Chief Strategy Officer. “With our investments in differentiated advantages yet to be fully realized, such as THCV, cost-savings from seed-based production and novel vape hardware technology, we remain laser focused on leading the industry in Canada and beyond. Our recently announced private placement financing, at a significant premium, underscores the valuable franchise we are creating at Organigram centered around sustainable long-term competitive advantages, and bolsters our balance sheet to ensure financial flexibility as opportunities continue to arise.”

FISCAL 2023 CANADIAN RECREATIONAL MARKET INTRODUCTIONS

Holy Mountain – A new value brand from Organigram launched in November, 2022, with an initial lineup of dried flower strains and value pressed hash

Monjour Twilight Tranquility – A sugar-free soft-chew in pear, plum, and lavender flavours, containing CBD, CBN, CBG, and sold in a pack of 25

SHRED X Rip-Strip Hash – This botanical terpene-infused hash is unlike any other on the market – with 10 pre-cut strips of hash available in a 2g format. This product is a new ultra-convenient hash offering from SHRED that is available in the legendary Tropic Thunder and new Blueberry Blaster flavour profiles

SHRED X Heavies – Infused with both diamonds and distillate, this is the first infused pre-roll offering from Organigram that will have a potency of over 40%. The infusion of botanical terpenes further enhances the natural terpene profiles of the blends, taking them to new and delicious heights

SHRED’ems Grapple Juice Gummies – Grapple Juice gummies are vegan-friendly indica gummies with a mouthwatering grape and apple medley. Each pack contains four gummies, infused with 2.5 mg of THC and 2.5 mg of CBG

Holy Mountain GMO Tropical Reign (28g) – Organigram introduced one of its newest high THC cultivars, Tropical Reign, in large format 28g bags, under its Holy Mountain brand. Tropic Reign THC levels are testing as high as 27.6%

Edison Limelight x Cobra Milk Combo Pack – Cobra Milk is a high potency cultivar from Organigram. This product combines Cobra Milk and Limelight pinners in a combo pack for consumers who value quality and variety

SHRED Dartz and Holy Smokes – These tube-style pre-rolls mark the inception of 0.4g pre-rolls for Organigram, crafted using the state-of-the-art, high-speed Cantos tube-style rolling machine, complemented by cutting-edge packaging capabilities

SHRED’ems Guava Lime Go–Time – This exotic new flavour profile, bursting with guava and lime flavours provides a unique cannabinoid experience with an initial 1:1 THC:THCV (10mg THC + 10mg THCV) ratio per pack. An entry point for those looking to experience this new minor cannabinoid.

SHRED All Dressed – An aromatic mix of three best-selling milled blends: Tropic Thunder, Gnarberry & Funkmaster

SHRED Rainbow Oz. – Four colourful 7g pouches of SHRED’s best-selling blends: Tropic Thunder, Gnarberry, Funk Master & Dessert Storm.

SHRED’ems POP! Orangezilla Float – 40 mg CBD & 10 mg THC per pack: These sativa gummies are sure to please with an unmistakable orange pop and vanilla flavour profile

Monjour Quiet Chamomile – Each gummy features 25mg of CBD and 5mg of CBN. This large format, high potency, sugar-free gummy pack is a delicious blend of soothing chamomile and peaceful pomegranate

Holy Mountain Purple Punch-Out!! – Purple PunchOut joins the legendary Holy Mountain line-up and is packed with sweet grape and berry aromas. These mesmerizing buds are light green, flecked with orange pistils and are made up of dominant terps b-Carophyllene, limonene and humulene coming in at 24-30% THC

RESEARCH AND PRODUCT DEVELOPMENT

Product Development Collaboration (“PDC”) and Centre of Excellence (“CoE”)

• Organigram and British American Tobacco p.l.c. continue to work together through their PDC on new workstreams to develop innovative technologies in the edible, vape and beverage categories in addition to new disruptive inhalation formats aimed at addressing the biggest consumer pain points that exist in the category today. Organigram is preparing to deliver new products in these spaces and the launch priority includes gummies which will feature a new nano-emulsion technology
• The PDC is conducting clinical pharmacokinetic studies which will provide Organigram with the ability to make claims regarding the onset and half-life of these products

Follow-on Strategic Investment from BAT and creation of “Jupiter” Investment Pool

• In March of 2021, BAT invested ~$221 million into Organigram which has served to propel product innovations resulting from CoE at Organigram’s Moncton facility
• On November 6, 2023 Organigram announced a $124.6 million follow-on investment from BAT and the creation of the “Jupiter”, a strategic investment pool designed to expand Organigram’s geographic footprint and capitalize on emerging growth opportunities

INTERNATIONAL

• In Fiscal 2023, the Company completed international shipments totaling $18.9 million, an increase of 25% over Fiscal 2022
• The Company continues to monitor and develop a potential U.S. entry strategy, backed by the “Jupiter” investment pool, that could include THC, CBD and other minor cannabinoids. The Company is also monitoring recreational legalization opportunities in European jurisdictions based on the size of the addressable market and recent regulatory changes.
• In Fiscal 2023, Organigram signed additional supply agreements to distribute medical cannabis to 4C Labs for patients located in the UK, and Sanity Group for patients located in Germany. Shipments to these new jurisdictions are expected to commence and continue in Fiscal 2024, while the Company also expects continued shipments to Israel and Australia.

STRATEGIC INVESTMENTS

Greentank

• In March 2023, Organigram announced it has entered into a product purchase agreement (“Purchase Agreement”) with Greentank a leading vaporization technology company and a subscription agreement (“Subscription Agreement”) with Greentank’s parent company. The Purchase Agreement provides Organigram with an exclusivity period in Canada for a new technology incorporated into 510 vape cartridges (along with other formats) for use with cannabis, including the development of a custom all-in-one device that will be proprietary to Organigram. Pursuant to the terms of the Subscription Agreement Organigram subscribed for preferred shares for an aggregate subscription price of $4.0 million USD (~$5.5 million CAD) representing an approximate 2.6% interest in Greentank. Organigram’s investment combined with the Purchase Agreement is expected to transform Organigram’s current and future vapour hardware lineup across its portfolio of recreational brands. Greentank enabled vapes will solve clogging and flavour performance issues associated with vapes, elevating the consumer experience by generating unique aerosols which can efficiently deliver consistent performance, increased potency, and superior flavour from start to finish.

Phylos

• In May 2023, Organigram announced that it reached agreement with Phylos, a U.S. cannabis genetics company and provider of production ready seeds, based in Portland, Oregon, to initiate a wide-ranging technical and commercial relationship in Canada. This innovation relationship is expected to further support Organigram’s industry leading cultivation efforts in Canada with patent-pending foundational technologies and genetics. In the future, subject to receipt of any required approvals and permits, Organigram intends to export THCV products to select legal international markets. Under the terms of the loan agreement, Organigram will advance up to US $8 million to Phylos in three tranches. Organigram advanced Phylos an initial US $3.25 million on the initial closing date of the loan agreement (the “Initial Closing Date”) with a commitment to fund up to an additional US $4.75 million over two tranches within 12 and 24 months from the Initial Closing Date, upon the completion of certain milestones. Subsequent to Organigram’s 2023 year end, the first milestone was achieved and US $2.75 million was advanced to Phylos. This transaction strengthens Organigram’s capabilities as follows:
  • Provides exclusive access to high potency whole plant derived THCV in Canada based on Phylos’ genetics platform;
  • Allows Organigram to modernize cannabis production and employ seed-based production at scale;
  • Provides access to new, proprietary genetic identification tools that are expected to enable efficient and rapid development of unique, proprietary cultivars driven by consumer preferences; and
  • Enables Organigram to develop seed-based F1 hybrid genetics for key Organigram brands such as SHRED, providing future opportunities to offer ‘turn-key’ U.S. and International licensing of seed-based genetics and an established cannabis brand when and where legal.

LIQUIDITY AND CAPITAL RESOURCES

• On September 30, 2023, the Company had cash and short-term investments of $51.8 million compared to $125.4 million at August 31, 2022. The decrease is primarily a result of cash used in operating activities of $38.8 million, capital expenditures of $29.1 million and investments of $10.5 million (including transaction costs) in Greentank and Phylos
• In November 2023, Organigram announced a $124.6 million dollar follow-on investment from BAT of which $83.1 million will be used to create “Jupiter,” a strategic investment pool designed to expand Organigram’s geographic footprint and capitalize on emerging international growth opportunities with the remaining $41.5 million for general corporate purposes, subject to shareholder approval
• Organigram believes its capital position is healthy and that there is sufficient liquidity available for the near to medium term.

INDUSTRY COMMENTARY AND OUTLOOK⁵

Industry

The Canadian industry as a whole continues to grow. BDSA forecasts Canadian total sales rising at a 2022-27 CAGR of 4.6% to nearly $7.2 billion in 2027. However, the industry in Canada remains saddled by a high excise tax regime and in some cases, restrictive regulations.

Capital availability (equity or otherwise) in the industry, including to Canadian licensed producers (“LPs”), is materially diminished from only a few years ago. The impact is being felt directly as certain LPs are either shuttering certain money-losing operations, closing down entirely, or entering creditor protection. Others with maturing debt financings who are unable to pay back principle amounts are seeking forbearance or obtaining short-term extensions on their debt.

Organigram’s recently announced financing, subject to shareholder approval, for $124.6 million at a significant premium to its trading price is an anomaly that speaks to the intrinsic value of the underlying business.

The Company, which is current on all its excise tax remittances, is aware of other LPs who are in arrears⁶, which is effectively acting as a source of alternative financing as taxes are collected from provincial distributors but not remitted to the Canada Revenue Agency on the required date⁷. It is the Company’s understanding that the CRA has already begun to hold LPs accountable for their tax payment arrears.

The industry has also been affected by THC mislabelling (inflation). The Company, through its own independent testing of packaged product in the market, has seen certain SKUs with labelled THC percentages that are overstated by greater than 50% (e.g. labelled product shows 30% THC vs. actual THC when tested at a credible third-party lab is 17%). The Company believes that recent initiatives by both Health Canada⁸ and certain provincial boards⁹ will eventually help mitigate this unfair practice.

Notwithstanding the above issues the Company has and continues to take measures to fortify itself as market forces prevail and the strongest survive. These include:

• Strong balance sheet with excess cash reserves at all times;
• Investment in production efficiencies including automation to drive long-term margins;
• Investment in R&D, innovation, and product differentiation to drive competitive defensible advantages; and
• Focus on consumer segmentation, need states and delivering brands & products tailored to meeting their needs.

Net revenue

• Organigram currently expects Fiscal 2024 revenue to be higher than that of Fiscal 2023. This expectation is largely due to ongoing sales momentum, stronger forecasted market growth, the Company’s expanded product line in multiple segments, increased throughput in Moncton Campus and Winnipeg facilities and contributions from the completed expansion at the Lac-Supérieur facility;
• In addition, the anticipated continuation of shipments to Israel, Australia, as well as new supply agreements signed in Fiscal 2023 with Sanity Group in Germany and 4C Labs in the UK, are expected to generate higher revenue in Fiscal 2024 as compared to Fiscal 2023; and
• The Company believes it is better equipped to fulfill demand in Fiscal 2024 with larger harvests and greater efficiencies from automation compared to Fiscal 2023.

Adjusted gross margins¹⁰

• The Company expects to see an improvement in adjusted gross margins in Fiscal 2024 and has put measures in place that it expects will further improve margins over time
• The extent of the adjusted gross margin improvement in fiscal 2024 will also be dependent on other factors such as product category and brand sales mix, provincial mix, and international sales levels
• Organigram has identified the following opportunities which it believes have the potential to further improve adjusted gross margins over time:
  • Enhanced growing and harvesting methodologies, and design and environmental improvements in Moncton, which have resulted in higher-quality flower and improved yields;
  • Facility enhancements and the completion of Fiscal 2023’s capex projects, combined with anticipated savings related to the partial transition to seed-based production, estimated to reduce costs by $10 million in Fiscal 2024;
  • Anticipated growth in the vape category due to the near-term launch of Greentank S1 enabled vapes and THCV vapes;
  • Expansion of the Lac-Supérieur facility which yielded its first harvest in December 2023;
  • Increased investment in building brand equity for the Company’s Trailblazer brand, geared toward growth in the mainstream segment; and
  • Additional innovative product launches to support key brands: SHRED, Monjour, Holy Mountain, Edison, and Tremblant to create new potential avenues for growth;

Adjusted EBITDA¹¹

• The Company expects to continue to report increasing positive Adjusted EBITDA on year-over-year basis, recognizing that quarterly results may fluctuate

Cash flow

• The Company is adjusting its prior guidance of generating positive free cash flow (“FCF”) during Calendar 2023. The Company expects that FCF is achievable in H2 Fiscal 2024.

CAPITAL STRUCTURE

Outstanding basic and fully diluted share count as at December 15, 2023 is as follows:

Q4 FISCAL 2023 FINANCIAL HIGHLIGHTS

• Net revenue of $46.0 million, up 1% from $45.5 million in Q4 Fiscal 2022
• Adjusted Gross Margin¹ of $7.9 million or 17%, compared to $10.

Contacts

For Investor Relations enquiries:

Max Schwartz, Director of Investor Relations

investors@organigram.ca

For Media enquiries:

Paolo De Luca, Interim Chief Financial Officer and Chief Strategy Officer

paolo.deluca@organigram.ca

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