Why Organigram Stock Surged Today

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What happened

Shares of Organigram Holdings (NASDAQ:OGI) jumped 9.9% on Friday, following positive analyst commentary. 

So what 

On Monday, Organigram said it received an investment of $221 million Canadian ($177 million) from British American Tobacco (NYSE:BTI). Under the terms of the deal, the two companies will share intellectual property and work together to develop new cannabis products, with an initial focus on CBD (cannabidiol). 

“This strategic collaboration strengthens our ability to deliver innovative, differentiated products that appeal to adult consumers and we expect it to be transformational for Organigram and its shareholders,” Organigram chief strategic officer Paolo De Luca said in a press release. 

A rising stock chart is superimposed on cannabis plants.

Organigram’s stock price rose sharply on Friday. Image source: Getty Images.

Raymond James analyst Rahul Sarugaser apparently agrees with De Luca. On Tuesday, Sarugaser reiterated his outperform rating on Organigram’s stock and doubled his price forecast from CA$300 ($2.40) to CA$6.00 ($4.80).

The firm’s analysts predict that the partnership will help Organigram increase its share of Canada’s rapidly expanding adult-use cannabis market from 6.5% to 12.5% by 2025. They forecast that its revenue, in turn, will rise from $86.8 million in 2021 to $583.9 million in 2025.  

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Now what 

British American Tobacco’s investment places Organigram in a strong competitive position. It will help to strengthen the marijuana producer’s balance sheet and potentially allow it to acquire one of its smaller rivals. The partnership should also help to bolster Organigram’s international expansion prospects, by allowing it to plug into British American Tobacco’s global distribution network.

 

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.



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