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Cannabis Watch

April 14, 2020, 6:47 p.m. EDT

As cannabis industry stays largely quiet on coronavirus, this CEO has been sounding the alarm

Organigram began making changes to operations in February as COVID-19 spread across the globe, has temporarily laid off roughly half of its staff

By Max A. Cherney


Organigram Holdings Inc.
Organigram has two full quarters of inventory available, according to an analyst.

The “ah-ha!” moment for Organigram Holdings Inc. Chief Executive Greg Engel came on March 9, when he was able to see a visible shift in the anxiety that Canadian authorities — including the Minister of Health — showed about the spread of COVID-19.

“You could see the level of concern across key people,” Engel said in a telephone interview Tuesday, after the cannabis company detailed the early effects of the coronavirus on it business. “People’s anxiety level was increasing across the meetings of the day.”

Organigram (NAS:OGI)   (TSX:CA:OGI)  began monitoring the coronavirus in January as it ravaged China. Then, Engel said, he was concerned and taking steps to ensure the company’s supply of packaging and vaporizer pens was sufficient — the weed industry sources most of both from China.

Organigram eventually became one of the first cannabis companies to start discussing and disclosing the coronavirus’ expected impact on its operations. publicly making changes to its operations in response to COVID-19 in February. Engel said that the implications of the virus’s spread around the world became apparent as Organigram executives engaged in discussions with Canadian provincial officials, who acted quickly to implement social distancing and other measures , and federal authorities.

Months later, Engel remains one of the few executives at major cannabis companies to detail concerns about the industry's ability to weather the pandemic and discuss specific problems, even as such disclosures are rather standard across other industries.

“Objectively speaking, [Organigram] was one of the most proactive, if not the most proactive, talking about their COVID-19 preparations,” Raymond James analyst Rahul Sarugaser said in a phone interview Tuesday.

See also: Pot shops are considered ‘essential’ businesses in most states where it’s legal, but the rules are shifting

Sarugaser wrote in a March note that there are several key coronavirus dynamics that will affect the cannabis industry: Companies with more inventory will be at an advantage in the near and medium term; the slow rollout of retail stores in Ontario may hurt pure-play cannabis retailers and make it more difficult for consumers to buy the same products online; and the pandemic may make it more difficult for companies to continue to roll out second-generation cannabis products, such as vaporizer pens and edibles.

Engel credits part of his response to his undergraduate education in microbiology — “I took virology courses in undergrad,” he said — and that he was running a biotechnology company during the SARS outbreak in Toronto in 2003.

“We had a facility inside a hospital where SARS was live,” he said. “I came at it with a different perspective, I certainly had a sense we had to take measures for safety reasons.”

Engel said he also began to hear from staff concerned about the potential dangers of crowded work spaces because of the coronavirus. The company took steps to give workers the ability to work from home if possible, and then to implement a voluntary layoff program in order to reduce the number of people at its facilities in order that the remaining employees could work safely.

“It was a conscious decision to offer every employee the option to take this voluntary step,” he said. “We wanted to keep a certain workforce in place to continue to supply the medical patient base and continue production.”

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The company warned investors March 23 that it would reduce its workforce because of COVID-19, marking one of the first news releases from a cannabis company discussing the impact of the coronavirus. On April 6, Organigram said that it had temporarily laid off nearly half its staff, or 400 people.

“It was material information and from a market perspective, we did need to give guidance,” Engel said.

See also: Canadian cannabis company Organigram loss widens in latest quarter as revenue falls short of estimates

While reducing its staff, the company also moved its production to the automated systems it has available, while curtailing other activities. Growing pot safely, at large scale, is a massive challenge amid social distancing restrictions, but the company can operate its chocolate line, and Engel said it’s running four days a week with 10-hour shifts. Because of how pre-rolled joints are made, the company has halted all production of those.

In an earlier note to clients, Sarugaser wrote that unlike many of its rivals, Organigram did not need to trim its workforce amid the difficult market conditions. He said that Organigram has two full quarters of inventory available for sale at the company’s current levels — including the company’s wholesale sales.

“They are commanding a premium in the wholesale market,” Sarugaser said, adding that because Organigram’s pot has a higher amount of tetrahydrocannabinol, or THC, an intoxicating compound in the plant, it’s able to command a price of roughly three and a half times the average.

U.S.-traded shares of Organigram stock closed down 11.9% to $1.59 Tuesday after the company’s sales fell short of estimates. The ETFMG Alternative Harvest ETF (PSE:MJ)  closed up 1.5% Tuesday.

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