OrganiGram (NASDAQ:OGI) stock has been on a steady decline ever since the small Canadian cannabis producer reported third-quarter earnings in late July that weren’t all that great.

Indeed, the numbers and trends were quite awful.

Its revenue is shrinking, and its gross margins are under intense pressure. Meanwhile, its net losses are widening,  and, on a recent conference call, its statements suggested that these trends will not get much better anytime soon.

OrganiGram’s fiscal third-quarter earnings report underscored that it is plagued by structural challenges, most of which have to do with the fact that there’s too much weed in the world chasing too few customers.

Those structural challenges make the bull thesis on OGI stock look weak at the moment.

But not all hope is lost for this cannabis producer. And there is a possibility of OGI stock eventually climbing hundreds of percent above its current levels.

Some Glimmers of Hope

On the surface, OrganiGram’s Q3 earnings report was awful.

But underneath the headline numbers, it did offer some glimmers of hope.

Excluding a one-time property-impairment charge, operating expenses in the quarter were up just 2% year-over-year, mostly due to a 25% reduction in the company’s workforce. The latter move indicates that the company’s management finally understands that it grew too quickly and overproduced.

So OrganiGram is now smartly reducing its expenses and cutting its production to more appropriately align its supply with the market’s demand.

By taking those steps, it’s laying the groundwork for OrganiGram to become more profitable in the long-run.

Also of note, management is aligning the company’s products more closely to current  consumer preferences. Specifically, consumers of cannabis are increasingly flocking to large, inexpensive products. OrganiGram is consequently expanding its Trailblazer value offering into larger sizes of seven grams and 15 grams. In addition, OrganiGram launched Trail Park Buds, a super-sized, 28-gram  offering with a low per-gram price that has already sold out in many provinces.

These new value offerings should help stimulate consumer demand and reinvigorate the company’s revenue growth.

And, lastly, OrganiGram’s new products, including vape offerings,  cannabis chocolate bars, and powdered beverage products. are poised to make a splash.

All of these new products should help expand its sales in 2021.

With its new value offerings and upcoming products, OrganiGram could re-accelerate its sales growth in 2021. Such an acceleration, in conjunction with a slimmed-down expense base, is a recipe for profit improvements and gains by OGI stock.

Big Long-Term Potential

In the long-run, I believe OrganiGram has big growth potential.

There are three main reasons for my position.

One, the global cannabis market will be huge one day. Global demand for cannabis products is robust. Illegal dealers still meet much of that demand.

But as legislation shifts and buying weed legally becomes as easy as buying beer, then all of that illegal demand will be met by legal merchants. As a result, there will be cannabis companies the size of Coca-Cola (NYSE:KO) and PepsiCo (NYSE:PEP).

Two, OrganiGram has a first mover’s advantage. As a result,  the company will remain an important player in the global cannabis market.

Three, OrganiGram’s margins will improve as the cannabis market matures, thanks to economies of scale, reduced marketing costs, industry consolidation and stronger demand.

Over the long-term, I think the margins of the industry — including those of OraniGram — will climb as high as those of the alcoholic-beverage industry. Consequently, cannabis companies’ gross margins should climb to around 50% and its operating margins should reach 20%.

Assuming those things happen, then my modeling suggests that OrganiGram’s  annual earnings per share could realistically reach about 50 cents by the end of the decade.

Utilizing a forward earnings multiple of 20 results in a 2029 price target for OGI stock of $10.

In other words, if the cannabis market does mature and OrganiGram remains a niche player in that market, then OGI stock could soar hundreds of percent in the 2020s.

The Bottom Line on OGI Stock

Pot stocks are broadly misunderstood because the market continues to take a short-term approach to these names when a long-term outlook is warranted.

In the long-run, global cannabis demand will only get bigger. Further, all of that demand will be satisfied by legal merchants and many of today’s small-cap cannabis producers will turn into multi-billion-dollar companies.

I think OrganiGram will become one of those companies.

OGI stock price does not reflect this reality at all.

This mismatch makes OGI stock a compelling speculative buy at its current levels.

{"email":"Email address invalid","url":"Website address invalid","required":"Required field missing"}

This website uses cookies to improve your experience. We'll assume you're ok with this, but you can opt-out if you wish.