Organigram Reports Third Quarter Fiscal 2023 Results

Year-to-date Canadian recreational business grew 10% versus prior year driven by continued focus on consumer-centric products and brands

Strategic investments in Phylos and Greentank strengthen Organigram’s position as an industry leader in cannabis innovation, solidifying long-term competitive advantage

HIGHLIGHTS

• Recreational net revenue was $92.5 million for the nine months ended May 31, 2023, an increase of $8.0 million over the same prior-year period

• Increased sequential net revenue from Canadian recreational business by 7% vs. Q2 driven by continued success in hash and rebound in flower

• Organigram regained the #3 position in May and held it through June with 6.7% national market share¹

• Held the #1 position in milled flower, the #1 position in concentrates, and moved into the #2 position in gummies nationally in May¹

• International sales for the first nine months of fiscal 2023 of $18.4 million exceeded the $9.5 million realized for the same prior-year period by 94%

• Completed first U.S. investment in Phylos Bioscience Inc. (“Phylos”) to commercialize THCV and transition a portion of production capacity to more cost-effective and consistent seed-based production over time

• Completed investment in Green Tank Technologies Corp. (“Greentank”) for initial exclusive access to new vapour heating technology

• Product Development Collaboration with BAT moving rapidly toward product commercialization

• SHRED brand is one of the largest cannabis brands in the Canadian market approaching $190 million in retail sales in the last 12-months²

• Successfully launched 28 SKUs in the quarter for a total of 127 in market

• Completed ramp up of SHRED X Rip Strip production and distribution to meet strong consumer demand

• Announced supply agreement with Sanity Group GmbH (“Sanity Group”) to supply medical cannabis to the promising German market

• Strong balance sheet with $75 million in cash and negligible debt

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 third quarter ended May 31, 2023 (“Q3 Fiscal 2023”). All financial information in this press release is expressed in thousands of Canadian dollars (“$”), except for references to $ millions.

“During the quarter, we continued to demonstrate our responsible leadership in the Canadian cannabis industry,” said Beena Goldenberg, Chief Executive Officer. “We focused on the ongoing execution of our strategy of sustainable long-term growth by delivering disruptive consumer-focused innovations, while driving costs out of our operation and improving productivity. We are very pleased with the growth of our Canadian recreational business and our outlook moving into next year remains positive with the foundation now in place to deliver continued growth.”

In Q3, the Company observed the increasingly common practice of THC-inflation, what it believes to be the practice by some licensed producers of inflating THC values on their labels though selective sampling and lab shopping. At the same time there is no standardized testing for cannabis potency regulated by Health Canada which has resulted in inconsistent practices designed to inflate THC potency. For example, in one large national retail chain, the total number of SKUs labelled 30%+ THC increased ten-fold since last year³. Organigram was disproportionately negatively impacted by THC-inflation this quarter due its strength in flower categories and this had a profound impact on the size of the impairment the Company took this quarter. Organigram remains confident that is has positioned itself for long term success through responsible capital stewardship, a commitment to efficient operations, and industry leading R&D bolstered by an impressive list of strategic partners who share Organigram’s commitment to innovation.

1 Adjusted gross margin, adjusted gross margin % and Adjusted EBITDA are non-IFRS financial measures not defined by and do not have any standardized meaning under IFRS; please refer to “Non-IFRS Financial Measures” in this press release for more information.

2 Excluding non-cash share-based compensation.

“Our results for the third quarter of Fiscal 2023 were impacted by a reduction in sales in two of our higher margin categories of international sales and ingestible extracts,” added Derrick West, Chief Financial Officer. “Further, to address the impact of THC inflation, which forced us to adjust our pricing to remain competitive, we intentionally accelerated adjustments to growing conditions to increase whole flower THC levels to meet consumer demand. This temporarily reduced our flower yields, negatively impacting our margins on all flower categories. In the last month of the quarter, we returned to above average yields while maintaining increased whole flower THC levels. We believe that based on this progress we will return to positive Adjusted EBITDA in Q4 Fiscal 2023.”

Key Financial Results for the Third Quarter 2023

• Net revenue:

• Compared to the prior period, net revenue decreased 14% to $32.8 million, from $38.1 million in Q3 Fiscal 2022. The decrease was primarily due to a reduction recreational flower sales.

• Cost of sales:

• Q3 Fiscal 2023 cost of sales increased to $32.3 million, from $29.4 million in Q3 Fiscal 2022, primarily as a result of a $2.8 million net realizable value adjustment on low potency flower repurposed as inputs to Organigram’s growing derivatives business and a $2.8 million provision for excess and unsaleable inventories.

• Gross margin before fair value changes to biological assets, inventories sold, and other charges:

• Q3 Fiscal 2023 margin declined to $0.5 million from $8.7 million in Q3 Fiscal 2022, negatively impacted in the quarter by lower net revenue, and the $5.6 million in inventory provisions.

• Adjusted gross margin⁴:

• Q3 Fiscal 2023 adjusted gross margin was $6.1 million, or 19% of net revenue, compared to $9.3 million, or 24%, in Q3 Fiscal 2022. The decline is attributable to lower net flower revenue, a higher cost of sales, and the impact due to the restriction of sale imposed by Health Canada on Edison JOLTS.

• Selling, general & administrative (SG&A) expenses:

• Q3 fiscal 2023 SG&A expenses increased to $19.0 million from $17.5 million in Q3 Fiscal 2022. The increase in expenses was primarily due to higher audit and legal fees, and ERP implementation costs.

• Impairment Loss:

• During Q3 Fiscal 2023, as a consequence of the Company’s market capitalization trading significantly below its shareholders’ equity, combined with the current quarter’s operational results, management determined that there were economic indicators of impairment warranting a calculation of the recoverable amount of its assets.

• The impairment test considers several factors including forecasted operational cash flows (net of tax impact), on-going investments into working capital and sustaining capital expenditures, post tax discount rates, terminal value growth rate and this analysis resulted in the recognition of an impairment loss of $191,242.

• The loss was allocated to intangible assets and goodwill in the amount of $37,905 and $153,337 in relation to property, plant and equipment.

• A meaningful contributing factor to the conditions that led to the quantum of the impairment charge related to the impact to flower sales and margins due to THC inflation. When considering the significant sales and margin that flower product categories (dried flower, milled flower, pre-rolls, IPR and international flower sales) contribute to Organigram’s financial results, this was a key driver to the amount of the impairment loss.

• Impairment losses recorded on the Company’s property, plant, and equipment are expected to result in an approximate 5% improvement to the gross margin rate moving forward, controlling for other factors.

• Net loss:

• Q3 Fiscal 2023 net loss was $213.5 million, compared to a net loss of $2.8 million in Q3 Fiscal 2022 as a result of the recorded impairment.

• Adjusted EBITDA⁵:

• Q3 Fiscal 2023 Adjusted EBITDA was negative $2.9 million compared to $0.6 million Adjusted EBITDA in Q3 Fiscal 2022. The decline is primarily attributable to lower net flower revenue, lower adjusted gross margin, and higher SG&A expenses.

• Net cash used in operating activities before working capital changes:

• Q3 Fiscal 2023 net cash used in operating activities was $5.5 million, compared to $6.4 million cash used in Q3 Fiscal 2022, which was primarily due to favorable changes in working capital, partially offset by lower adjusted EBITDA.

The following table reconciles the Company’s Adjusted EBITDA to net loss.

The following table reconciles the Company’s adjusted gross margin to gross margin before fair value changes to biological assets and inventories sold:

Canadian Recreational Market Introduction Highlights

As an industry leader and pure-play cannabis company, Organigram remains committed to delivering consumer focused innovations and products to the Canadian market. Q3 Fiscal 2023 saw the introduction of a record-breaking 28 new SKUs to the market for Organigram.

SHRED X Rip Strip Hash

• SHRED X Rip Strips, launched on February 27, 2023, delivers hash to a new generation of consumers with 10 pre-cut, botanical terpene-infused hash Rip Strips that can be easily rolled into any joint.

SHRED’ems Grapple Juice Gummies

• Grapple Juice gummies are vegan-friendly indica gummies with a mouthwatering grape and apple medley. Each pack contains 4 gummies, infused with 2.5 mg of THC and 2.5 mg of CBG.

Holy Mountain GMO Tropical Reign (28g)

• Organigram has 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 new high potency cultivar from Organigram. This product combines Cobra Milk and Limelight pinners in a combo pack for consumers who value quality and variety.

Holy Mountain Live Resin Vapes

• Pure live resin vape carts in a 510 format to capture the flower’s sweet, earthy and floral aromas.

SHRED X Heavies Infused Pre-Rolls

• Currently Canada’s most potent infused pre-rolls clocking in at over 40% THC, infused with botanical terpenes, diamonds, and distillate

Research and Product Development

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

• Both the PDC and Organigram’s commercial business are seeing significant benefits both from a scientific development standpoint and in terms of revenue driving commercial capability. The in house extraction laboratory capabilities have resulted in imminent commercialization of high potency THCV extract derived from exclusive whole plant THCV flower, followed by THCV isolate for use in Organigram’s portfolio later this summer.

• Organigram has been able to test and learn about the inclusion of several minor cannabinoids, which has allowed it to expand into more complex minor cannabinoid stacks across several brand portfolios in the Company’s high speed, high throughput Winnipeg Facility. The focus in all facilities has been rapid transfer from R&D to commercial process to allow Organigram to fine tune manufacturing operations in real time.

• The PDC is in late stage development of a suite of emulsions, novel vapour formulations, flavour innovations, and packaging solutions which are planned to be used alone, and in combination across the Organigram portfolio of products.

• The broad focus messaged previously has been the development of improved cannabinoid delivery, rapid and predictable onset and products that target and satisfy a range of mood states. For ingestible innovations, Organigram is currently beginning recruitment for clinical studies after completing the initial research and development, so that the Company can quantify and substantiate the benefit of these innovations in a clinical setting. Moving to clinical studies has been a key and significant milestone in the development journey, and will provide a broad and robust dataset validating our development so far allowing Organigram to complete a number of work streams.

• Included in these clinical studies will be an ingestible beverage format, with the inclusion of Organigram’s emulsion innovation. This is an exciting development for Organigram, as the Company plans to enter the beverages category via a test launch in the near future.

• Extensive evaluation of novel vape formulation aerosols versus existing inhalation products in the category has been completed. The supporting scientific data provides an industry leading vapour data set that will serve as part of a foundation for future development activities, including consumer safety, product quality and performance.

• In the ingestibles space Organigram has completed and optimized its in-house emulsions designed for improved bioavailability and faster onset, and these are currently going through pre-clinical validation studies.

• Organigram is aiming to test and learn this technology via a small market launch in New Brunswick this fall and will be leading with an easy to understand and consumer relevant functional claim relating to onset that the Company believes will provide a significant consumer benefit. The manufacturing trials of this nano-emulsion-based gummy are already complete in our Winnipeg facility as Organigram is now moving to large-scale runability trials to allow for appropriate stability and validation prior to test launch.

• The Biolab is continuing the development of genetic toolboxes for research of key cannabis traits, which will accelerate R&D activities and has already been used to support several plant science discoveries that will eventually benefit Organigram’s existing plant portfolio and long term growing strategies. Immediate discovery has yielded early stage gender typing capability and the Company is moving towards identification of disease markers in the Cannabis plant with the goal of helping accelerate rapid screening programs and continue optimizing the quality and viability of Organigram flower.

Strategic Investment in Greentank

• On March 31, 2023, Organigram announced that it had entered into a product purchase agreement (the “Purchase Agreement”) with Greentank a leading vaporization technology company and a subscription agreement with Greentank’s parent company, Weekend Holdings Corp. (“WHC”). The Purchase Agreement provides Organigram with an exclusivity period in Canada for the 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. Under the terms of the subscription agreement, Organigram has subscribed for preferred shares for an aggregate subscription price of US$4.0 million representing an approximate 2.6% interest in WHC. Organigram’s investment combined with the Purchase Agreement is expected to transform the Company’s current and future vapour hardware lineup across its portfolio of recreational brands. The exclusivity period is until that date which is 18-months from the date of Organigram’s initial shipment of Greentank’s 510 vape cartridges to the Ontario Cannabis Retail Corporation and March 31, 2024 in the case of non-510 vapes.

Strategic Investment in Phylos Bioscience

• On May 25, 2023, Organigram announced its first strategic U.S. investment in Phylos, a cannabis genetics company and provider of production ready seeds, based in Portland, Oregon, to initiate a wide-ranging technical and commercial relationship in Canada. Under the terms of the agreement, Organigram will advance up to US $8 million to Phylos in three tranches structured as a convertible loan. Organigram advanced Phylos an initial US $3.25 million on the initial closing date of the agreement 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. This innovation relationship is expected to further support Organigram’s industry leading cultivation efforts in Canada with patent-pending foundational technologies and genetics that will support the Company’s commercialization efforts of THCV, a novel minor cannabinoid, and propel Organigram’s initiative to begin converting a portion of its cultivation space to seed based production, which is anticipated to drive cost savings and yield more consistent and robust cultivars.

International

• In Q3 Fiscal 2023, the Company reported international shipments totaling $1.7 million to Australia.

• In May 2023, the Company signed an agreement with Sanity Group to supply medical cannabis to the German market.

• Recent political changes and cannabis election ballot initiatives for both medical and recreational use in the United States suggest that the potential movements to U.S. federal legalization of cannabis (THC) remain difficult to predict. In addition to its recent investment in U.S. domiciled Phylos, the Company continues to monitor and develop a potential U.S. entry strategy that could include THC, CBD and other minor cannabinoids. The Company continues to monitor recreational legalization opportunities in European jurisdictions with a particular focus on German opportunities based on the size of the addressable market and recent regulatory changes.

Liquidity and Capital Resources

• On May 31, 2023, the Company had unrestricted cash of $53 million and restricted cash of $22 million for a total of $75 million. During the fiscal year the Company utilized cash for capital expenditures of $22 million, investments of $11 million in Greentank and Phylos, and $5 million in working capital changes.

• For Fiscal 2023 the Company had approximately $10 million in remaining capex committed to the three facilities.

• Organigram believes its capital position is healthy and that there is sufficient liquidity available for the near to medium term.

Capital Structure

Outstanding basic and fully diluted share count as at July 13, 2023 is as follows⁶:

Outlook⁷

The following outlook provides a description of management’s expectations regarding the Company’s Q4 Fiscal 2023 performance and may not be appropriate for other purposes. Actual results may vary based on a variety of factors. See “Cautionary Note Regarding Forward-Looking Statements” in this press release.

Net revenue

• Organigram currently expects Q4 Fiscal 2023 net revenue to be higher than that of Q3 Fiscal 2023. This expectation is largely due to growth OF the Company’s expanded product line across multiple categories, with a heavy focus on infused and tube-style pre-rolls.

Adjusted gross margins⁸

• The Company expects to have adjusted gross margins increase in Q4, 2023, with cost savings initiatives realized, improved throughput from automation, and increased flower yields.

• Organigram has identified sales mix opportunities including increasing sales from the higher-margin province of Quebec, and increased sales from higher-margin derivative products.

Contacts

For Investor Relations enquiries, please contact:

Max Schwartz, Director of Investor Relations

[email protected]

For Media enquiries, please contact:

Paolo De Luca, Chief Strategy Officer

[email protected]

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