Organigram Holdings Inc. (NASDAQ: OGI)  released its results for the first quarter ended November 30, 2020, causing the stock to tumble in early trading. A shift to value products has hurt the company, which also warned that the second-quarter revenue could be impacted as well. The stock was falling over 7% to lately sell at $1.64.

The company delivered net revenue of $19.3 million for the first fiscal quarter of 2021 versus last year’s $25.2 million, which the company blamed on significantly lower wholesale revenue from licensed producers and a lower average selling price in the quarter.

Organigram said in a statement that the higher wholesale revenues during the first quarter of 2021 were opportunistic in nature, primarily sales to a single licensed producer; and not necessarily expected to recur each quarter at those levels, or if at all. First-quarter net revenue from the Canadian adult-use recreational market grew 30% to $16.8 million from $12.9 million in the prior-year quarter largely because Rec 2.0 products were not yet legalized.

The company also delivered a first-quarter net loss of $34.3 million, or ($0.17) per share on a diluted basis, compared to the 2020 first quarter net loss of $0.9 million, or ($0.01) per share, largely due to greater negative gross margin.

“We are pleased with our double-digit sales growth in the Canadian adult-use recreational market this past quarter as it reflects the success of many of our new product launches, particularly in the dried flower value segment,” said Greg Engel, CEO. “Now we look forward to our new higher-margin Edison dried flower offerings contributing substantially to overall revenue with even more new products to come in the next few quarters. We believe our product portfolio revitalization combined with additional resources to ramp up production and achieve greater economies of scale as well as our relentless focus on increased automation and cost efficiency opportunities position us well to generate further top-line growth and significantly improve gross margins.”

Gross revenue fell 11% to $25.3 million versus $28.4 million in Q1 2020 largely due to similar factors impacting net revenue and reflected the increase in excise taxes as a percentage of gross revenue in Q1 2021. In mid-calendar 2020, Organigram began a product portfolio revitalization to address what it believed to be some of the biggest consumer trends and preferences, including demand for value in large format, higher THC potency in dried flower as well as new genetic strains and novel products.

Less Than Stellar Outlook

Organigram said that stronger than expected demand for many of its new products resulted in competing priorities for the company’s existing staffing and production levels. “This contributed to delays in product launches and hindered consistent order fulfillment, which resulted in some meaningful missed revenue opportunities in Q1 Fiscal 2021 and is expected to continue to impact Q2 Fiscal 2021. As such, management has decided to ramp up staffing. By early Q3 Fiscal 2021, the Company plans to have hired 100 more positions, mostly in cultivation, and up to an additional 30 more positions in packaging.”

The company also warned that its revenues in the second fiscal quarter could also be impacted due to COVID closures. However, the stores are still offering online and delivery services.

Organigram also told investors that a negative non-cash adjustment to cost of sales for unabsorbed fixed overhead costs in Q2 Fiscal 2021 was anticipated to persist as a result of the company’s plans to cultivate less than its cultivation capacity. “Some production inefficiencies are anticipated to persist in the near to medium term and impact gross margins while Organigram continues to launch new products and optimizes production and staffing.”

Organigram launched a number of value segment products to respond to increased demand in this area and it said the new products have been well-received by the market, particularly SHRED (currently the Company’s deepest value offering). SHRED sales drove the Company’s revenue growth in Q1 Fiscal 2021 in the Canadian adult-use recreational market over Q4 Fiscal 2020. “As such, Organigram is focused on further revitalizing its Edison mainstream brand, which attracts higher product gross margins, by launching new dried flower offerings with unique strains and higher potency THC.”