Organigram: navigating the cannabis industry

OrganiGram Holdings has a few strengths on which is can draw in order to thrive in the post-legalization market. The first strength lies in the cultivation talent. The company has been producing for the medical market for several years, which means that it has developed competency in the agricultural side of the business, producing different strains that deliver particular medical results. This talent will be important going forward into the legalization era. Further, the company has been able to develop competency in the manufacture of edibles. This market is particularly lucrative in US states that have fully legalized cannabis – being able to deliver products with a specific THC or CBD level, in a variety of formats including mints, cookies and bars, is essential to being competitive in the recreational marketplace.
The business savvy of the ownership group is another strength, because when the recreational market opens up there will be tremendous opportunity for the first movers in the business. If the trends in places like Colorado and Washington hold in Canada, then there is exceptional opportunity to build a nationwide brand name for high-consistency products with national distribution. It does, however, take a particular amount of production, distribution and marketing savvy to execute a nationwide strategy across Canada. Even large grocery and drug store chains tend to be regional – there are actually not that many companies that have gone nationwide in retail in Canada. Thus, a high level of business savvy will be the only way that this company can navigate the different provincial regulations that will come with nationwide recreational cannabis.
There are a few weaknesses, whoever, that must be addressed. The first is that the company is based on New Brunswick , which means that it is geographically away from the economic centre of the country, much less away from the Western provinces. While doubtless there is a market in the Maritimes, gaining access to provincial distribution channels will likely require some sort of local presence, and being based in a small market like New Brunswick is definitely a weakness. Furthermore, there are questions as to whether the company has the capital to go nationwide at present. Given that this business is not all that legal at present, how much money the company has in advance of legal cash flow is a pretty fair question. Moreover, no company in the cannabis business at present has experience at legal marketing – it just has not been a thing in the cannabis business to date.
The opportunity is tremendous – a market of 35 million if the company can do nationwide business, and potentially more if it can crack the code in shipping to the US. That is for another day – getting access to the big four provinces is opportunity enough, assuming that OrganiGram will gain access to the Maritime provinces and Newfoundland right out of the gate.
The threats are mainly from competitors and from the reality of local provincial laws. For example, if Ontario decides that distribution will only be through the LCBO, and that it will only buy from Ontario suppliers, that could leave OrganiGram out of the biggest market in the country. Ultimately, that could prove a challenge and a threat to OrganiGram's ability to go nationwide Further, having sufficient capital has been identified as a key success factor, so this is something that could be a threat for OrganiGram, should the company not have enough capital nor enough access to capital going forward.
A further threat is that many provinces are leveraging their liquor distribution systems for distribution of cannabis. While local producers often have preference in these systems, that is not a good thing for a company based in New Brunswick, a small market. Depending on how the rules in each province shake out, Organigram could potentially have trouble selling in Nova Scotia or PEI, much less in the lucrative Ontario and Quebec markets.

Competitor Analysis
The interesting thing is that this business does not technically exist yet, so the competitive landscape is actually quite unknown. That presents some rather significant challenges for OrganiGram. It literally does not know if its competitors will be mom-and-pop shops making hash brownies, or whether it will face market entrants from the established tobacco companies, growing and selling cannabis at scale.
The experience thus far in Washington and other recreational US states is that there is almost a wild west with respect to competition. There are a wide range of producers, and each seeks to sell a variety of products. There are few dominant players in the market. Many compete strictly in edibles, while others only compete as cannabis growers, selling to consumers and to edibles producers. The fact that there are no dominant players has really opened the field for any company with professional capabilities in terms of packaging, product and marketing. An early capital advantage can surely help OrganiGram gain a foothold in the market and start to build some credibility with consumers.
It is worth considering that a highly-fragmented market shakes out to two main types of competitors. The first is a cost competitor, producing mediocre cannabis at a low cost, and probably acting a supplier to edibles manufacturers. The other competitor is a differentiated one with a brand name, possibly some proprietary strains, and products that perform well in consumer reviews. That sort of competitor likely has the best chance at long-run success. Being able to compete as a differentiated produced typically requires a substantial amount of capital, and that has been identified as one of the most important key success factors for Organigram.


References

Castaldo, J. (2017) How big is Canada's pot market, really? Macleans. Retrieved November 24, 2017 from http://www.macleans.ca/news/canada/how-big-is-canadas-marijuana-market-really/

Crawley, M. (2017). Marijuana economics: predicting Ontario's legal pot market. CBC News. Retrieved November 24, 2017 from http://www.cbc.ca/news/canada/toronto/marijuana-ontario-price-market-sales-1.4298311

Zochodne, G. (2017) Amid the green rush, suits are taking over Canada's cannabis industry. Financial Post. Retrieved November 24, 2017 from http://business.financialpost.com/commodities/agriculture/amid-the-green-rush-suits-are-taking-over-canadas-cannabis-industry