Organigram Applauds the Standing Committee on Finance’s Recommendation on Excise Duty

Rhea-AI Summary

Organigram Holdings Inc. supports the Standing Committee on Finance's recommendation to adjust the excise duty framework for the cannabis industry. Licensed producers currently pay up to 35% of revenue in excise duties, hindering competitiveness and innovation. The proposed 10% ad valorem rate reduction could significantly benefit the sector's sustainability and support government objectives.

Insights

Market Research Analyst

The recommendation to revise the excise duty framework in the Canadian cannabis industry could have a significant impact on market dynamics and company valuations. Currently, the high excise duty rates are a substantial burden on licensed producers, consuming a large portion of their revenue. By reducing the excise duty to a 10% ad valorem rate, producers would likely see an improvement in their profit margins and cash flows, which is crucial for reinvestment and growth. Moreover, a lower tax rate could enhance the competitiveness of legal cannabis against the illicit market, potentially increasing legal sales volumes and market share for companies like Organigram.

However, the implementation of this recommendation would not only affect Organigram but the entire industry, possibly leading to price adjustments and shifts in consumer behavior. Investors should monitor the government's response to this recommendation as it could serve as a catalyst for stock price movement within the sector.

Legal Expert

From a legal standpoint, the unanimous recommendation by the House of Commons Standing Committee on Finance signifies a strong political consensus for change, which increases the likelihood of legislative action. The modification of the excise duty operation, including the application of excise stamps, suggests a shift towards a more streamlined and potentially less burdensome tax compliance process for cannabis producers. This could reduce administrative costs and legal complexities associated with tax remittance and enforcement.

The proactive measures by the CRA to ensure diligent collection from producers who are behind on excise duty payments highlight the government's intent to enforce tax laws while potentially signaling a transition towards a more equitable tax framework. Stakeholders should consider the legal implications of these changes, including the potential need for adjustments in compliance strategies and internal accounting practices.

Financial Analyst

For investors, the proposed excise duty reform presents a potential valuation inflection point for Organigram and its peers. The current excise duty structure disproportionately affects the cost structure of cannabis companies and its revision could lead to an upward revision of earnings forecasts and improved investor sentiment. The direct impact on Organigram's financials would likely be reflected in subsequent quarterly reports, with a focus on gross margin expansion and EBITDA improvements.

It is important to note that while the recommendation is a positive development, the actual adoption by Federal, Provincial and Territorial governments is not guaranteed. Therefore, the potential benefits of excise duty reform remain speculative until formal legislative changes are enacted. Investors should balance this optimism with a consideration of the broader economic environment and regulatory risks inherent in the cannabis industry.

Revised Excise Framework Remains One of the Most Critical Reforms Required to Ensure the Long-Term Viability of the Cannabis Industry

TORONTO--(BUSINESS WIRE)-- Organigram Holdings Inc. (NASDAQ: OGI) (TSX: OGI), (the “Company” or “Organigram”) enthusiastically supports the Standing Committee on Finance’s recent recommendation on the Excise Duty framework.

In a recently released report, titled ‘Shaping our Economic Future: Canadian Priorities,’ the House of Commons Standing Committee on Finance has unanimously recommended adjusting the excise duty formula for cannabis so that it is limited to a 10% ad valorem rate, and modifying the duty's operation, including applying excise stamps on cannabis products.

Based on a survey conducted by the Cannabis Council of Canada, licensed producers currently pay up to 35% of top-line revenue in excise duties because of an erroneous assumption at the time of legalization that the price of cannabis flower would be approximately $10 per gram to the retail consumer. In reality, the price per gram of cannabis flower has fallen to as low as approximately $3 per gram, limiting cannabis companies’ ability to remain competitive on pricing, invest in innovation, retain jobs, and ultimately support the government’s stated objectives of illicit market conversion and promoting public health and safety.

“The pre-budget recommendation could not have come at a better time,” said Beena Goldenberg, CEO of Organigram. “Excise reform is critical to the long-term viability of the Canadian cannabis industry. The positive impact of the proposed reduction to a 10% ad valorem rate on the sustainability of the sector cannot be underestimated. We sincerely hope that the recommendation made by the Finance Committee is adopted by the Federal, Provincial and Territorial governments so that Canada can retain its position as global leader in the emerging cannabis movement.”

“We are also encouraged by recent reports indicating that the CRA is taking proactive measures to level the playing field by collecting more diligently from LPs who have fallen behind on their remittances for excise duties,” added Beena.

About Organigram Holdings Inc.

Organigram Holdings Inc. is a NASDAQ Global Select Market and TSX listed company whose wholly owned subsidiaries include Organigram Inc. a licensed producer of cannabis, cannabis-derived products and cannabis infused edibles in Canada.

Organigram is focused on producing high-quality, cannabis for patients and adult recreational consumers, as well as developing international business partnerships to extend the Company’s global footprint. Organigram has also developed and acquired a portfolio of legal adult-use recreational cannabis brands, including Edison, Holy Mountain, Big Bag O’ Buds, SHRED, SHRED’ems, Monjour, Laurentian, Tremblant Cannabis and Trailblazer. Organigram operates facilities in Moncton, New Brunswick and Lac-Supérieur, Quebec, with a dedicated edibles manufacturing facility in Winnipeg, Manitoba. The Company is regulated by the Cannabis Act and the Cannabis Regulations (Canada).

Forward-Looking Information

This news release contains forward-looking information. Often, but not always, forward-looking information can be identified by the use of words such as “plans”, “expects”, “estimates”, “intends”, “anticipates”, “believes” or variations of such words and phrases or state that certain actions, events, or results “may”, “could”, “would”, “might” or “will” be taken, occur or be achieved. Forward-looking information involves known and unknown risks, uncertainties and other factors that may cause actual results, events, performance or achievements of Organigram to differ materially from current expectations or future results, performance or achievements expressed or implied by the forward-looking information contained in this news release. Risks, uncertainties and other factors involved with forward-looking information could cause actual events, results, performance, prospects and opportunities to differ materially from those expressed or implied by such forward-looking information include adoption of budget recommendations and timing thereof, changes to market conditions, consumer preferences and regulatory climate and factors and risks as disclosed in the Company’s most recent annual information form, management’s discussion and analysis and other Company documents filed from time to time on SEDAR (see www.sedar.com) and filed or furnished to the Securities and Exchange Commission on EDGAR (see www.sec.gov). Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this press release. Although the Company believes that the assumptions and factors used in preparing the forward-looking information in this news release are reasonable, undue reliance should not be placed on such information and no assurance can be given that such events will occur in the disclosed time frames or at all. The forward-looking information included in this news release are made as of the date of this news release and the Company disclaims any intention or obligation, except to the extent required by law, to update or revise any forward-looking information, whether as a result of new information, future events or otherwise.

View source version on businesswire.com: https://www.businesswire.com/news/home/20240228644763/en/

For Media enquiries:

Megan McCrae

Senior Vice President, Global Brands and Corporate Affairs

megan.mccrae@organigram.ca

Organigram

Source: Organigram Holdings Inc.

FAQ

What is the ticker symbol for Organigram Holdings Inc.?

The ticker symbol for Organigram Holdings Inc. is OGI.

What recent recommendation did the Standing Committee on Finance make regarding the excise duty framework?

The Standing Committee on Finance recommended adjusting the excise duty formula for cannabis to a 10% ad valorem rate and modifying the duty's operation.

Why do licensed producers currently pay up to 35% of top-line revenue in excise duties?

Licensed producers pay high excise duties due to an erroneous assumption at the time of legalization that the price of cannabis flower would be $10 per gram, while in reality, it has fallen to as low as $3 per gram.

What positive impact could the proposed reduction to a 10% ad valorem rate have on the cannabis industry?

The reduction could benefit the sustainability of the sector, allowing companies to remain competitive on pricing, invest in innovation, retain jobs, and support government objectives.

Who is the CEO of Organigram?

The CEO of Organigram is Beena Goldenberg.