Organigram Global, Inc. Q2 FY2026 earnings call

Canadian Market Position & Portfolio Performance

• Organogram remains the number one Licensed Producer (LPN) in Canada by national market share, holding leadership positions in Ontario, British Columbia, and Alberta.
• The company is the fastest-growing LPN in Quebec year-to-date, rising to number three in the province with 11.3% market share (up 2.6 points YoY), generating ~$25 million in quarterly retail sales there.
• Three of the company's core brands (Shred, BoxHot, Big Bag of Buds) rank in the top eight national brands; Shred alone would rank as a top 10 LPN by market share if measured independently.

Operational Challenges & Remediation

• IPR production quality issues: After accelerating internalization of production to replace a supplier that lost its license, variable fill rates and inconsistent coding reduced product quality and repurchase rates. Management has tightened quality controls, adjusted production processes, and plans to add automated coding in the near term; product consistency has already improved.
• Vape market underperformance: Overexposure to lower-potency 1.2-gram vapes amid a consumer shift to higher-potency 1-gram formats eroded market share. Management will launch refreshed higher-potency products with updated hardware in the near term to regain competitiveness.
• International out-of-spec flour: On-spec pass rates improved sequentially from Q1, but still remain below target. Continued process improvements are expected to increase pass rates in Q3, supporting revenue and margin growth in the back half of the year.

Sanity Group Acquisition & European Expansion

• The acquisition of Sanity Group completed in April 2026, creating a combined company with leading positions in the two largest global federally legal cannabis markets (Canada and Germany).
• Sanity is expected to generate an average of ~25 million euros in quarterly revenue over the next year, and will operate independently for the first year to maintain execution focus while receiving strategic and supply support from Organogram.
• Sanity already has a presence in Switzerland (one of the few participants in the country's recreational cannabis pilot, expected to launch a full open market in 2028), the UK, Poland, and the Czech Republic, providing a platform for broader European expansion as regulatory frameworks formalize.

Core Operational Improvements

• Achieved a record quarterly harvest of over 32,000 kilograms, with average total floral content (TFC) of 29.8% at the Moncton facility (the highest level to date). Yield improvements have increased cultivation capacity by 56% YoY without expanding facility footprint, reducing per-unit cultivation costs.
• The genetics program continues to advance, with two powdery mildew-resistant cultivars launched in March that reduce input costs and improve yields. The program is expanding to target additional desirable traits, and seed-based cultivation (a key cost-reduction and consistency strategy) now accounts for 25% of quarterly harvest.
• The Winnipeg beverage production line is ramping up to meet growing demand, with new product launches already receiving strong market reception and expected to drive Q3 beverage growth.
• Outside of Europe, Organogram has launched branded vapes and edibles in Australia, expanding beyond wholesale flower to branded retail across an expected 4,000 pharmacies as distribution rolls out.

Overall company net revenue for Q2 fiscal 2026 was $59.8 million, a 9% year-over-year decline from $65.6 million in the prior year period. Adjusted gross margin was $18.4 million (16% YoY decline), with an adjusted gross margin rate of 31% (200 basis points lower than the prior year). Adjusted EBITDA was $0.9 million, down from $4.9 million YoY. G&A expenses were flat at $14.9 million (25% of net revenue, up 300 bps YoY due to lower revenue), while sales and marketing expenses were $8.7 million (14.5% of revenue, up from $7.5 million YoY).

• Flower: Gained 2.2 share points YoY, driven by strong performance from core brands and cultivars. Big Bag of Buds is the fastest-growing flower brand in Canada, and the segment held a leading 38.9% share in millflower despite a modest YoY share decline.
• Edibles: Gained 1.8 share points YoY, driven by new product innovation and strong momentum in core SKUs.
• Beverages: Grew 0.7 share points YoY.
• Concentrates: Grew 3.1 share points YoY, with BoxHot ranked as the number one concentrate nationally.
• Vapes: Experienced a 6.1-point YoY share decline due to product misalignment with consumer demand for higher-potency formats, as well as below-benchmark pricing and potency. BoxHot remains the number two vape brand nationally.
• Infused Pre-Rolls (IPR): Experienced a 1.6-point YoY share decline due to quality inconsistencies after internalizing production at the Elmer facility and adopting new production equipment.
• International: Q2 revenue was $6.1 million, flat YoY and up from $5 million in Q1 fiscal 2026. First-half international revenue was $11.1 million, an 18% YoY improvement from the first half of fiscal 2025. Growth was constrained by lower-than-target on-spec flour volumes meeting international regulatory requirements.

• Management revised fiscal 2026 net revenue guidance upward to exceed $350 million, driven primarily by the addition of Sanity Group's consolidated revenue, partially offset by softness in the core Canadian business.
• The company expects adjusted EBITDA and adjusted gross margin for full fiscal 2026 to exceed fiscal 2025 performance.
• Full-year free cash flow is projected to be approximately break even, with total capital expenditures of less than $10 million.
• Management expects a material step change in international revenue growth in the second half of fiscal 2026, driven by improving on-spec flour pass rates and the addition of Sanity Group's revenue.
• The company expects market share recovery and improved profitability in vapes and infused pre-rolls through the back half of the year, supported by remediation actions and new product launches.
• Canadian market growth is expected to remain in a 2% to 4% range for the full year, down from the prior 5% expectation.

• Canadian recreational market growth slowed to 2.2% in Q2 from the prior 5% forecast, with pockets of down-trading in regions economically impacted by U.S. tariffs, which could pressure future revenue if slowdown persists.
• European regulators have increased scrutiny of imported cannabis products, reducing the margin of error for meeting quality specifications, which can constrain international shipment volumes.
• The timing of EU GMP certification for Organogram's facilities is uncertain due to increased regulatory scrutiny, with an update not expected for multiple months.
• U.S. cannabis regulatory changes remain uncertain, and it is too early to confirm viable market entry pathways for Organogram as a non-plant-touching current operator.
• The company recorded a $5.8 million impairment on its U.S. hemp-derived products business due to recent changes in U.S. regulatory policy.
• Operational execution issues in key high-margin segments (vapes, infused pre-rolls) led to material market share losses in Q2, and recovery depends on successful consumer adoption of new product launches and remediated production processes.

Q: Can you confirm that Q2's operational issues in pre-rolls, vapes, and international are short-term, and what gives you confidence you can regain prior market share in Canada? / A: All three issues coincidentally occurred in the same quarter, but the root causes have been identified and remediation is already underway. Pre-roll production internalization was accelerated by the prior supplier's loss of license, and quality has already improved after process adjustments. Vape device/component issues have been identified and will be fixed with new product launches. International out-of-spec issues were driven by downstream capacity pressure from higher yields, but pass rates have improved sequentially, reflected in higher Q2 shipments. Management expects continued improvement across all three areas in Q3 and Q4.

Q: How much of the Q2 share loss was internal operational issues versus increased competitive intensity, and how are you addressing competitive pressure? / A: Management estimates 70% of the impact came from internal operational issues, and 30% from competition. For vapes, the company is launching new higher-potency products with updated hardware that meets current competitive benchmarks, supported by marketing campaigns. For infused pre-rolls, the core issue was internal quality from accelerated production internalization; fixing quality and launching updated competitive offerings in the coming months, paired with typical seasonal Q3/Q4 growth tailwinds, is expected to drive share recovery.

Q: How much international revenue was lost in Q2 due to out-of-spec product, and what is driving the out-of-spec issues? / A: Management estimates the company missed out on $4 million to $5 million in Q2 international revenue due to out-of-spec product. Out-of-spec issues are partially driven by increased regulatory scrutiny and narrower margins of error from European regulators, which have impacted multiple industry players. The company has also identified internal process and drying capacity constraints as key drivers, and has already achieved sequential improvements in pass rates, with further improvements expected going forward.

Q: How is the 2026 guidance increase split between Sanity Group revenue and organic core business growth, and what is Sanity's growth outlook across European markets outside Germany? / A: The majority of the $50 million net revenue guidance increase comes from Sanity Group, which is expected to generate ~25 million euros in average quarterly revenue over the next year (50 million euros total for the back half of fiscal 2026), partially offset by Canadian core business softness. Sanity's core focus is Germany, Europe's largest cannabis market, but it already exports medical product to the UK (where Organogram will consolidate overlapping export operations), holds a leading position in Switzerland's recreational pilot program (with a full market opening expected in 2028), and has existing sales in Poland and the Czech Republic, providing upside for future expansion.