Why OrganiGram (TSXV:OGI) Might Have the Best Strategy for the Edibles Market

OrganiGram Holdings Inc (TSXV:OGI) is hoping that a big investment in chocolate will produce sweet returns for the company when edibles launch later this year.

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We’re fewer than five months away from the legalization of cannabis edibles. Companies are ramping up production, and we’ve seen various types of strategies deployed by marijuana companies looking to take advantage of this new segment of the market.

There have been some high-profile partnerships and investments being made, particularly with beverage companies and marijuana stocks. OrganiGram Holdings (TSXV:OGI) is taking a different approach. Rather than focusing on beverages, it’s looking to chocolate to help grab a significant share of the edibles market.

The company recently announced a $15 million investment in a product line that will help it produce as much as four million kilograms of cannabis chocolate annually. It’s expected to be ready by the fall and could make OrganiGram a big player in the industry. We know how popular chocolate is with cannabis customers, and in the U.S. it has proven to be more popular than beverages.

However, we haven’t seen Canadian cannabis companies show significant interest in chocolate since a lot of the hype has been around beverages. And that’s where OrganiGram could slice out a big part of the segment by having what it calls a “high-speed, high-capacity, fully automated” product line. At a price tag of just $15 million, it’s also much more economical than investing in beverages would likely be, and it’s a segment that may or may not prove to be significant.

Beverages have a lot of potential in being able to offer consumers a buzz without a hangover, but it’s still a bit of an unknown how much demand there might be for cannabis-infused beverages. They will, after all, be competing alongside alcoholic drinks that many consumers already have a strong taste for. Chocolate, meanwhile, we know is a hit with consumers, and adding some CBD or THC to it without negatively impacting the taste could make it an easy sell for cannabis enthusiasts.

Aurora doesn’t see the hype in beverages

One company that isn’t sold on beverages is Aurora Cannabis (TSX:ACB)(NYSE:ACB), at least not yet. Despite the attention that the company has received lately about some key personnel it added to the mix, it may not be because Aurora is in search of a deal with a beverage maker.

Chief Corporate Officer Cam Battley recently told investors, “We’ve made a rational decision to focus priorities in areas that we know have strong demand based on a model we’ve seen in legal U.S. states.” This is alluding to the low market share that beverages have made up in edibles and suggests that perhaps like OrganiGram, Aurora will be focusing on chocolate or other edible products.

The concern I see is that unlike big players in the industry, we haven’t seen much movement from Aurora when it comes to edibles. While it may very well be doing it on its own with the need for a big acquisition or investment, it’s a strategy that’s a bit odd for a company that hasn’t been shy in the past when it comes to making a splash and acquiring a big company.

We’ll soon find out whether its approach pays off or if beverages prove to be the next big thing in the industry.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor David Jagielski has no position in any of the stocks mentioned.

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