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Supreme Court of Novia Scotia certifies class-action lawsuit against Organigram as comoany reports increased Q1 net revenues for fiscal 2019

Organigram Inc. (TSXV:OGI) (OTCQB:OGRMF) may face trial after the Supreme Court of Nova Scotia certified a class action lawsuit against them. The company is accused of supplying contaminated medical cannabis to patients who then fell ill.

A judge recently certified the suit for trial after first setting a 48-hour hearing for the case back in June.

The suit pertains to the cannabis products Organigram voluntarily recalled in Jan 2017 after certain lots tested positive for unauthorized pesticides. Organigram offered reimbursement and coupons for patients negatively affected by the contaminated cannabis, but the plaintiffs in this particular case claim that the pesticides caused long-term deterioration in health.

In their press release last week, Organigram stated that they would “vigorously” defend themselves against the charges. The release then goes on to reference a statement made by Health Canada in Mar 2017 following the initial recalls.

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Last spring, the department claimed that the pesticide found on the cannabis samples “is 500 times below the acceptable level” and that “the risk of serious adverse health consequences resulting from the inhalation of...the recalled cannabis products was determined by Health Canada to be low.”

With that in mind, investors should note that Organigram still has an opportunity for appeal. The recent certification made by the judge offers no bearings on the merits of the case, only approves the lawsuit to move on to the next step in the Canadian penal procedure.

PrestoDoctor from Potnetwork on Vimeo.

Net revenues up 287 percent

Meanwhile, Organigram posted net revenues of $12.4 million for the first quarter of fiscal year 2019, putting them up 287 percent sequentially quarter-over-quarter. According to a statement it consists of gross revenue of $14.4 million minus excise taxes and returns of $2.0 million.

Net revenue was however limited by post-harvest costs such as extraction, packaging, excising and labeling, which Organigram claims it is aggressively looking to “augment and gain greater efficiencies on.”

Organigram Reports Record Net Revenue of $12.4 Million Up 287% Sequentially Quarter-over-Quarter; Adjusted Gross Margin of 71%https://t.co/bVKRAat2RZ

— Organigram (@discoverOGI) January 28, 2019

“The first quarter of 2019 is just the start of what we expect to be a year of tremendous growth,” said Greg Engel, the Company’s Chief Executive Officer in a statement. “We’ve always believed the Moncton campus would be a competitive advantage for us being able to produce high-quality indoor-grown product at a low cash cost of cultivation.  Our first quarter results confirmed that as we reported an adjusted gross margin of 71 [percent].”

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“While we continue to work hard to take advantage of our enviable inventory build to drive increased sales we are already well underway preparing for the derivative and edibles launch during the fall of 2019,” he continued.

Pesticides, pot, and pending lawsuits in cannabis

Organigram is not the only cannabis company to face class action lawsuits in recent months. Mettrum, a wholly-owned subsidiary of Canopy Growth Corporation (TSX:WEED) (NYSE:CGC), faced their own lawsuits last year after all of their cannabis products received the same Type III recall in Canada.

Both Organigram and Mettrum’s cannabis tested positive for a pesticide known as myclobutanil, but both company’s samples contained such small amounts that they would be unlikely to cause adverse health effects.

The issue that arises with cases like this is that they are pinned on some of the biggest Licensed Producers in Canada. While the companies may not suffer financially from the charges, their reputations are at risk.

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The pending case against Organigram claims that the patient who fell ill after using the contaminated products “has lost confidence in licensed producers” and is “unable to obtain any medical relief” through them or their products.

The spotlight is on cannabis right now, and anyone with a smudge in their ledger could be at risk. While it is still too early to tell whether the pending lawsuit against Organigram will do more damage than naught, it may be just enough for investors to keep their distance until these pot stocks can redeem their tainted reputations.

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