Rubicon Organics Reports First Quarter 2023 Financial Results

• Net revenue of $8.8 million (71% increase from Q1 2022) for the three months ended March 31, 2023
• 4^th consecutive quarter of positive Adjusted EBITDA
• Achieved Adjusted EBITDA¹ and operating cash flow of $0.2 million for the three months ended March 31, 2023
• 2.1%² national market share of flower and pre-rolls
• 5.3%³ national market share of premium flower and pre-rolls
  

VANCOUVER, British Columbia, May 23, 2023 (GLOBE NEWSWIRE) -- Rubicon Organics Inc. (TSXV: ROMJ) (OTCQX: ROMJF) (“Rubicon Organics”, “Rubicon”, or the “Company”), a licensed producer focused on cultivating and selling organic certified, premium cannabis, today reported its financial results for the first quarter ended March 31, 2023 (“Q1 2023”). All amounts are expressed in Canadian dollars.

“Despite the historical sluggishness of the first quarter in the cannabis industry, Rubicon Organics has demonstrated an impressive 71% revenue growth (vs Q1 2022) and has delivered positive Adjusted EBITDA for the 4^th consecutive quarter”, said Margaret Brodie, Interim Chief Executive Officer and Chief Financial Officer. “While acknowledging the ongoing challenges faced by the Canadian cannabis industry, including both licensed producers and retail stores, I maintain a positive outlook on the premium segment which continues to experience robust double-digit growth. With our diverse portfolio of consistent, high-quality products, Rubicon is well-prepared to meet the rising demand in this segment."

Q1 2023 Highlights:

• Record net revenue of $8.8 million (71% increase from Q1 2022) for the three months ended March 31, 2023
• Achieved Adjusted EBITDA¹ of $0.2 million for the three months ended March 31, 2023
• Achieved operating cash flow of $0.2 million for the three months ended March 31, 2023
• 2.1%² national market share of flower and pre-rolls
• 5.3%³ national market share of premium flower and pre-rolls
  

Q1 2023 Results of Operations

Net revenue

The Company delivered record net revenue of $8,799,940 for the three months ended March 31, 2023. This represents significant net revenue growth of 71%, compared to the prior year.

Compared to Q1 2022, the Company doubled the number of SKUs for sale with the launch of several new strains, and product formats. The sales growth was underpinned by an increase in product yield, THC and quality from our Delta Facility.

Revenue growth in Q1 2023 versus the prior year was primarily driven by the expansion of 1964 Supply Co™, having a full year of sales in all key markets, continued range expansion, and a new hero strain with Comatose.

Simply Bare™ Organic also increased in Revenue compared to the prior year. The brand benefitted from the launch of new strains, larger formats, and an infused pre-roll offering.

Revenue growth has continued across all our key markets (Alberta, BC, Ontario, and Quebec) which together make up 99% of our sales in the three months ended March 31, 2023 (March 31, 2022: 97%).

Production costs

For the three months ended March 31, 2023, production costs increased by $305,784 (13%) compared to the prior year.

Under the Company’s accounting policy, production costs are expensed as incurred. Production costs consist of the direct and indirect costs incurred to grow cannabis plants to the point of harvest. They include labour related costs, cultivation materials and consumables, utilities, facility costs, certain overheads, and production related depreciation. This methodology means that unless product is produced and sold during the period, the production costs associated with inventory held at period end are expensed prior to revenue being derived.

The increase in production costs is related to an increase in plant density, plant handling techniques applied and increased overall yield of cannabis crops meaning additional labour is required during the cultivation cycle and at harvest. In addition, there has been a notable increase in the costs of fertilizer and other input materials due to inflation as well as the need to use additional inputs due to larger crop sizes and an increased number of plants on hand. The additional cultivation labour, plant density and plant handling techniques have directly related to increased quality and yield from the Delta Facility.

Inventory expensed to cost of sales

For the three months ended March 31, 2023, inventory expensed to cost of sales increased by $1,014,564 (53%) compared to the prior year.

After cannabis is harvested, the remaining costs incurred in drying, processing, and packaging are capitalized to inventory and expensed once the finished good is sold. The ratio of inventory expensed to cost of sales was 33% of net revenue for the three months ended March 31, 2023 (March 31, 2022: 37%). This ratio is directly impacted by throughput from the facility meaning that overheads are spread over a larger number of units and given the increase in production this has positively impacted the ratio.

Given the high inflationary environment in which the Company is operating in 2023, Management continues to monitor these costs closely and identify cost savings initiatives.

Gross profit and loss from operations

For the three months ended March 31, 2023, growing net revenue and production efficiencies combined for an increase to gross profit of $0.7 million compared to the prior year. Despite a significant increase in net revenues of 71%, operating expenses remained relatively stable with a decrease of $0.1 million (4%) for the three months ended March 31, 2023 as the Company began to see the results of operating leverage.

For the three months ended March 31, 2023, the Company’s loss from operations has significantly decreased to $0.3 million from $1.1 million in the prior year.

Rubicon Organics achieved Adjusted EBITDA¹ profitability of $0.2 million and positive operating cash flow of $0.2 million for the three months ended March 31, 2023.

Company Outlook

Rubicon Organics has set out four key priorities for 2023:

      1.   Optimize Yield and Cultivation at our Delta Facility

Our priority is delivering super-premium quality cannabis flower products in the Canadian market. Producing at scale in a greenhouse environment is subject to seasonal impacts and commercializing new strains to meet the demand in market and our brand standards can present challenges. We remain focused on ongoing refinement and optimization in our cultivation systems. In 2022 the Company achieved several crops exceeding our nameplate 11,000 kg’s capacity, and we expect 2023 to be a year of steady and consistent quality production. Additional tables will be installed in our facility to improve air circulation and increase capacity in the second half of 2023, with standard maintenance scheduled during downtime.

      2.   Maximize Canadian Premium Opportunity

Rubicon is focused on maximizing the gross margin we earn from each gram produced from our Delta Facility. Delivering both the right genetics and product formats to the customer at the right price to value ratio and maintaining good relationships with the provincial distributors and retail stores are critical to our success. In 2023 we are driving to grow our Simply Bare™ Organic brand and to premiumize opportunistically elements of our 1964 Supply Co™ brand the impact of both would be positive on our gross profit.

As we have forecast demand beyond our available supply from our Delta Facility we have begun projects that we expect to incrementally grow our net revenue and gross profit. We intend to launch products that do not require the Delta Facility’s capacity that we anticipate will add incremental gross profit to our results in a cost effective and efficient manner such as through contract grow relationships which will be to Rubicon’s quality standards. We are also actively looking to build our revenue with the launch of new products under our existing brands which can be contracted to other licensed producers thus not utilizing our existing capacity. We intend to deliver this incremental gross profit without significant incremental overhead cost to our business, thus driving additional overall profitability.

      3.   Drive Efficiency in Processes and Systems

As steady state has been established at our Delta Facility, we now are seeking to create efficiency in our systems away from manual processes or those where there is reliance on key individuals to increase the resilience and repeatability of our systems and reduce cost. As part of this process, Rubicon is evaluating new information systems and expects to begin implementing new systems beginning in the second half of 2023. This project will increase costs in the short-term, but we believe will improve efficiency of the existing business and ready Rubicon for further growth.

      4.   Build a Proud, Engaged Team Delivering Outstanding Results

With turmoil in the cannabis sector in the last number of years, coupled with the stresses relating to work in the pandemic and tightness of the labour market, we have seen considerable turnover in the business. We believe that in order to deliver a premium product to market, our team members being engaged and proud is important to put our best foot forward with our consumers and customers. Furthermore, the cost and resources used when there is labour turnover can be considerable. As part of achieving an engaged and proud team, we have set clear goals and objectives linked to reward to recognize the hard work and accomplishments of team members. We also have begun reviewing our Company values listening to our people as part of the process and Rubicon’s evolution now that we are in a more steady state.

Rubicon believes that our cannabis quality, brand positionings and product offerings will drive continued growth in net revenue, resulting in an increase in gross profit and Adjusted EBITDA for the full year 2023. With a stable cost base, this anticipated growth in net revenue and gross profit would improve our operating leverage. Additionally, we expect to achieve positive cashflow for the full year, pending opportunistic investment decisions.

As a business we are now looking to increase the volume of product that we have available for sale to fill the demand we have for our quality products. The business is evaluating several options to increase our capacity. We believe that despite any market volatility, inflationary pressures, regulatory change, our product quality and brand portfolio has positioned Rubicon to win in the premium cannabis market.

Conference Call

The Company will be hosting a conference call to discuss Q1 2023 results on Tuesday, May 23, 2023. Conference call details are as follows:

ABOUT RUBICON ORGANICS INC.

Rubicon Organics Inc. is the global brand leader in premium organic cannabis products. The Company is vertically integrated through its wholly owned subsidiary Rubicon Holdings Corp, a licensed producer. Rubicon Organics is focused on achieving industry leading profitability through its premium cannabis flower, product innovation and brand portfolio management, including its flagship super-premium brand Simply Bare™ Organic, its premium brand 1964 Supply Co.™, its premium concentrate brand LAB THEORY™, its mainstream brand Homestead Cannabis Supply™ and its topical brand Wildflower™.

The Company ensures the quality of its supply chain by cultivating, processing, branding and selling organic certified, sustainably produced, super-premium cannabis products from its state-of-the-art glass roofed facility located in Delta, BC, Canada.

CONTACT INFORMATION

Margaret Brodie
Interim CEO & CFO
Phone: +1 (437) 929-1964
Email: [email protected]

The TSX Venture Exchange or its Regulation Services Provider (as that term is defined in the policies of the TSX Venture Exchange) does not accept responsibility for the adequacy or accuracy of this press release.

Non-GAAP Financial Measures

This press release contains certain financial performance measures that are not recognized or defined under IFRS (“Non-GAAP Measures”) including, but not limited to, “Adjusted EBITDA”. As a result, this data may not be comparable to data presented by other companies. The Company believes that these Non-GAAP Measures are useful indicators of operating performance and are specifically used by management to assess the financial and operational performance of the Company as well as its liquidity. Accordingly, they should not be considered in isolation nor as a substitute for analysis of our financial information reported under IFRS. For more information, please refer to the “Selected Financial Information” section in the MD&A for the three months ended March 31, 2023, which is available on SEDAR at www.sedar.com.

Below is the Company’s quantitative reconciliation of Adjusted EBITDA calculated as earnings (losses) from operations before interest, tax, depreciation and amortization, share-based compensation expense, and fair value changes. The following table presents a reconciliation of Adjusted EBITDA to the most comparable IFRS financial measure for the three months ended March 31, 2023 and March 31, 2022.

Cautionary Statement Regarding Forward Looking Information

This press release contains forward-looking information within the meaning of applicable securities laws. All statements that are not historical facts, including without limitation, statements regarding future estimates, plans, programs, forecasts, projections, objectives, assumptions, expectations or beliefs of future performance, statements regarding Rubicon Organics' goal of achieving industry leading profitability are "forward-looking statements". Forward-looking information can be identified by the use of words such as “will” or variations of such word or statements that certain actions, events or results "will" be taken, occur or be achieved.

Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause actual results, events or developments to be materially different from any future results, events or developments expressed or implied by such forward looking statements. The forward-looking information in this press release is based upon certain assumptions that management considers reasonable in the circumstances, including the impact on revenue of new products and brands entering the market, and the timing of achieve Adjusted EBITDA profitability and cash flow positive. Risks and uncertainties associated with the forward looking information in this press release include, among others, dependence on obtaining and maintaining regulatory approvals, including acquiring and renewing federal, provincial, local or other licenses and any inability to obtain all necessary governmental approvals licenses and permits for construction at its facilities in a timely manner; regulatory or political change such as changes in applicable laws and regulations, including bureaucratic delays or inefficiencies or any other reasons; any other factors or developments which may hinder market growth; Rubicon Organics' limited operating history and lack of historical profits; reliance on management; and the effect of capital market conditions and other factors on capital availability; competition, including from more established or better financed competitors; and the need to secure and maintain corporate alliances and partnerships, including with customers and suppliers; and those factors identified under the heading "Risk Factors" in Rubicon Organic’s annual information form dated March 31, 2023 filed with Canadian provincial securities regulatory authorities. These factors should be considered carefully, and readers are cautioned not to place undue reliance on such forward-looking statements. Although Rubicon Organics has attempted to identify important risk factors that could cause actual actions, events or results to differ materially from those described in forward-looking statements, there may be other risk factors that cause actions, events or results to differ from those anticipated, estimated or intended.

These factors should be considered carefully, and readers are cautioned not to place undue reliance on such forward-looking statements. Although Rubicon Organics has attempted to identify important risk factors that could cause actual actions, events or results to differ materially from those described in forward-looking statements, there may be other risk factors that cause actions, events or results to differ from those anticipated, estimated or intended. There can be no assurance that forward-looking statements will prove to be accurate, as actual results and future events could differ materially from those anticipated in forward-looking statements. Rubicon Organics assumes no obligation to update any forward-looking statement, even if new information becomes available as a result of future events, new information or for any other reason except as required by law.

We have made numerous assumptions about the forward-looking statements and information contained herein, including among other things, assumptions about: optimizing yield, achieving revenue growth, increasing gross profit, operating cashflow and Adjusted EBITDA profitability. Even though the management of Rubicon Organics believes that the assumptions made, and the expectations represented by such statements or information are reasonable, there can be no assurance that the forward-looking information will prove to be accurate, as actual results and future events could differ materially from those anticipated in forward-looking statements. Investors are cautioned against undue reliance on forward-looking statements or information. Forward-looking statements and information are designed to help readers understand management's current views of our near and longer term prospects and may not be appropriate for other purposes. Rubicon Organics assumes no obligation to update any forward-looking statement, even if new information becomes available as a result of future events, changes in assumptions, new information or for any other reason except as required by law.

^{_______________________________________
1}Adjusted EBITDA is a non-GAAP measure that is calculated as earnings (losses) from operations before interest, tax, depreciation and amortization, share-based compensation expense, and fair value changes. See ‘Non-GAAP Financial Measures’ for details on the Adjusted EBITDA calculation.
²Hifyre data for flower & pre-rolled products covering three months ending March 31, 2023
³Hifyre data for premium flower & pre-rolled products covering three months ending March 31, 2023