Rubicon Organics Reports Second Quarter 2022 Financial Results

·18 min read
Rubicon Organics
Rubicon Organics

Record sales, first quarter of profitability and growing share of premium market

  • $8.8 million in net revenue, 92% increase over Q2 2021

  • Achieved Adjusted EBITDA1 of $0.3 million in Q2 2022

  • 2.7%2 national market share of flower and pre-rolls

  • 8.6%3 national market share of premium flower and pre-rolls

VANCOUVER, British Columbia, Aug. 15, 2022 (GLOBE NEWSWIRE) -- Rubicon Organics Inc. (TSXV: ROMJ) (OTCQX: ROMJF) (“Rubicon Organics” or the “Company”), a licensed producer focused on cultivating and selling organic certified, premium cannabis, today reported its financial results for the second quarter ended June 30, 2022 (“Q2 2022”). All amounts are expressed in Canadian dollars.

“Rubicon Organics has reached profitability due to the continued success of Simply Bare Organic as Canada’s #1 premium flower and pre-roll brand3 and the impressive market share gains of our newly launched mainstream brand 1964 Supply Co. Our production facility at the end of Q2 2022 was delivering yield run-rates capacity expectations of 10,000kg and we are beginning to realize the benefits of operating leverage as our production costs remain relatively flat, excluding some minor cost creep due to inflationary pressures. The growth in the rate of sale of our Simply Bare Organic and our 1964 Supply Cobrands has led us to being one of the fastest growing licensed producers in Canada in Q2 20224. We expect to see our products in international markets in either late 2022 or the first part of 2023. I am also pleased to increase our guidance to achieve positive Adjusted EBITDA for FY 2022 and as well as operating cashflow positive in the second half of 2022,” said Jesse McConnell, Chief Executive Officer.

Q2 2022 Highlights:

  • $8.8 million in net revenue, 92% increase over Q2 2021

  • Achieved Adjusted EBITDA of $0.3 million in the three months to June 30, 2022

  • 2.7%2 national market share of flower and pre-rolls

  • 8.6%3 national market share of premium flower and pre-rolls

  • #13 Premium flower and pre-roll brand in Canada with Simply Bare Organic

  • #15 Topical brand in Canada with the licensed brand Wildflower topical sticks

  • Extended existing Debenture for 18 months to December 31, 2024

  • Granted IMC-G.A.P. Certification by the Control Union (“CU”) a milestone to export to Israel and EU-GMP facilities in Europe and Australia

________________________
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.
2 Hifyre data for flower and pre-roll products covering the period of April 1, 2022 to June 30, 2022.
3 Hifyre data for premium flower & pre-rolled products covering the period of April 1, 2022 to June 30, 2022.
4 Hifyre data for all categories of cannabis products covering the period of April 1, 2022 to June 30, 2022.
5 Hifyre data for topical cannabis products covering the period of April 1, 2022 to June 30, 2022.


Q2 2022 Results of Operations

 

Three months ended

Six months ended

 

June 30, 2022
$

June 30, 2021
$

June 30, 2022
$

June 30, 2021
$

Net revenue

8,834,795

 

4,595,591

 

13,983,009

 

8,706,154

 

Production costs

2,701,354

 

2,361,176

 

5,074,174

 

4,971,103

 

Inventory expensed to cost of sales

2,977,216

 

2,022,433

 

4,897,546

 

3,515,653

 

Inventory written off or provided for

312,547

 

623,171

 

423,287

 

1,222,587

 

Gross profit before fair value adjustments

2,843,678

 

(411,189

)

3,588,002

 

(1,003,189

)

Fair value adjustments to cannabis plants, inventory sold, and other charges

340,323

 

(329,818

)

2,086,421

 

335,819

 

Gross profit (loss)

3,184,001

 

(741,007

)

5,674,423

 

(667,370

)

Loss from operations

(943,962

)

(4,915,732

)

(2,073,171

)

(8,269,861

)

Adjusted EBITDA

261,206

 

(3,416,332

)

(1,255,228

)

(6,791,699

)

 

 

 

 

 

Cash and cash equivalents

6,819,044

 

4,009,930

 

6,819,044

 

4,009,930

 

Working capital

19,434,073

 

25,994,223

 

19,434,073

 

25,994,223

 


Net revenue

For the three and six months ended June 30, 2022, net revenue increased by $4,239,204 and $5,276,855, respectively, compared to the same periods in the prior year. The Company achieved significant quarter over quarter revenue growth of $3,686,581 for the three months ended June 30, 2022 as compared to the three months ended March 31, 2022 with an increase from $5,148,214 to $8,835,795. Taking into account both quarters of 2022, the Company delivered aggregate revenue for the six months ended June 30, 2022 of $13,983,009 (six months ended June 30, 2021: $8,706,154).

During the three and six months ended June 30, 2022, the Company launched several new strains, product formats and brands in markets relative to the comparative period in the prior year. In addition, both the 1964 Supply Co and Homestead Cannabis Supply were available in our key markets during the entire period relative to the prior year. Rubicon also more than doubled the number of SKUs it had available for sale in the Canadian market. While the impact of this growth was not visible in the seasonally weak first quarter, Rubicon delivered year-on-year revenue growth of 92% and 61% over the three and six months ended June 30, 2022.

In the first quarter of 2022, the Company experienced year-on-year sales growth compared to the first quarter of 2021 across all markets except Quebec, which was relatively flat from the prior year. Alberta, BC, Ontario, and Quebec continue to drive the majority of sales at 97% of total sales (March 31, 2021: 85%). In that period, the Company’s growth in concentrate sales triggered an increase in excise tax offsetting net revenue gains as compared to the prior year. Concentrates attract higher excise taxes as a percentage of revenue than flower products.

In the second quarter of 2022, Rubicon has seen a significant improvement in the rate of sale of our Simply Bare Organic and our 1964 Supply Co which we believe is due to the continued improvement in our product quality and higher THC of our cannabis products in market. This increase in quality has been noticeable in driving additional points of distribution and stores that carry our products. The revenue growth was experienced relatively evenly across all our key markets (Alberta, BC, Ontario, and Quebec) which together make up 97% of our sales in both the three and six months to June 30, 2022 (98% and 92% for the three and six months to June 30, 2021, respectively).

Production costs

For the three and six months ended June 30, 2022, production costs increased by $340,178 and $103,071, respectively, compared to the same periods in 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 year, the production costs associated with inventory held at year end are expensed prior to revenue being derived.

Production costs in the three months ended June 30, 2022 increased by $340,178 from the same period in 2021 and increased $328,534 from the three months ended March 31, 2022. The total production costs for the six months ended June 30, 2022 increased by $103,071 from $4,971,103 to $5,074,174. 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 and six months ended June 30, 2022, inventory expensed to cost of sales increased by $954,783 and $1,381,893, respectively, 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 34% and 35% of net revenue for the three and six months ended June 30, 2022 (June 30, 2021: 44% and 40%, respectively). 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. The product mix also has a large impact on the ratio of inventory expensed to cost of sales relative to sales and in the period the Company’s ratio has been most impacted by the growth of larger format products such as 28-gram bags which, in some provinces, give the customers a lower per gram price and the increase of sales in 1964 Supply Co. which sells at a lower price point than Simply Bare Organic.

Given the high inflationary environment in which the Company is operating in 2022, Management continues to monitor these costs closely and identify cost savings initiatives.

Gross Profit and Loss from operations

For the three and six months ended June 30, 2022, growing sales and production efficiencies combined for an increase to gross profit of $3,925,008 and $6,341,793, respectively, compared to the same periods in the prior year. For the three and six months ended June 30, 2022, the Company achieved a gross profit compared to a loss in the same periods in the prior year. There has also been a decrease in operating expenses of $78,212 and an increase of $113,653, respectively, compared to the same periods in the prior year with a continued focus of financial prudence within the Company.

For the three and six months ended June 30, 2022, loss from operations decreased by $3,971,770 and $6,196,690, respectively, compared to the same periods in the prior year. The Company has achieved a positive Adjusted EBITDA during the three months ended June 30, 2022, compared to a negative Adjusted EBITDA in the previous quarters.

Company Outlook

Rubicon Organics defined a three-pillar strategy for 2022 focused on yield and quality, improving product mix to optimize margin, and obtaining certifications for international access, each of which we expect will have a positive impact on our profitability and cashflow. This strategy remains in place and the Company is having positive trajectory on each of the pillars and our strategy has resulted in Rubicon achieving Adjusted EBITDA profitability for the first time in the three months ended June 30, 2022.

Our first pillar is to optimize production processes at the Delta Facility to increase yield and THC of our super-premium cannabis. We have completed facility upgrades, invested in process improvements, and continue to identify opportunities for cost efficiencies. The Company installed new climate control systems, most critical being the dehumidification units, and refined its cultivation system, which has allowed us to reach an annualized production rate of 10,000 kg’s as at the end of the second quarter 2022. In 2022 we have now consistently seen our average THC increase significantly, with certain strains as high as 29% THC. We believe that our quality step change has been experienced by the consumers in the second quarter leading to the strong rate of sale of our products and resulting increase in revenue. Our priority and focus remains delivering super-premium quality cannabis flower and pre-rolls as the key pillar of Rubicon’s business.

The second pillar is to implement our commercial strategies within the Canadian domestic market to maximize the gross profit for each unit produced from our Delta Facility which, coupled with delivering increased quality of flower and higher THC, is expected to drive more volume into our Simply Bare Organic and 1964 Supply Co brands. With our approach, the provincial distributors and our consumers have access to a greater range of product formats and strain variety. Our strategy has proven successful as evidenced by Rubicon achieving 8.6%3 market share of the premium flower and pre-roll market in the second quarter of 2022.

We continue to expect the premium market to outpace the growth of the total market in Canada as it has done in other leader markets and believe that Rubicon Organics is well positioned to take advantage of this momentum as consumer preferences shift.

Our third pillar is to open the routes to market for our products internationally by obtaining key certifications and agreements to launch into Israel and Europe. The IMC-G.A.P. certification received May 2022 is one of the key milestones to delivering to certain international markets. The Company continues to work towards receiving its EU-GMP certification expecting for export of finished goods to the European market in 2023.

Rubicon believes that the combination of our brand positionings and offerings in each of the provincial markets that we sell along with our increased production quality and yield should enable us to generate strong operating leverage which we expect will drive topline and margin growth in 2022.

We acknowledge inflationary pressures overall although, Rubicon believes it has areas that it expects to deliver cost savings such as the link of the Delta Facility to the BC Hydro grid which is expected to drive material overhead cost savings in the second half of 2022.

Rubicon Organics achieved Adjusted EBITDA profitability in the three months ended June 30, 2022. The Company’s current expectation is to be operating cashflow positive and Adjusted EBITDA profitable in 2022. We believe that despite any market volatility and inflationary pressures, our focus on our three pillars coupled with our increased product quality and brand portfolio has positioned Rubicon to deliver on its commitments and win in the premium cannabis market.

Resignation of Director

On August 12, 2022, the Company accepted the resignation of Bryan Disher from the Board of Directors.

“On behalf of the Board, we offer immense thanks to Mr. Disher for his contributions to Rubicon Organics. Since joining Rubicon in our infancy, Bryan has offered invaluable insight, energy and direction to the Company through its journey and we wish him all the best in future.” said Jesse McConnell, Chief Executive Officer.

Annual General and Special Meeting Date

The Company’s also announces that it will hold its Annual General and Special Meeting (the “Meeting”) of shareholders at 10:00 am PT on September 27, 2022 in person at the Terminal City Club, 837 W Hastings St, Vancouver, BC V6C 1B6. Information with respect to the Meeting such as voting your common shares, attending the Meeting and participating at the Meeting will be circulated in due course.

Conference Call

The Company will be hosting a conference call to discuss the Q2 2022 results on August 15, 2022. Conference call details are as follows:

Time:

7:00 AM PT / 10:00 AM ET

Conference ID:

46054663

Local dial-in:

+1 (416) 764-8658

International dial-in:

+1 (888) 396-8049

Webcast:

https://app.webinar.net/PqoRLK5Jxv4


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 flower and hash brand 1964 Supply Co., its premium concentrate brand LAB THEORY, and its mainstream brand Homestead Cannabis Supply.

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
Chief Financial Officer
Phone: +1 (437) 929-1964
Email: ir@rubiconorganics.com

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. 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 and six months ended June 30, 2022, 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 and six months ended June 30, 2022 and June 30, 2021.

 

Three months ended

Six months ended

 

June 30, 2022
$

June 30, 2021
$

June 30, 2022
$

June 30, 2021
$

Loss from operations

(943,962

)

(4,915,732

)

(2,073,171

)

(8,269,861

)

IFRS fair value accounting related to cannabis plants and inventory

340,323

 

(329,818

)

2,086,421

 

335,819

 

 

 

 

 

 

Depreciation and amortisation

757,463

 

554,186

 

1,449,890

 

1,026,127

 

Share-based compensation expense

788,028

 

615,396

 

1,454,474

 

787,854

 

Adjusted EBITDA

261,206

 

(3,416,332

)

(1,255,228

)

(6,791,699

)


In calculating the Company’s Adjusted EBITDA, the impact of certain one-time charges have not been included to be consistent with prior Adjusted EBITDA reporting and if they had been included the result would be Adjusted EBITDA of $836,503 for the three months ended June 30, 2022 and an Adjusted EBITDA loss of $569,191 for the six months ended June 30, 2022.

One-time charges in the period include: (a) the termination payment accrual to the former President of $450,000 ($262,750 in the three months ended June 30, 2022, net of CEO and CFO compensation reduction to nil in Q2 2022) as well as provisions for inventory write-offs of $312,547 and $423,287 for the three and six months ended June 30, 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 the effects of the COVID-19 pandemic. 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.