- Achieved Adjusted EBITDA1 of $1.9 million in Q3 2022
- Achieved first quarter of positive net income of $2.0 million in Q3 2022
- 49% net revenue growth to $10.5 million in Q3 2022 compared to Q3 2021
- Achieved operating cash flow of $1.4 million and first quarter of positive Free Cash Flow2 of $0.4 million in three months ended September 30, 2022
- 8.0%3 national market share of premium flower and pre-rolls
- Company reconfirms guidance to achieve positive Adjusted EBITDA in FY2022 and be operating cash flow positive in H2 2022
VANCOUVER, British Columbia, Nov. 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 third quarter ended September 30, 2022 (“Q3 2022”). All amounts are expressed in Canadian dollars.
“I am proud to report that Rubicon Organics has delivered a record quarter in Q3 2022 with net revenue, Adjusted EBITDA profitability, net profit and Free Cash Flow. Rubicon currently has excess demand for its premium Simply Bare™ Organic and mainstream 1964 Supply Co™ products than it can supply in the Canadian market. With our suite of products in market, the profitability we achieve from each premium product that we sell and the recent launch of new items such as our infused pre-rolls and the consumer reaction to the quality and price point, I remain confident that we will continue to deliver on our financial guidance,” said Margaret Brodie, Chief Financial Officer.
Q3 2022 Highlights:
- Record net revenue of $10.5 million (49% increase) and $24.5 million (55% increase) for the three and nine months ended September 30, 2022, respectively
- Achieved Adjusted EBITDA of $1.9 million and $0.6 million for the three and nine months ended September 30, 2022, respectively
- Achieved net profit of $2.0 million and a net loss of $0.7 million for the three months and nine months ended September 30, 2022, respectively
- Achieved operating cash flow of $1.4 million and first quarter of positive Free Cash Flow of $0.4 million in three months ended September 30, 2022
- 3.2%4 national market share of flower and pre-rolls
- 8.0%5 national market share of premium flower and pre-rolls
- #1 Premium flower and pre-roll brand in Canada with Simply Bare™ Organic6
- #1 Topical brand in Canada with Wildflower™ topical sticks7
- Extended existing Debenture for 18 months to December 31, 2024
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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 Free Cash Flow is a non-GAAP measure that is calculated as net cash provided by (used in) operating activities, less purchases of and deposits on property, plant and equipment. See ‘Non-GAAP Financial Measures’ for details on the Free Cash Flow calculation.
3 Hifyre data for premium flower and pre-roll products covering the period of July 1, 2022 to September 30, 2022.
4 Hifyre data for flower and pre-roll products covering the period of July 1, 2022 to September 30, 2022.
5 Hifyre data for premium flower and pre-roll products covering the period of July 1, 2022 to September 30, 2022.
6 Hifyre data for premium flower and pre-roll products covering the period of October 1, 2021 to September 30, 2022.
7 Hifyre data for topical products covering the period of July 1, 2022 to September 30, 2022. Wildflower brand was licensed in the nine months to September 30, 2022.
Q3 2022 Results of Operations
| Three months ended | Nine months ended | |||||
| September 30, 2022 $ | September 30, 2021 $ | September 30, 2022 $ | September 30, 2021 $ | |||
| Net revenue | 10,543,139 | 7,090,467 | 24,526,148 | 15,796,621 | ||
| Production costs | 2,850,646 | 2,118,908 | 7,924,820 | 7,090,011 | ||
| Inventory expensed to cost of sales | 3,377,239 | 3,044,544 | 8,274,785 | 6,560,197 | ||
| Inventory written off or provided for | 201,478 | 148,694 | 624,765 | 1,371,281 | ||
| Gross profit before fair value adjustments | 4,113,776 | 1,778,321 | 7,701,778 | 775,132 | ||
| Fair value adjustments to cannabis plants, inventory sold, and other charges | 1,889,334 | (1,821,571 | ) | 3,975,755 | (1,485,752 | ) |
| Gross profit (loss) | 6,003,110 | (43,250 | ) | 11,677,533 | (710,620 | ) |
| Profit (loss) from operations | 2,201,978 | (3,618,568 | ) | 128,806 | (11,888,429 | ) |
| Adjusted EBITDA | 1,896,578 | (644,093 | ) | 641,349 | (7,435,793 | ) |
As At: | September 30, 2022 $ | December 31, 2021 $ | ||
| Cash and cash equivalents | 6,837,839 | 11,583,443 | ||
| Working capital | 22,689,662 | 20,236,272 |
Net revenue
The Company delivered record net revenue of $10,543,139 and $24,526,148 for the three and nine months ended September 30, 2022, respectively. This represents significant net revenue growth of 49% and 55% for the three and nine months ended September 30, 2022, respectively, compared to the same periods in the prior year. The Company also achieved significant quarter over quarter revenue growth of $1,708,344 (19%) for the three months ended September 30, 2022 as compared to the three months ended June 30, 2022.
During the three and nine months ended September 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.
The strike in BC, the cyber attack impacting the distribution center in Ontario and rotating strikes in SQDC stores in August had an impact on the net revenue achieved in the quarter given that the orders were either halted for weeks or significantly slowed down in both BC and Ontario, but we are unable to quantify the impact of these events.
Rubicon delivered year-on-year revenue growth of 49% and 55% over the three and nine months ended September 30, 2022. In the third quarter of 2022, revenue growth continued across all our key markets (Alberta, BC, Ontario, and Quebec) which together make up 98% and 97% of our sales in the three and nine months to September 30, 2022, respectively (97% and 94% for the three and nine months to September 30, 2021, respectively). Rubicon has seen a significant improvement in the rate of sale of Simply Bare™ Organic and 1964 Supply Co™ which we believe is due to the continued improvement in our product quality, higher THC of our cannabis products in market, and a wider product format offering to cater to different consumer preferences. This increase in quality has been noticeable in driving additional points of distribution and stores that carry our products.
Production costs
For the three and nine months ended September 30, 2022, production costs increased by $731,738 (35%) and $834,809 (12%), 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 period, the production costs associated with inventory held at period end are expensed prior to revenue being derived.
Production costs in the three months ended September 30, 2022 increased by $731,738 from the same period in 2021 and increased $149,292 from the three months ended June 30, 2022. The total production costs for the nine months ended September 30, 2022 increased by $834,809 from $7,090,011 to $7,924,820. 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 nine months ended September 30, 2022, inventory expensed to cost of sales increased by $332,695 (11%) and $1,714,588 (26%), 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 33% and 43% of net revenue for the three and nine months ended September 30, 2022 (September 30, 2021: 43% and 42%, 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 three months ended September 30, 2022 have also benefitted from an improved brand mix with a larger share of our sales coming from our premium brands, Simply Bare™ and 1964 Supply Co.™, and less of the brand, Homestead Cannabis Supply™, relative to the comparable period in 2021.
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 profit from operations
For the three and nine months ended September 30, 2022, growing sales and production efficiencies combined for an increase to gross profit of $6,046,360 and $12,388,153 respectively, compared to the same periods in the prior year. Despite a significant increase in net revenues, operating expenses remained relatively stable with an increase of $139,942 (4%) and $253,596 (2%) for the three and nine months ended September 30, 2022, respectively. This is primarily due to the cost cutting initiatives implemented in 2021 and the Company’s continued focus on financial prudence in all areas of the business.
For the three and nine months ended September 30, 2022, the Company achieved a profit from operations of $2,201,978 and $128,806, respectively, compared to a loss from operations of $3,618,568 and $11,888,429, respectively, in the same periods in the prior year.
Company Outlook
Rubicon Organics achieved Adjusted EBITDA profitability of $1,896,578 and $641,349 for the three and nine months ended September 30, 2022, respectively. For the three months ended September 30, 2022, the Company also achieved quarterly positive operating cash flow of $1,351,246, Free Cash Flow of $353,909 and positive net profit for the period of $2,025,532.
Rubicon Organics defined a three-pillar strategy for 2022 focused on yield and quality, improving product mix to optimize margin, and investigating the international market.
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. In early 2022, the Company completed the installation of new climate control systems, most critical being the dehumidification units, and refined its cultivation operations for additional crop work, which together has allowed us to reach an annualized production rate of 10,000 kg’s as at the end of the second quarter of 2022. The Company has now achieved repeated crops over our nameplate capacity although certain crops in the third quarter have fallen below targets due to seasonal growing conditions and facility maintenance. Since the beginning of 2022 we have 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 since April 2022 leading to the improved rate of sale of our products and increased demand. Our priority and focus remains delivering super-premium quality cannabis flower products in the Canadian market as the key pillar of Rubicon’s business. We plan to continue to work to optimize yield and quality in 2023 with relatively modest capital spending planned for items such as tables in the cultivation areas that do not yet have them.
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 8.0%8 market share of the profitable premium flower and pre-roll market in the third 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 is well positioned to take advantage of this momentum as consumer preferences shift.
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8 Hifyre data for premium flower & pre-rolled products covering the period of July 1, 2022 to September 30, 2022
At the beginning of 2022 our third pillar was to open the routes to market for our products internationally. However, due to domestic demand of our products over available volumes produced, Rubicon plans to focus on the profitable premium Canadian market in the short term. The Company will continue to assess international opportunities in the future.
With the success of the first two pillars of Rubicon’s strategy demonstrating profitability, we now have demand beyond our available supply and we are actively planning how to meet the demand and incrementally grow our net revenue and gross profit. We are seeking ways we can cost effectively and efficiently satisfy the demand for our cannabis flower products such as through contract grow relationships 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 expect to build our revenue and gross profit without significant incremental overhead cost to our business, thus driving additional overall profitability.
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 and 2023.
The Company expects to build on the success of our past two quarters and anticipates to deliver operating cash flow positive and Adjusted EBITDA profitable for the full year 2022 and beyond. We believe that despite any market volatility and inflationary pressures, our increased product quality and brand portfolio has positioned Rubicon to deliver on its commitments and win in the premium cannabis market.
Appointment of Chief Commercial Officer and Director
Effective November 14, 2022, the Company promoted Melanie Ramsey to Chief Commercial Officer. Ms. Ramsey joined Rubicon Organics in 2018 and most recently held the role of Vice President of Marketing & Innovation. She has also been appointed as a member of the Company’s board of directors.
“It is my pleasure to announce the promotion of Melanie Ramsey to Chief Commercial Officer. Melanie’s contribution as part of the Executive Management team, and experience from a 20+ year background across global, regional and local markets, has been invaluable. Melanie has been a major part in the building of Rubicon’s strong foundations and driving force behind the continued growth which we look forward to seeing her leading the team to the next level,” said Margaret Brodie, Chief Financial Officer.
Ms. Ramsey will be responsible for the commercial organization, including the sales, marketing and business insight’s function and routes to market.
Conference Call
The Company will be hosting a conference call to discuss the Q3 2022 results on November 15, 2022. Conference call details are as follows:
| Time: | 7:00 AM PT / 10:00 AM ET |
| Conference ID: | 31601852 |
| Local dial-in: | +1 (416) 764 8658 |
| International dial-in: | +1 (888) 886 7786 |
| Webcast: | https://app.webinar.net/DVMOEMxgK9w |
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™, 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
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” and “Free Cash Flow”. 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 and nine months ended September 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 nine months ended September 30, 2022 and September 30, 2021.
| Three months ended | Nine months ended | ||||||
| September 30, 2022 | September 30, 2021 | September 30, 2022 | September 30, 2021 | ||||
| $ | $ | $ | $ | ||||
| Profit (loss) from operations | 2,201,978 | (3,618,568 | ) | 128,806 | (11,888,429 | ) | |
| IFRS fair value accounting related to cannabis plants and inventory | 1,889,334 | (1,821,571 | ) | 3,975,755 | (1,485,752 | ) | |
| 312,644 | (1,796,997 | ) | (3,846,949 | ) | (10,402,677 | ) | |
| Interest revenue | — | (83,469 | ) | — | (83,469 | ) | |
| Depreciation and amortization | 810,165 | 656,433 | 2,260,055 | 1,682,559 | |||
| Share-based compensation expense | 773,769 | 579,940 | 2,228,243 | 1,367,794 | |||
| Adjusted EBITDA | 1,896,578 | (644,093 | ) | 641,349 | (7,435,793 | ) | |
Free Cash Flow is a non-GAAP measure used by management that is not defined by IFRS and may not be comparable to similar measures presented by other companies. Management believes that Free Cash Flow presents meaningful information regarding the amount of cash flow required to maintain and organically expand our business, and that the Free Cash Flow measure provides meaningful information regarding our liquidity requirements.
Below is the Company’s quantitative reconciliation of Free Cash Flow calculated as net cash provided by (used in) operating activities, less purchases of and deposits on property, plant and equipment. The following table presents a reconciliation of Free Cash Flow to the most comparable IFRS financial measure for the three and nine months ended September 30, 2022 and September 30, 2021.
| Three months ended | Nine months ended | |||||||
| September 30, 2022 | September 30, 2021 | September 30, 2022 | September 30, 2021 | |||||
| $ | $ | $ | $ | |||||
| Net cash used in operating activities | 1,351,246 | (1,256,120 | ) | (887,311 | ) | (10,932,313 | ) | |
| Purchases of and deposits on property, plant and equipment | (997,337 | ) | (1,075,104 | ) | (3,126,963 | ) | (4,666,606 | ) |
| Free Cash Flow | 353,909 | (2,331,224 | ) | (4,014,274 | ) | (15,598,919 | ) | |
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.
