Rubicon Organics Reports Fourth Quarter 2021 Financial Results and Operational Update

Rhea-AI Summary

Rubicon Organics reported a 43% increase in net revenue, reaching $6.8 million for Q4 2021, marking its first quarter of positive operating cashflows at $0.5 million. The company maintains its position as the #1 premium flower and pre-roll brand in Canada with Simply Bare™ Organic, holding 7.6% of the national market share. Improvements in production efficiency resulted in a $2.2 million increase in gross profit compared to Q4 2020, despite a loss from continuing operations of $1.6 million.

Positive

• 43% increase in net revenue year-over-year ($6.8 million for Q4 2021).
• Achieved first-ever quarter of positive operating cashflows ($0.5 million).
• Improvement in gross profit before fair value adjustments by $2.2 million compared to Q4 2020.
• Successfully maintained #1 position in the premium flower and pre-roll category.

Negative

• Loss from continuing operations increased to $1.6 million in Q4 2021 compared to $4.8 million in Q4 2020.
• Adjusted EBITDA remains negative at $(570,480) for Q4 2021.

• $6.8 million in net revenue, 43% increase over Q4 2020
• Achieved first ever quarter of positive cashflows from operations
• 7.6% national market share of premium flower and pre-rolls¹
• #1 Premium flower and pre-roll brand in Canada with Simply Bare^TM Organic²

VANCOUVER, British Columbia, April 18, 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 fourth quarter ended December 31, 2021 (“Q4 2021”). All amounts are expressed in Canadian dollars.

“Building premium brands that consumers love and are loyal to begins with a culture that prioritizes quality. We have invested in our facility and our cultivation systems which have resulted in a progressive reduction in our production costs quarter over quarter with corresponding increases in yield and quality, helping us to sequentially grow our margins. We also continue to make progress toward exporting our brands internationally. Together, with cost-saving measures undertaken in the first quarter, we reiterate our guidance of achieving positive Adjusted EBITDA and operating cashflow in the second half of 2022,” said Jesse McConnell, Chief Executive Officer.

Q4 2021 Highlights:

• Net revenue of $6.8 million was an increase of 43% from the same period in the prior year
• The Company achieved its first ever quarter of positive operating cashflows of $0.5 million
• Maintained position as #1 brand in the premium flower and pre-roll category in Canada with Simply Bare^TM Organic²
• Process improvements at the Delta Facility have driven cost savings resulting in a $2.2 improvement to gross profit before fair value adjustments when compared to the fourth quarter of 2020
• The Company completed a greenhouse climate system upgrade with the recent commissioning of newly installed HVAC units and progressed with its BC Hydro power upgrade, designed to both reduce the Company’s annual operating costs by $1.6 million and make further progress towards one of our ESG goals
  

Q4 2021 Select Financial and Operational Results

	Three months ended
	December 31, 2021 $		December 31, 2020 $
Product Sales	8,814,293		5,756,749
Excise Tax	(1,999,110	)	(982,261	)
Net revenue	6,815,183		4,774,488
Gross profit	1,529,802		(718,866	)
Loss from continuing operations	(1,590,430	)	(4,805,606	)
Adjusted EBITDA3	(570,480	)	(2,958,525	)
Cash and cash equivalents	11,583,443		12,136,459
Working capital	20,236,272		4,166,180

In Q4 2021, Rubicon Organics earned $6.8 million of net revenue, an increase of 43%, or $2.0 million, relative to Q4 2020. The increase in net revenue is attributable to continued growth of the Company’s flagship Simply Bare^TM Organic brand, and the launch of 1964 Supply Co^TM and Homestead Cannabis Supply^TM into large provinces during 2021.

The Company reported an improvement to Adjusted EBITDA of $2.4 million with a loss of $0.6 million in Q4 2021, as compared to a loss of $3.0 million for Q4 2020. Rubicon improved its profitability by driving higher net revenue through the launch of its two new brands nationally. This increase to net revenue resulted in higher utilization rates allowing for increased operating leverage over the companies fixed cost base. Together these results drove a contribution of $1.5 million of gross profit before fair value changes. Furthermore, the Company began realizing the benefits on operating costs of the Company’s previously announced restructuring.

The Company reported a loss from continuing operations of $1.6 million in Q4 2021, as compared to $4.8 million in Q4 2020. The significant improvement in profitability reflects the factors impacting Adjusted EBITDA described above as well as other non-cash adjustments.

Q4 2021 Annual Results of Operations

	Year Ended
	December 31, 2021 $		December 31, 2020 $
Net revenue	22,611,804		9,387,320
Production costs	9,155,425		8,051,854
Inventory expensed to cost of sales	9,500,187		3,967,624
Inventory written off or provided for	1,651,258		1,394,363
Gross profit before fair value adjustments	2,304,934		(4,026,521	)
Fair value adjustments to cannabis plants, inventory sold, and other charges	(798,047	)	3,362,559
Gross profit (loss)	1,506,887		(663,962	)
Loss from continuing operations	(14,520,740	)	(14,349,541	)
Adjusted EBITDA4	(8,006,273	)	(11,081,996	)
Cash and cash equivalents	11,583,443		12,136,459
Working capital	20,236,272		4,166,180

Net revenue

For the year ended December 31, 2021, net revenue increased by 141% or $13.2 million compared to the prior year. Revenue increased with the ramp up of Simply Bare^TM Organic product availability and provincial distribution as well as the launch of 1964 Supply Co^TM and Homestead Cannabis Supply^TM. The Company experienced growth in its existing provincial markets of British Columbia, Ontario, Alberta, and Quebec and launched into New Brunswick, Saskatchewan, Manitoba, and the Yukon.

The Company launched several new strains, product formats and brands throughout the year ended December 31, 2021. At the beginning of 2020 the Company had two strains for sale in 3.5 gram jars of Simply Bare^TM Organic and by the end of the fourth quarter of 2021 had over 60 SKUs in markets across Canada in its various brands and formats. The expansion of the brand portfolio with 1964 Supply Co^TM and Homestead Cannabis Supply^TM in key Canadian markets opened new sales channels and drove revenue growth in the second half of 2021.

As previously disclosed, the revenue of the Company was impacted in the first half of 2021 by COVID-19 cannabis store closures, particularly in Ontario, along with reduced orders from provincial distributors as they were focused on selling through inventory built up in the fourth quarter of 2020 and the first quarter of 2021. With the launch of new products and the re-opening of the stores through 2021, this impact has dissipated.

Production costs

For the year ended December 31, 2021, production costs increased by 14% or $1.1 million compared to the prior year. Production costs for the year ended December 31, 2021, were higher than in the comparable periods as operations were being ramped up through the first half of 2020 and the Delta Facility was not fully planted until the end of March 2020.

The Company realized a $0.8 million decrease in production costs in the second half of 2021 compared to the first half of the year. Absolute production costs are expected to be relatively consistent quarter over quarter while crop yield is anticipated to improve. Further cost improvements are expected upon completion of the BC Hydro power project. Due to seasonality at the Delta Facility, the Company expects to incur moderately more cost in the winter months when additional energy is consumed to heat and light the facility.

Inventory expensed to cost of sales

For the year ended December 31, 2021, inventory expensed to cost of sales increased by 139% or $5.5 million compared to the prior year. Inventory expensed to cost of sales was 42% of net revenue for the year ended December 31, 2021 (December 31, 2020: 42%). Production improvements offset by higher sales of 1964 Supply Co^TM and Homestead Cannabis Supply^TM products, both of which return a lower gross margin than Simply Bare^TM Organic products, kept the cost of sales relatively consistent year over year.

Management expects an improvement to cost of sales as a percentage of net revenue as net revenue increases and operational efficiencies are realized from process improvements and the completion of certain capital projects.

Loss from continuing operations

For the year ended December 31, 2021, loss from continuing operations increased by 1% or $0.2 million compared to the prior year. A significant decrease in the fair value adjustments to cannabis plants, inventory sold and inventory written off ($4.2 million) was offset by real operating cost improvements, as a percentage of revenue, and increased margin. The Company also reduced its debt burden and associated carrying cost.

Executive Changes

The Company is also announcing the departure of Tim Roberts, formerly President. The Company would like to thank Tim for his contributions over the last three and a half years, in building our commercial strategy, driving a culture of discipline and his boundless energy to fulfill Rubicon Organics’ mission ‘to grow the best cannabis on Earth and for the Earth’.

Outlook

During the 2021 fiscal year, the Company maintained significant market share in the premium and organic product categories with its Simply Bare™ Organic brand capturing 7.6%⁵ of the premium flower and pre-roll market. We grew revenue 141% year over year and launched the full suite of Rubicon brands and invested behind them to ensure that we are able to launch innovation at different price segments to satisfy consumer preferences. This resulted in demand for Rubicon products outpacing our supply.

In the fourth quarter of 2021, Rubicon Organics defined a three-pillar strategy for 2022 focused on yield and quality, improving product mix to optimize margin, and launching international products, each of which we expect will have a positive impact on our profitability and cashflow.

Our first focus is to optimize production processes at the Delta Facility to increase yield 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. We expect this will enable us to achieve an annual run rate of 11,000 kg’s of super-premium cannabis by the end of 2022. Maintaining high quality flower with greater THC content from each crop continues to be a priority and we anticipate our improved product offerings to enter the market in the second quarter. Our Delta Facility is expected to also benefit from the upgrade to the BC Hydro grid resulting in further production cost savings in the second half of 2022.

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^TM Organic and 1964 Supply Co^TM brands.

The premium cannabis market is gaining momentum and outpacing the growth of the total market⁶ and this is expected to benefit the premium product innovations we are bringing to the market. 2022 is expected to be the first full year with all five of Rubicon’s wholly owned and licensed brands in market with national distribution. Future innovation in flower, pre-roll and 2.0 products are expected to be launched under the existing brand portfolio.

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, with our first exports expected to occur in the second half of 2022.

Rubicon believes that the combination of new brands in key Canadian markets and increased product offerings enable us to capitalize on our momentum and, coupled with a continued increase in production quality and yield, we expect strong topline and margin growth in 2022.

We believe that the cannabis sector will have significant volatility in 2022 as there are ongoing changes in the retail stores environment, provincial mandates and increased competition. With the COVID-19 wave in the first quarter we experienced staff shortages at our facility and lower than forecast demand in January and February which we believe is attributed to seasonality and changing COVID mandates for access to Quebec stores. In March we saw a return to our previously forecasted sales levels. Notwithstanding this volatility, we expect to sell everything we cultivate and have available for sale during 2022.

From a capital management perspective, Rubicon intends to extend its existing debt facility or find a new facility at similar rates to keep cash optionality in the business.

The Company performed a cost review in the first quarter of 2022 to drive the business towards profitability as quickly as possible. In order to demonstrate their commitment to drive to profitability, the CEO and CFO proposed reducing their cash compensation for the second quarter to $nil and this has been accepted by the Compensation Committee of the Board. The CEO and CFO are in discussions with the Compensation Committee on a revised compensation structure.

The Company achieved positive operating cashflows for the first time in the fourth quarter of 2022. The Company’s current expectation is to be operating cashflow positive and Adjusted EBITDA⁷ profitable in 2022. We believe that despite any market volatility 2022 our focus on our three pillars coupled with our brand portfolio expansion achieved in 2021 will position Rubicon to continue to deliver on its commitments and win in the premium market.

Conference Call

The Company will be hosting a conference call to discuss the Q4 2021 results on April 19, 2022. Conference call details are as follows:

Time:	7:00 AM PT / 10:00 AM ET
Conference ID:	8981432
Local dial-in:	(833) 900-2238
International dial-in:	(647) 689-5136
Webcast:	https://onlinexperiences.com/Launch/QReg/ShowUUID=F2A81109-E46D-4FB7-8826-5182AF9CD35B

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 a focus on differentiated product innovation and brand portfolio management, including its flagship super-premium umbrella brand Simply Bare^TM Organic, its premium flower and hash brand 1964 Supply Co^TM, its premium concentrate brand LAB THEORY^TM, and its mainstream brand Homestead Cannabis Supply^TM .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

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.

Non-GAAP Financial Measures

This press release contains certain financial performance measures that are not recognized or defined under IRFS (“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 year ended December 31, 2021, which is available on SEDAR at www.sedar.com.

Adjusted EBITDA is 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 year ended December 31, 2021 and December 31, 2020.

	Three months ended				Year ended
	December 31, 2021		December 31, 2020		December 31, 2021		December 31, 2020
					$		$
Loss from operations	(1,368,988	)	(4,312,718	)	(13,257,417	)	(11,989,870	)
IFRS fair value accounting related to cannabis plants and inventory	687,705		355,909		(798,047	)	3,362,559
	(2,056,693	)	(4,668,627	)	(12,459,370	)	(15,352,429	)
Interest revenue	(114	)	—		(83,583	)	—
Depreciation and amortization	713,939		486,847		2,396,498		1,717,647
Share-based compensation expense	772,388		1,223,255		2,140,182		2,552,786
Adjusted EBITDA	(570,480	)	(2,958,525	)	(8,006,273	)	(11,081,996	)

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¹ Hifyre, Market share in Canada represents the premium flower and pre-roll category sales for the 12-months ending December 31, 2021.
² Hifyre, Q4 2021 market share rankings calculated from the January 1, 2021 to December 31, 2021 period sales by brand.
³ Adjusted EBITDA is a non-GAAP measure. Refer to “Non-GAAP Financial Measures” for more information, including a definition and reconciliation of Adjusted EBITDA.
⁴ Adjusted EBITDA is a non-GAAP measure. Refer to “Non-GAAP Financial Measures” for more information, including a definition and reconciliation of Adjusted EBITDA.
⁵ Hifyre, market share in Canada represents the premium flower and pre-roll category sales for the 12-months ending December 31, 2021.
⁶ Hifyre data for flower and pre-roll products covering the period of October 2021 through December 2021.
⁷ 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 Selected Annual Information for details on the Adjusted EBITDA calculation (“Adjusted EBITDA”).

FAQ

What were Rubicon Organics' Q4 2021 financial results?

Rubicon Organics reported a net revenue of $6.8 million for Q4 2021, a 43% increase from the previous year.

What is the market share of Rubicon Organics in Canada?

Rubicon Organics holds a 7.6% market share of the premium flower and pre-roll market in Canada.

Did Rubicon Organics achieve positive cash flow in Q4 2021?

Yes, Rubicon Organics achieved its first-ever quarter of positive operating cashflows at $0.5 million in Q4 2021.

What is Rubicon Organics' outlook for 2022?

Rubicon Organics aims to achieve positive Adjusted EBITDA and operating cashflow by the second half of 2022, focusing on yield, product mix, and international expansion.

What brands does Rubicon Organics offer?

Rubicon Organics markets several brands, including Simply Bare™ Organic, 1964 Supply Co™, and Homestead Cannabis Supply™.