Ms. Margaret Brodie reports

RUBICON ORGANICS REPORTS SECOND QUARTER 2023 FINANCIAL RESULTS

Rubicon Organics Inc. has released its financial results for the second quarter ended June 30, 2023.

"I'm pleased to share that Rubicon Organics has achieved another record quarter of net revenue, a 28-per-cent increase year on year, delivering our fifth consecutive quarter of positive adjusted [earnings before interest, taxes, depreciation and amortization] and fourth consecutive quarter of positive operating cash flow," said Margaret Brodie, interim chief executive officer and chief financial officer. "Our focus remains on further establishing a leading presence in the premium cannabis market and, through extensive due diligence, to work with high-quality partners to complement our own premium production to achieve our long-term strategy. We expect to see the ramping up of supply from these partnerships to leverage the strong demand of our brands beginning in [fourth quarter] 2023."

"I am proud of the independent validation of our brands, Simply Bare Organic and 1964 Supply Co., received from a Brightfield Group survey of Canadian budtenders, which ranks our two flagship flower brands among budtenders' top-three most recommended brands. This reflects our commitment to operational excellence and customer satisfaction," said Melanie Ramsey, chief commercial officer.

Q2 2023 financial highlights:

• Record net revenue of $11.3-million (28-per-cent increase) and $20.1-million (44-per-cent increase) for the three and six months ended June 30, 2023; compared with the three months ended March 31, 2023, net revenues saw growth of 28 per cent quarter over quarter;
• Gross profit before fair value adjustments up $1.8-million (62-per-cent increase) and $4.0-million (113-per-cent increase) for the three and six months ended June 30, 2023;
• Achieved fifth consecutive quarter of adjusted EBITDA profitability with $1.8-million and $1.9-million for the three and six months ended June 30, 2023, an increase of $1.5-million and $3.2-million compared with the comparative periods in 2022;
• 22-per-cent growth in cash balance from $7.6-million March 31, 2023, to $9.3-million;
• Achieved fourth consecutive quarter of operating cash flow positive of $2.4-million and $2.6-million for the three and six months ended June 30, 2023, an increase of $3.0-million and $4.8-million compared with the prior periods in 2022;
• The company had working capital of $19.7-million as at June 30, 2023, in which $9.3-million was cash on hand and $4.7-million was in accounts receivable.

Company outlook

Rubicon Organics has set out four key priorities for 2023.

1. Optimize yield and cultivation at its Delta facility

Its priority is delivering superpremium 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 its brand standards can present challenges. It remains focused on continuing refinement and optimization in its cultivation systems. In 2022, the company achieved several crops exceeding its nameplate 11,000-kilogram capacity, and it expects 2023 to be a year of steady and consistent quality production. Additional tables will be installed in its facility to improve air circulation and increase capacity up to 10 per cent in the second half of 2023 once installed, with standard maintenance scheduled during downtime.

2. Maximize Canadian premium opportunity

Rubicon is focused on maximizing the gross margin it earns from each gram produced from its 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 its success. In 2023, it is working to expand its Simply Bare Organic brand and to premiumize opportunistically elements of 1964 Supply Co. These efforts would contribute positively to its gross profit.

As it has forecast demand beyond its available supply from its Delta facility, it has begun projects that it expects to incrementally increase its net revenue and gross profit. It intends to launch products that do not require its Delta facility's capacity with high-quality partners that complement its own premium production that it anticipates will add incremental gross profit to its results in a cost-effective and efficient manner. It is actively looking to build its revenue with the launch of new products under its existing brands, which can be contracted to other licensed producers, thus not utilizing its existing capacity, but will be to Rubicon's quality standards. It expects to see the ramping up of supply from these partnerships to leverage the strong demand of its brands beginning in fourth quarter 2023. It intends to deliver this incremental gross profit without significant incremental overhead cost to its business, thus driving additional overall profitability.

3. Drive efficiency in processes and systems

As steady state has been established at its Delta facility, it is seeking to create efficiency in its systems away from manual processes or those where there is reliance on key individuals to increase the resilience and repeatability of its 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 it believes 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, it has seen considerable turnover in the business. It believes that to deliver a premium product to market, its team members must be engaged and proud and that it is important to put their best foot forward with its 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, it has set clear goals and objectives linked to reward to recognize the hard work and accomplishments of team members. It also has begun reviewing the company values, and listening to its people as part of the process and Rubicon's evolution, now that it is in a steadier state.

Outlook

Rubicon believes that its 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 full-year 2023. With a stable cost base, this anticipated growth in net revenue and gross profit would improve its operating leverage. Additionally, it expects to achieve positive free cash flow for the full year.

In 2023, the Canadian cannabis landscape has seen two notable trends. First, price compression has affected all flower categories, including premium. It believes that the price compression is largely driven by the financial strain faced by many competitors, and there will be a rebalancing over the coming year as companies leave the sector and there is more of a supply and demand equilibrium established. Second, products claiming extremely high tetrahydrocannabinol have surged drawing consumer interest, but there have been widespread doubts about the accuracy of these high THC results. It anticipates that regulators will look more closely at this area over the coming year. As consumers are more educated to the whole flower experience, with Rubicon's quality flower and consistency of cultivation, it believes it is well positioned to win in the premium category over the coming years.

As a business, it is looking to increase the volume of product that it has available for sale to fill the demand it has for its quality products. The business is evaluating several options to increase its capacity. It believes that despite any market volatility, price compression, inflationary pressures and regulatory change, its product quality and brand portfolio have positioned Rubicon to win in the premium cannabis market.

Conference call

The company will be hosting a conference call to discuss Q2 2023 results on Thursday, Aug. 17, 2023. Conference call details are as follows.

Time:  7 a.m. PT/10 a.m. ET

Conference ID:  05807716

Local dial-in:  1-416-764-8646

Toll-free North America:  1-888-396-8049

A webcast will be available.

About Rubicon Organics Inc.

Rubicon 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 is focused on achieving industry-leading profitability through its premium cannabis flower, product innovation and brand portfolio management, including three flagship brands: its superpremium brand Simply Bare Organic, its premium brand 1964 Supply Co. and its cannabis wellness brand Wildflower, in addition to the company's mainstream brand Homestead Cannabis Supply and its premium concentrate brand Lab Theory.

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

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