Ms. Margaret Brodie reports

RUBICON ORGANICS REPORTS THIRD QUARTER 2023 FINANCIAL RESULTS

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

"I am proud to announce Rubicon has achieved our sixth consecutive quarter of positive adjusted [earnings before interest, taxes, depreciation and amortization] and fifth consecutive quarter of positive operating cash flow. Despite the challenges encountered in the demanding Canadian cannabis sector with competitive price compression alongside broader negative macroeconomic pressures faced by Canadian shoppers, we persist in fortifying the company's standing as a leading force in the premium cannabis market and are looking forward to executing our strategy to leverage the strength of our leading premium brands," said Margaret Brodie, interim chief executive officer and chief financial officer.

Melanie Ramsey, chief commercial officer, said: "I'm delighted to see the validation of our successful edibles launch, attaining the third-highest market share in premium edibles within five months of being in market. This milestone significantly contributes to our long-term strategy, offering growth opportunities and leveraging our robust brand reputation built on consistent premium quality. There is more to come in this space as the team strives toward executing on continuous innovation."

Q3 2023 financial highlights:

• Net revenue of $10.0-million (5-per-cent decrease from Q3 2022) and $30.1-million (23-per-cent increase from Q3 2022) for the three and nine months ended Sept. 30, 2023;
• Gross profit before fair value adjustments of $3.2-million (21-per-cent decrease from Q3 2022) and $10.9-million (41-per-cent increase from Q3 2022) for the three and nine months ended Sept. 30, 2023;
• Achieved sixth consecutive quarter of adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) profitability with $1.1-million and $3.1-million for the three and nine months ended Sept. 30, 2023, a decrease of $800,000 and an increase of $2.4-million compared with the comparative periods in 2022;
• Growth in cash balance by $2.6-million from Sept. 30, 2022, from $6.8-million to $9.4-million;
• Achieved fifth consecutive quarter of operating cash flow positive of $1.4-million and $4.0-million for the three and nine months ended Sept. 30, 2023;
• The company had working capital of $18.7-million as at Sept. 30, 2023, with $9.4-million of cash on hand and $3.6-million in accounts receivable;
• Simply Bar Organic and 1964 Supply Co. identified as two of top-three brands recommended by Canadian budtenders;
• 1964 Supply Co. voted No. 1 brand sampled at Kind Summer Fair;
• 2.0-per-cent national market share of flower and prerolls for the three months ended Sept. 30, 2023;
• 5.6-per-cent national market share of premium flower and prerolls for the three months ended Sept. 30, 2023;
• 5.1-per-cent national market share of premium edibles for the three months ended Sept. 30, 2023, following initial launch in second quarter 2023.

Q3 2023 and subsequent sales and operational highlights:

• Rubicon has been establishing high-quality partnerships for contract grow and co-manufacturing to complement its own premium production and to satisfy the increasing demand for its brands.
• The company launched its first entry into the edibles category, through a co-manufacturing relationship, with 1964 Supply Co. live rosin edibles in Ontario, British Columbia and Alberta. These edibles were the first single-strain live rosin edibles in Canada, and are vegan and gluten free. Following up on the success of the initial two-flavour launch in the second quarter, 1964 Supply Co. has rolled out three additional flavours.
• The company's brand, Simply Bare Organic, launched infused prerolls under the Simply Bare Organic brand and Layer J in B.C. and Ontario in October, 2023. It contains two layers, one with flower and hash of one cultivar, and the other with flower and hash rosin of another cultivar. The two cultivars are B.C. organic Cleopatra and B.C. organic white rainbow.
• In October, 2023, Simply Bare Organic launched a new two-gram hash, New School Hash, available in B.C., Ontario, Alberta and Quebec.
• With the continuing growth of the infused preroll category, 1964 Supply Co. launched the one-by-one-gram Comatose rosin roll that features a mix of flavourful Comatose flower and potent Comatose hash rosin. Comatose was the 1964 Supply Co. hero strain and was voted indica of the year by Kind Magazine in December, 2022.
• In September, 2023, the company's brand 1964 Supply Co. launched an infused preroll, the superlemon haze Heavy Hitter rosin roll, which is a one-by-one-gram infused preroll featuring superlemon haze flower, and potent superlemon haze hash rosin.
• Wildflower is leveraging its leading market share by launching new products to address consumer needs in the wellness space. The new products launched consist of Wildflower extrastrength relief stick and Wildflower one-to-one cannabidiol to tetrahydrocannabinol relief stick.
• Wildflower launched its first edibles in B.C. in October, 2023. These edible products consist of four flavours and contain the minor cannabinoids cannabinol, cannabigerol and CBD, as well as full-spectrum THC live rosin, and are vegan and gluten free. In November, 2023, all four flavours also became available in Alberta.
• In the second quarter of 2023, Brightfield released its own survey of Canadian budtenders, and in those results, Simply Bare Organic and 1964 Supply Co. were identified as two of the top-three most recommended brands by Canadian budtenders.
• 1964 Supply Co. was voted as the No. 1 brand sampled at the Kind Summer Fair by budtenders. Of the budtenders surveyed, 96 per cent is more likely to recommend a brand they sampled at the Kind Summer Fair.
• The company has 2.0-per-cent national market share of flower and prerolls for the three and nine months ended Sept. 30, 2023.
• The company has 5.6-per-cent and 5.4-per-cent national market share of premium flower and prerolls for the three and nine months ended Sept. 30, 2023.
• The company's topical brand, Wildflower, continues to be the No. 1 topical brand in Canada with a market share of 26.0 per cent and 22.0 per cent for the three and nine months ended Sept. 30, 2023, increasing from 19.9 per cent (31-per-cent increase) and 16.7 per cent (32-per-cent increase) from the comparative periods in the prior year.

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 the 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 2023 has been a year of steady and consistent quality production so far.

In late October, 2023, the installation of additional tables has been completed in its facility, and it anticipates continued improvements in air circulation and an increase in capacity of up to 10 per cent from crops harvested in late 2023 and beyond.

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. It is working to expand its Simply Bar Organic brand and to premiumize opportunistically elements of its 1964 Supply Co. to make a positive contribution to its gross profit.

As it has forecast demand beyond its available supply from its Delta facility, it has entered partnerships to incrementally increase its net revenue and gross profit that do not require its Delta facility's capacity. In early 2023, the company entered into an agreement with a third party manufacturer of high-quality edibles and has expanded the portfolio with new flavours after the successful launch. Within five months of launch, its 1964 Supply Co. edibles are the third bestselling premium edible brand with 5.1-per-cent of market share. It believes this strong market share capture was driven by the leading reputation of its premium brands. By working with high-quality partners that complement its own premium production, it has seen early success in adding incremental gross profit to its results in a cost-effective and efficient manner.

It will continue to look for opportunities 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 has established its first high-quality partnership for contract grow that will help fulfill demand under the 1964 Supply Co. brand. 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 has been evaluating new information systems and has begun implementing a new system in the second half of 2023, with the intention to go live in the beginning of 2024 with phase 1, and later in 2024 with phase 2. This project will increase short-term costs 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 being engaged and proud are important to put its 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 has also reviewed the company values, listening to its people as part of the process and Rubicon's evolution, now that it is in a steadier state. These revised values will be introduced to the company at the end of November, 2023.

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 earnings before interest, taxes, depreciation and amortization 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 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/demand equilibrium established. Second, products claiming extremely high THC 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. At premium price points, consumer demands are more heavily weighted on overall experience, predominantly smell/flavour/flower quality versus THC levels alone, and 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 products 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 Q3 2023 results on Wednesday, Nov. 15, 2023. Conference call details are as follows.

Time:  7 a.m. PT/10 a.m. ET

Conference ID:  45275010

Local dial-in:  1-416-764-8658

Toll-free North America:  1-888-886-7786

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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