Rubicon Organics Inc. (ROMJ) Earnings Call Transcript & Summary

Good afternoon, ladies and gentlemen, and welcome to the Rubicon Organics Inc. Annual General and Special Meeting 2024 Conference Call. [Operator Instructions] I would now like to turn the conference over to Janis Risbin and Len Boggio. Please go ahead.

Hello. My name is Len Boggio. I'm a Director and the Chair of the company. Pursuant to the articles of the company, I'll be acting as Chair of the meeting. This is the Annual General and Special Meeting for the year ended December 31, 2023, and I ask that the meeting now be called to order. With your approval, I will appoint Janis Risbin to act as Secretary for this meeting. As you know and, of course, with your approval, I will ask Arif Shajahan of Odyssey Trust Company to act as a scrutineer of the meeting. I would also like to introduce the other members of the Board of Directors and the officers of the company in attendance: Janis Risbin, Chief Financial Officer; Margaret Brodie, Chief Executive Officer; [ Rupert Conton ]; Mel Ramsey as well, our Chief Commercial Officer. Would the Secretary please assure us that the Annual General Meeting and Special Meeting has been properly called? Janis?

I have before me an affidavit of a representative of Odyssey Trust Company attesting that the notice calling the Annual General and Special Meeting, together with the information circular and form of proxy, was delivered in accordance with the Business Corporations Act of British Columbia and applicable securities laws. Therefore, the Chair, this Annual General and Special Meeting has been properly called.

I'm advised that according to the preliminary report of the scrutineer, a quorum is present. And the scrutineer's report will be read later when it has been compiled in detail. I now declare that the Annual General and Special Meeting is regularly called and properly constituted for the transaction of business. Before the commencing with the business of the meeting, I would like to ask the Secretary to explain the voting procedures to be followed at the meeting.

There is one class of shares in the company, common shares without par value, which are entitled to vote. The holders of common shares are entitled to one vote for each common share held. Voting will generally be by show of hands. Each holder of common share entitled to be present is entitled to vote. The articles of the company allow any person present, who is entitled to vote in person or by proxy, to request a poll. In which case, voting will be by ballot, with each shareholder or proxy holder having one vote per share. The Chair can also request that a poll by ballot be taken on a resolution. Proxy votes will only be counted on a poll by ballot. Those of you who have not filed proxies will receive ballots if a poll is requested or required.

The next item of business is the presentation of the audited financial statements of the company and the report of the auditors thereon for the fiscal year ended December 31, 2023. Copies of the audited financial statements and auditor's report are available from the Secretary. Accordingly, unless someone specifically requests, the auditor's report will not be read to the meeting. Unless there are questions arising from the audited financial statements and auditor's report, I shall consider them received by the shareholders submitted to this meeting -- as submitted to this meeting. It's now in order to proceed with fixing the number of Directors to serve on the company's board for the upcoming year. There are 8 Directors standing for election this year. And therefore, the company wishes to fix the number of Directors at 8 for the ensuing year. I ask for a motion to fix the number of Directors at 8.

So moved.

Is there any discussion on the motion? All those in favor, please signify by raising your hand. [Voting]

Opposed, if any? [Voting]

It's carried. It's now in order to proceed with the election of Directors for the upcoming year. The information circular, which was mailed to shareholders, contains the names of and information about management's nominees to the Board of Directors. There are 8 positions to be filled, each for a 1-year term until the next Annual Meeting of Shareholders. It's proposed that the separate ordinary resolutions be passed electing Margaret Brodie, John Pigott, Michael Detlefsen, Doris Bitz, Len Boggio, Ian Gordon, Karen Proud and Jesse McConnell as Directors of the company and to hold office in accordance with the articles of the company. Each of the nominees has previously consented in writing to act as a Director, as no advanced notice of any other nomination has been given to the company in accordance with Article 11.3 of the articles of the company and there are no other nominations. And I ask for a motion that nominations be closed.

So moved.

Is there any discussion on the motion? All those in favor of the motion, please signify by raising their hand. [Voting]

Opposed, if any? [Voting]

Carried. I would ask that each shareholder signify their vote on the following by raising their hand. All those in favor of the appointment of Margaret Brodie? [Voting]

Withheld, if any? [Voting]

Carried. All those in favor of the appointment of John Pigott? [Voting]

Withheld, if any? [Voting]

Carried. All those in favor of the appointment of Michael Detlefsen? [Voting]

Withheld, if any? [Voting]

Carried. All those in favor of the appointment of Doris Bitz? [Voting]

Withheld, if any? [Voting]

Carried. All those in favor of the appointment of Len Boggio? [Voting]

Withheld, if any? [Voting]

Carried. All those in favor of the appointment of Ian Gordon? [Voting]

Withheld, if any? [Voting]

Carried. All those in favor of the appointment of Karen Proud? [Voting]

Withheld, if any? [Voting]

Carried. All those in favor of the appointment of Jesse McConnell? [Voting]

Withheld, if any? [Voting]

Carried. I declare that Margaret Brodie, John Pigott, Michael Detlefsen, Doris Bitz, Len Boggio, Ian Gordon, Karen Proud and Jesse McConnell have been elected as Director of the company for the ensuing year to hold office until the next annual meeting of the company or until their successors are elected or appointed. The next item of business is the appointment of the auditor of the company. It's proposed that PricewaterhouseCoopers LLP be reappointed as the auditor of the company to hold office for the ensuing year until the close of the next annual meeting of the shareholders of the company and that the Board of Directors be authorized to set their remuneration. I would ask for a motion with respect to the reappointment of PricewaterhouseCoopers as the auditor of the company.

So moved.

Is there any discussion on the motion? All those in favor of the motion, please signify by raising their hand. [Voting]

Opposed, if any? [Voting]

Carried. Next item of business is to consider, and if thought appropriate, pass an ordinary resolution to approve the new Omnibus Equity Incentive Plan of the company as more particularly described in the information circular of the company dated June 21, 2024. I would ask for a motion with respect to the approval of new Omnibus Equity Incentive Plan as more particularly described in the information circular.

So moved.

Any discussion on the motion? Would all those in favor please signify by raising their hand? [Voting]

Opposed, if any? [Voting]

Carried. Will the scrutineer please submit the report on attendance to the Secretary? Secretary will now read the scrutineer's report.

The scrutineer's report reads as follows. A total of one shareholder is personally present. A total of 6 shareholders are represented by proxy, representing a combined total of 40,039,174 shares -- common shares.

Very good. I adopt the scrutineer's report and declare accordingly that a quorum is present. Is there any further business? If not, all the business for which this Annual General Meeting and Special Meeting was called have now been completed. I will now call for a motion to conclude the formal portion of the Annual General Meeting and Special Meeting of the company.

I move that this meeting be concluded.

All those in favor, please signify by raising their hand. [Voting]

Opposed, if any? [Voting]

Carried. I declare this Annual General Meeting and Special Meeting of the company concluded. Thank you for your attendance and continued support. And for those people in the room and on the line, we will now hear from the company's Chief Executive Officer, Margaret Brodie.

Good morning, everyone. Just waiting on the mic set-up here. Fantastic. Welcome to our AGM. Lots of friendly faces in the crowd. I'd like to skip right away to our disclaimer and forward-looking statements. I'd like everybody to very carefully read that, please, as we get going. Very important. And our lawyers are in the room to attest to that. And I'd like to start immediately with Rubicon Organics' thesis. Bear with me a quick moment here. Our thesis is that Rubicon Organics' proprietary organic cultivation, intellectual property, innovative product development and operational excellence deliver premium quality and strong brand promise under each of our 3 flagship brands: Simply Bare Organic, 1964 Supply Co, and Wildflower. We believe that the positioning of these brands are set up to achieve higher valuation multiples in future, akin to analogous industries. And I'm going to speak more to that later. A quick overview of Rubicon Organics. We are a leader in the Canadian cannabis sector delivering BC Bud nationally. Our operation is organically certified, which means our plants and their flavors benefit from living soil and the larger expressions of terpenes or flavors in the plant. Rubicon has delivered 2 years of adjusted EBITDA profitability, and we did this through our 3 flagship brands: Simply Bare Organic, our super-premium flower-first product; 1964, our premium flower-first cannabis product; and Wildflower, our topical and wellness-focused brand. Through these brands, we deliver consistent, high-quality, organic-certified products that are recognized and winning with customers. How are we winning? We focus on the quality of our plants, our products and our people. Our team is experienced in cannabis, and we are operators who focus our results where we can win, rather than trying to be all things to all people. And that strategic focus is how we got here. Rubicon is listed on the TSXV and tightly held with 43% insider ownership. Today, you will hear Rubicon's growth opportunity and unique position. In terms of growth, Rubicon holds Canada's strongest premium house of brands, which is a proven launch pad for new products. In '23, we launched live rosin edibles under '64 and minor cannabinoid gummies under Wildflower. Together with our other products, we have moved within a year to being the #1 premium edibles position in the country. And I'll share more later, but in Q2 '24, we launched our vape project and achieved 40% national distribution in under 2 months. Rubicon holds unique IP and is now positioned as the world's leading, scaled, certified organic cannabis company with an extensive genetic library. We are disciplined operators. We deliver consistent premium quality to distributors, retailers and customers. Part of this means we are trusted as a top-ranked supplier with provincial distributors, and this is important as they hold decisions on product listings available for retailers. We have national brand distribution across all key provinces, BC, Alberta, Ontario and Quebec, where we cover 97% of the addressable Canadian market. And our house of brands together gives Rubicon the #1 premium licensed producer rank in Canada. We also hold 2 of the top 3 most recommended brands by Budtender in Simply Bare Organic and 1964. Our business operates with disciplined financial management, which contributed to our delivering 2 fiscal years of positive adjusted EBITDA. And we are one of the few profitable publicly traded cannabis companies. In the second half of '24, we expect to refinance our debt for long term -- for the long term at rates similar to our current debenture, and that debenture is currently sitting at 7.5% interest. For your information on other financial matters, given that we are in a quiet period, I will keep quiet. But I refer you back to our 2023 and Q1 results that are available publicly. We intend to grow our business in not just 2024 but beyond and applying that from the foundation of the house of brands that we have built. Firstly, our largest near-term growth lever is our vape launch, which we have achieved over 1,000 points of distribution in its first 2 months since launch. Secondly, we are consistently bringing new flavor forward and genetic -- legacy genetics to the market with top-shelf quality, driving brand recruitment and excitement. Next, we expect to -- the market for premium edibles to get larger and for Rubicon to grow our share of that category, as we now have premium edibles launched under each of our flagship brands. This has shown the power of our execution, where we have grown to the #1 premium edibles producer in Canada with 30% market share position in just over 12 months. And lastly, beyond our initial arrangement with contract growers, we now have expanded our contract partnerships to other categories where we can lever off their existing capacity and our brand platform to expand our brands beyond [ flying ]. From a contract growth perspective, in 2024, our goal is to procure around 1,000 kilos of high-quality biomass from contract growers and expand beyond that in following years. We are taking advantage of a notable shift in Canadian LPs, who are looking to grow great weeds, partner with best-in-class brands, and stay away from the complexity of brand building and distribution, which facilitates further growth for Rubicon. To our biggest growth driver for '24 and the results of our vape launch to date. While it's still early days, we are optimistic. In '23, the vape category in cannabis grew to over $800 million, and it was the fastest-growing significant category in the Canadian market. Rubicon is here to win our fair share of that market. Vape quality depends on the caliber of the input flower. Our high-quality, true-to-flower, full-spectrum extract vapes appear to be resonating with customers who trust our brand. We've achieved over 40% national distribution in just over 2 months, and we have high expectations for the future. Rubicon has debuted our vapes with our best-selling and consumer-loved cultivars, Comatose and Blue Dream. And as of this week, our third strain, Gelato #41, will begin shipments. We are leveraging our premium brand strength and quality reputation to seize our fair share of this significant category. By the end of '24, we plan to have 5 SKUs in market. And we estimate that in '25, this could generate growth over 20% on our '23 revenue -- net revenue, excuse me. As you may be aware, to date in '24, the vape market has already grown 15%, and we expect it to grow to about 30% of the Canadian market sales to mirror more established markets, such as California and Colorado, which are between 27% and 29% according to Headset data from '23. The interest of Gen Z and millennials in this category is driving real demand. Rubicon is the world's leading certified organic cannabis company, driven by our IP, our systems, and our operations. In order to constantly get better and improve our organic quality, we apply a rigorous data-driven approach in our endless pursuit to be the world's best scaled organic cannabis company. We believe that our organic approach in living soil gives a larger expression of terpenes or flavors into our brands, making them stand out in a crowded marketplace. New genetic launches are absolutely vital for success in premium cannabis industry and are important for consumers and leading cannabis brands to address emerging trends. Our strategy is to launch new and unique offerings. And you can see here some of the '23 launches, including some of my favorites, just really by the name, Jelly Breath. Don't actually -- the strain is a little funky for me, I have to admit. But this genetic strategy is very similar to other premium leaders in the U.S., such as Cookies and Alien Labs. And in our view, it's absolutely essential in maintaining our leading premium house of brands. We continue to leverage this premium brand leadership by launching new and exciting products and entering new segments that showcase our abilities. The quality that we deliver, putting together our IP and genetics, leads to a brand promise. In '23, Simply Bare Organic and 1964 were 2 of the top 3 most recommended brands by budtenders. And our wellness brand, Wildflower, has delivered a dominant market position being the #1 topical in Canada. We are very proud to be the #1 premium LP in Canada across all categories and the first half of '24. And this doesn't take into account the vape -- the positioning takes into account all categories, including vape, but we only just launched into vape. If you look back at our rankings over the last several years, you will consistently see Rubicon's brands in the top of the premium rankings, driven from our quality promise and consistent execution, meaning that we are beginning to see our brands hold trust from the consumer. A quick reminder of each of our award-winning brand positionings. Simply Bare Organic is our super-premium brand built to delight the discerning consumer searching for the highest-quality, newest, most flavorful products. Next is 1964, which was designed to recruit legacy consumers by offering classic legacy organic cultivars. The 1964 brand now covers almost every category available in Canada. Our last flagship brand is Wildflower, created to inspire holistic wellness by offering the best-performing CBD products that consumers can integrate into their daily routine. This brand started with our Relief Stick and has expanded into minor cannabinoids, vegan and gluten-free gummies as well as oils, addressing the need states of sleep, pain relief and anxiety. We expect the wellness category to continue to grow over the coming years. If you have been following our story, you know that we watch our costs and cash very closely, and 2024 is no different. Most importantly, on our balance sheet, we have our debt coming due December 31. We expect to refinance our debenture at similar amount and rates to our existing debt in the second half of this year. And I can comment that we are deep in this mortgage financing process at this stage. Now to comment on the Canadian cannabis industry. From the beginning where quality and products were just all over the map, we are now seeing some tightening of the market. We believe that we are in a transitional phase, where product quality is stabilizing, provincial boards are limiting their SKU list to those products that turn, and consumers are beginning to expect a brand promise. The provincial boards are demanding more professionalism in the sector and beginning to be less forgiving of unfulfilled orders and high product returns. We see the sector shifting over the coming 2 to 3 years to become managed similar to CPG businesses with portfolio management, brand power and promises, making it more difficult for new entrants to get on shelf. We are now seeing the separation of the pack in the Canadian -- in Canadian cannabis. Companies are in a death spiral of weak balance sheets and negative working capital versus the winners emerging. Those under financial distress are now getting pressured by their creditors, including the CRA, to work on [ replenishing ] bank accounts and revenues from provincial distributors, and if unpaid, revoking excise licenses. Despite the distress in many parts of the Canadian industry, there are some foundational pieces of good news, including the ongoing growth of the legal market to over $5 billion in '23. The demographic shifting for cannabis use is highest among 20 to 24 year olds with over 50% having consumed in the last 12 months, pointing to expected organic category growth. I would also personally comment, we're seeing a large decline in alcohol across North America, and we believe that will be positive for cannabis as well. In the coming quarters, we anticipate ongoing pressure on companies to settle excise payments. Some may navigate through receivership and reemerge and -- but many are ceasing operations entirely. We already observed a decline in the number of overall LPs in Canada in the past year. Where we are positioned with our quality, execution and brand positioning, we are well situated to further cement our position as the house of -- leading house of brands in Canada -- premium house of brands, I might add. So when I started this presentation, I said we were in a unique position relative to our peers, and I would summarize that here. We are the only certified organic cultivator at this scale and quality, holding unique in-house IP. We have a national route to market, and we have a house of winning premium brands with compelling market share. From here, we look at the future of the cannabis industry and the shift of brand power is now -- and the shift to brand power and how that's expected to impact our valuation in future. And I point out that -- just pointed out that Rubicon holds unique positioning with our organic IP and 3 flagship brands. But we believe as the sector cleans up and more consumer brand loyalty emerges, we'll begin to benefit from valuation models more akin to alcohol, soft beverage or tobacco. And you can see them here. If we're trading at 0.7, the Canadian -- large Canadian LPs are around 2 on an EV to revenue. And then look at alcohol, soft beverage and tobacco ranging between 4 and almost 5. So in summary, Rubicon is focused on our business strategy and delivering positive results to ultimately drive value for our shareholders. We are the #1 premium licensed producer in Canada, and we look at the future continuing for strong profitable performance from our premium branded portfolio. I'd now like to see if there's any questions in the room. Unfortunately, I don't think we can take any from the phone. There are no questions coming. So I'd like to thank everybody for coming to our AGM. I'd like to say, watch out for our vape on shelf. In particular, Gelato #41 that's out there. Blue Dream is absolutely fantastic. And if you haven't tried Simply Bare's new strain, which is Fruit Loopz, it is a cross between Blue Dream and White Widow. It's absolutely wonderful experience. If you're not a consumer through any of our inhaled products, I would also recommend you try the edibles. They're fantastic as well. So thank you very much.

And this concludes the meeting. You may now disconnect.