Rubicon Organics Inc.

Good morning, everyone. Welcome to Rubicon Organics' first quarter ended March 31, 2024 financial results conference call. As a reminder, this conference call is being recorded on May 16, 2024. At this time, all participants are in a lesson-only mode. Following the presentation, we will conduct a question and answer session. Instructions will be provided at that time for research analysts to queue up for questions. Before we begin, I will refer you to slide two of our presentation, which contains Rubicon's caution regarding forward-looking statements and non-GAAP measures. Today's presenters will be Margaret Brody, CEO, and Janice Rispen, CFO. I will now turn the call over to Margaret Brody for the presentation.

Thank you, and good morning, everyone. Today, I will provide an update on Rubicon Organics and the performance in Q1 2024, highlighting our progress as a leader in the Canadian cannabis market and discuss our growth plans for 2024. Despite a seasonally soft Q1, Rubicon delivered continued market share successes on the strength and quality of our leading premium brand portfolio. We now enter Q2 with a significant opportunity to grow our business and extend our premium market share leadership through our first entry into the $800 million Canadian vape category with our high quality, true to flower, full flavor forward, full-spectrum extract resin vapes launching this week. As evidenced in our premium edibles portfolio launch through 2023, which quickly captured the number one overall premium edible market share position with 31% in March of 2024, our leading brand reputation creates consumer excitement around new Rubicon products, and our leading quality ensures that consumers become repeat buyers. We have achieved significant accomplishment in Q1-24 as our premium brand portfolio regained the number one premium market position in Canada across all categories, including a market share of 7.1% of premium flower and pre-rolls. In the overall Canadian cannabis flower and pre-roll market, we hold 2% overall market share position as we continue to grow our strength across other categories, leveraging the power of our leading premium brand portfolio where in the first quarter we delivered almost 31% share of the topical market and a meaningful 23% of premium edibles, ending the quarter, as I mentioned, with upward momentum, delivering 31% share of premium edibles in the month of March. In Q1-24, we delivered $8.9 million in net revenue and $2.2 million in gross profit before fair value adjustments, with an adjusted EBITDA of negative $400,000 owing to our product mix and ERP system investments. We have invested in working capital for our new product launches, impacting our rolling operating cash flow, reducing it to $4 million in the 12 months to March 31, 2024. We achieved a significant milestone on May 3rd when our growth potential and strong presence in the Canadian market was recognized by AdvisorShares ETF YOLO, our first ETF investment. Our largest growth driver in 2024 is expected to be the launch of our 1964 full-spectrum extract resin base. In 2023, the vape category was an $800 million market and the fastest-growing significant segment in the Canadian market. Rubicon is debuting our vape line with our best-selling and consumer-loved cultivars, Comatose and Blue Dream, and we are leveraging our premium brand strength and quality reputation to seize our fair share of this significant category. We are excited to announce the introduction of our premium flower into vape format. The successful launch of our 1964 edibles in 23 can be attributed to the brand's solid reputation. Unlike edibles, where experience is largely based on ingredient flavor, vape quality relies directly on the caliber of the input flour. This gives us reason to believe that our vape line will resonate with customers, benefiting from our brand recognition and reputation for high-quality products. We have made our first delivery to the BC distributor and expect to have our initial purchase orders for Ontario and Alberta delivered by the end of May. Products will then be available for consumers in stores within a couple of weeks. By the end of 24, we plan to have over four 510 vape products in each of these markets. We estimate that in 2025, this could generate growth over 20% on our 2023 net revenue. The vape category is large and growing. Between 2021 and 2022, it grew 29%, and on that base, it grew another 18% in 23. The vape market is particularly popular with Gen Z and millennials, who make up 2.8% of all U.S. cannabis sales and 71% of all vape sales in 2022. In Canada, the flower, pre-roll, and vape segments are the three dominant categories within the cannabis market, which collectively make up 85% of total 2023 sales. Vape is the third largest category at 16%, but as I mentioned, that was the strongest growth. We expect the Vape category to grow to approach 30% and mirror established U.S. markets, such as California, where it is 27%, and Colorado, where it is 29%, according to headset data for 2023. The strength of our premium brands has given us the platform to expand our product lines, and in Q1 2024, we continue to launch new products under each of our flagship brands, with some examples as follows. For Simply Bare Organic, a super premium cannabis brand targeting the cannabis connoisseur, we launched new and novel genetics, such as our organic power mints, and we delivered our first ever organic live rosin soft gels into market. Under 1964, we launched two additional flavors of live rosin gummies. following with the initial success of our premium edible portfolio, which grew to 23.5% market share during the quarter, up 9.5% from 14% share in Q4 23, and contributing to Rubicon earning the number one overall market share position in the Canadian premium edible category. For the month of March 2024, we ended with the market share of 31%. In addition, We put our first cured indica resin into the market with Gelato 41 and sought a little brand attention and fun with our 1964 poutine sauce launched first in Quebec. Our flagship wellness brand wildflower dominance continues in the topical category with 31% market share, increasing from 17% in Q123, and increased our offerings of the minor cannabinoid products with the addition of our THC live rosin, vegan and gluten-free gummies, into a 30-pack and the entry into the oils category for the first time with Sweet Dreams Oil. New genetics are vital for leadership in the premium cannabis industry and are important for consumers in leading premium cannabis brands to address emerging market trends. Our strategy is to launch new and unique offerings, and here you can see just some of our 2023 launches and those underway or planned in 2024. This genetic strategy is similar to other premium leaders in the U.S., such as Cookies and Alien Labs. and in our view, is essential to maintaining our leading premium brand portfolio. We continue to leverage this premium brand leadership by launching new and exciting products and by entering segments that showcase our leading ability. I will now pass the call over to Janice, who will share some more specifics on our financials.

Thank you, Margaret, and good morning, everyone. As we look to our financial results, we had anticipated a challenging quarter one, due to typical seasonality, as well as the overhang of weak consumer sentiment from 2023, and we've broadly delivered in line with our internal expectations. Specifically, in the most recent quarter, the company earned $8.9 million of net revenue, reflecting the seasonal low we typically experienced, but more importantly, returning to modest net revenue growth of 1% versus the same period prior year. Although we continue to see the effects of price compression and the move to larger formats within the flower category, we are starting to see some early signs of this stabilizing within our results, particularly from our 1964 brand. Gross profit for the quarter at $2.2 million and gross margin at 24% were impacted by the continuing trends we saw in the second half of 2023. Notably, price compression and moves to lower price larger formats as well as an innovation-driven mix shift into lower margin categories. These mixed effects are further hindered in the first quarter by the seasonally lower absolute sales over our largely fixed cultivation costs, depressing our margin even further in the current period. We expect to see an improvement in gross margin for the balance of 2024 as net revenue increases and we rebalance our focus between our higher margin core flower portfolio and our new innovation launches. In addition to the gross profit pressure in the quarter, we also invested $0.3 million in our ERP implementation project, which readies us for future growth. The net result of which, unfortunately, resulted in a negative adjusted EBITDA for the quarter. Operating cash for the quarter was negatively impacted by the lower adjusted EBITDA, as well as an increase in receivables outstanding at quarter end, and an investment in working capital for upcoming new product launches. Although the adjusted EBITDA and operating cash results dipped in the quarter from our positive streak, this was largely anticipated in our planning as we set the company up for continued growth in the balance of the year. Our working capital position continues to reflect the repayment of our long-term debt by year-end. This facility bears interest at a very compelling rate of 7.5% compared to Canadian Prime at 7.2%. We are in active discussions for refinancing at similar rates and expect to have this in place in the second half of 2024. I also want to take this opportunity to confirm that we are current with our excise tax obligations. As we look at the rolling 12-month run rate, we see the revenue declines we experienced in the second half of 2023 now stabilizing with the most recent quarter and still showing modest 3% growth over the trailing 12-month period. The gross profit before fair value adjustments decline being driven by factors already discussed. Price pressure in the flower categories, adverse product mix towards larger size, lower price per gram format, and innovation into lower margin categories. Our Simply Bare brand particularly felt the pressure in late 2023, as well as the impact of seasonality into the beginning of 2024. However, we are excited for the potential of the brand with the new genetic launches planned for 2024. With BC Organic Power Mints, and B2 Organic Fruit Loops, both off to a great start. The 1964 brand has already started to stabilize the flour performance in the first quarter of 2024, and the successful edibles launched under the brand have majorly contributed to Rubicon achieving the number one market position for premium edibles. Wildflower continues to lead the topical category, now at 31% market share. with new formats launched in 2023 contributing to continued net revenue growth of the brand. We have leveraged the strength of this brand by focusing on the daily wellness consumer and launching live rosin and minor cannabinoid infused edibles in the fourth quarter of 23. Despite the small dip in our adjusted EBITDA and operating cash flow performance, our quarter one results were largely in line with our expectations and continue to bolster our confidence in our business plans for 2024 and set the foundation for another year of strong results for Rubicon. I would now like to turn the meeting back to Margaret.