With new supply agreements in hand and a growing consumer demand for high-quality organic product, Vancouver-based Rubicon Organics (Rubicon Organics Stock Quote, Chart, News CSE:ROMJ) is ready to execute.
That’s according to Mackie Research analyst Greg McLeish who delivered an update to clients on Rubicon on Tuesday, where he maintained his “Buy” rating and $4.00 target, representing a projected 12-month return of 43 per cent.
Rubicon Organics cultivates certified organic, super-premium cannabis at its flagship 125,000 sq ft hybrid greenhouse in Delta, BC, with the capacity to produce about 11,000 kg per year. The company recently announced new supply agreements for the sale and distribution of its Simply Bare Organic cannabis, first on June 15 with both Alberta Gaming, Liquor & Cannabis and the British Columbia Liquor Distribution Branch, then on June 22 with German cannabis distributor, Canacur GmbH.
The latter agreement, which has an initial term of three years with the option of two-year extensions and comes with an advance payment of up to $700,000, is expected to see its first exports in the first half of 2021, pending EU-GMP certification.
“We are excited to bring our high-quality cannabis to German medical patients,” said Jesse McConnell, CEO of Rubicon Organics, in a press release. “This milestone agreement with Canacur provides another route to market and access to the fast-growing German medical market.”
In his update, McLeish said that there’s significant demand for organic cannabis in Canada and Europe, quoting unnamed surveys which found that 47 per cent of Canadian cannabis consumers prefer organically grown products and more than a third of American consumers said they would prefer to buy organic cannabis, with half of that group saying they would pay between 50 and 100 per cent more for such products.
“This presents cannabis businesses that have an organics strategy with a significant opportunity for advantage over others who do not have the capacity to capture this market segment. Rubicon is one of only three organic cannabis producers in the Canadian market at this time, and one of just six LPs to have organic certification for cannabis production in the country,” said McLeish, who also pointed out that ROMJ now sells to all four Western Canadian provinces and to Ontario.
On Rubicon’s financial strength, McLeish noted that at the end of Q1 2020 the company had cash and equivalents of about $1.7 million.
“Subsequent to the quarter, the company strengthened it financial position by selling its Washington greenhouse facility for net proceeds of $7.7 million and it completed a non- brokered private placement of units for gross proceeds of $13.5 million,” McLeish wrote.
Rubicon, which began flower sales in February of this year, posted first quarter net revenue of $0.5 million and a net loss of $3.8 million or $0.10 per share.
“We forecast that revenue will increase materially through the balance of 2020,” McLeish said.
The analyst figures Rubicon will generate 2020 revenue and EBITDA of $20.6 million and negative $2.0 million, respectively, and 2021 revenue and EBITDA of $60.2 million and $20.4 million, respectively.
So far in 2020, Rubicon’s share price is up 52 per cent.