Rubicon Organics keeps Outperform rating with Raymond James

Solid quarterly results have Raymond James analyst Michael W. Freeman staying bullish on Canadian small-cap cannabis company Rubicon Organics (Rubicon Organics Stock Quote, Charts, News, Analysts, Financials TSXV:ROMJ) in a Monday report to clients. Freemen said Rubicon is delivering profitability at a time when other cannabis names are having trouble staying afloat.

A BC-based licensed producer of organic and premium cannabis, Rubicon reported its fourth quarter and full 2022 financials on Monday. The Q4 saw revenue climb by 61 per cent year-over-year to $11.0 million and adjusted EBITDA at $1.3 million versus negative $0.6 million a year earlier. The company said it ended 2022 with 2.4 per cent of the national market share of flower and pre-rolls and 6.3 per cent of the national market for premium flower and pre-rolls.

“Despite negative investor sentiment in the cannabis sector, I believe that the winners of the Canadian cannabis sector will emerge in 2023, and Rubicon is well-positioned to be among them,” said Margaret Brodie, CFO and Interim CEO, in a press release.

Looking at the quarterly results, Freeman said the $11.0 million topline was in-line with his forecast at $10.0 million and the consensus at $11.0 million, while adjusted EBITDA at $1.3 million was better than Freeman’s estimate at negative $0.6 million and the Street at negative $1.8 million.

Freeman called Rubicon “an exceedingly well-managed, tightly-operated, positive free cash flow name” and noted that the Q4 was Rubicon’s third in a row of positive EBITDA, resulting in a positive EBITDA year in 2022, with $1.9 million in free cash flow over the second half of the year.

“We anticipate durability in this attractive profile: ROMJ has built sustainable momentum behind brands in the premium cannabis segment, which is the fastest-growing, highest-margin corner of the market (premium: 20-26 per cent month-over-month growth; whole market: ~10-15 per cent month-over-month growth). While the attention from the capital markets on small-cap growth names remains scarce, ROMJ continues to improve the robustness of its business and execute profitably,” Freeman wrote.

Freeman said Rubicon is seeing positive momentum from the pre-roll category following the launch of its infused pre-rolls under the Simply Bare Organics and 1964 brands. Meanwhile, production costs saw a ten per cent quarter-on-quarter improvement, with the completion of the company’s BC Hydro project helping out considerably.

“While the 1Q is a seasonably quiet quarter in the cannabis industry—typically a 15-25 per cent Q/Q top-line decline—we are confident that ROMJ can meet its FY23 growth aspirations given its outstanding control over internal processes and its focused attention on consumer demand in the premium segment, as demonstrated through FY22,” he said.

With the update, Freeman reiterated an “Outperform” rating on ROMJ and 12-month target of $3.00 per share, which at press time represented a projected return of 392 per cent.