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Beat the market with Rubicon Organics, says Raymond James

BC-based licensed cannabis producer Rubicon Organics (Rubicon Organics  Stock Quote, Charts, News, Analysts, Financials TSXV:ROMJ) continues to execute to its business plan, according to Raymond James analyst Michael W. Freeman, who delivered a report to clients on the company on Tuesday. Freeman reiterated an “Outperform” rating on the stock, saying Rubicon is now set up for a profitable 2023.

Delta, BC’s Rubicon Organics, which focuses exclusively on super-premium cannabis and is one of a small handful of Canadian licensed producers (LPs) to offer certified organic cannabis products, reported its first quarter 2023 results on Tuesday. The company posted record net revenue of $8.8 million, representing a year-over-year increase of 71 per cent, and a fourth consecutive positive adjusted EBITDA quarter at $0.2 million compared to negative $1.5 million a year earlier.

“Despite the historical sluggishness of the first quarter in the cannabis industry, Rubicon Organics has demonstrated an impressive 71 per cent revenue growth (versus Q1 2022) and has delivered positive Adjusted EBITDA for the fourth consecutive quarter,” said Margaret Brodie, Interim Chief Executive Officer and Chief Financial Officer, in a press release.

The company set out four key priorities for the 2023 year, aiming to optimize yield and cultivation at its Delta facility, to maximize gross margin from its products by growing its Simply Bare Organic and premium 1964 Supply Co products, to find efficiencies in its Delta facility and to focus on building an engaged team in a still-difficult labour market.

On the Q1 numbers, Freeman said the $8.8 million topline was under his estimate at $12.0 million and the consensus at $11.1 million, while adjusted EBITDA at $0.2 million was better than Freeman’s call at negative $1.2 million and the Street at negative $1.1 million.

Freeman said ROMJ continues to execute its profitability-, quality- and efficiency-driven core strategy exceptionally well, particularly during a seasonally slow period of the year.

“We applaud ROMJ driving positive operating cash flow and adj. EBITDA this quarter and growing 1Q23 Rev. materially Y/Y. Now, the name of ROMJ’s game is to expand sales of its highest-margin products (Simply Bare brand), while maintaining sales of ROMJ’s lower-margin, higher-velocity products (e.g. 1964 brand). We believe ROMJ’s strong 1Q23 operational execution and continued traction with customers in the premium segment set the company up well for a profitable FY23,” he said.

For 2023, Freeman is forecasting ROMJ’s revenue at $63 million and EBITDA at $8 million. With the “Outperform” rating, the analyst maintained a 12-month target price of $3.00, which implied at press time a projected return of 500 per cent.

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.

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