Rubicon Organics has target cut by Haywood

Softer than expected quarterly numbers from Rubicon Organics (Rubicon Organics Stock Quote, Charts, News, Analysts, Financials TSXV:ROMJ) have Haywood Capital Markets analyst Neal Gilmer revising his forecast for the Canadian premium cannabis producer. In a Tuesday report to clients, Gilmer maintained a “Buy” rating on the stock while lowering his target price from $2.25 to $1.75 per share, which at press time represented a one-year projected return of 257 per cent.

Vancouver, BC-based Rubicon reported its first quarter 2023 financials on Tuesday, posting record net revenue of $8.8 million, representing a 71 per cent year-over-year increase. Adjusted EBITDA was positive for the fourth quarter in a row at $0.2 million compared to negative $1.5 million a year earlier.

“While acknowledging the ongoing challenges faced by the Canadian cannabis industry, including both licensed producers and retail stores, I maintain a positive outlook on the premium segment which continues to experience robust double-digit growth,” said CEO and CFO Margaret Brodie in a press release. “With our diverse portfolio of consistent, high-quality products, Rubicon is well-prepared to meet the rising demand in this segment.”

Gilmer said the Q1 topline of $8.8 million was below his estimate at $10.1 million as well as the consensus at $11.1 million, while adjusted EBITDA at $0.2 million was also below the analyst’s forecast at $1.0 million as well as the Street at $1.1 million.

Gilmer noted cash flow from operations at positive $0.2 million, while free cash flow was a negative $0.3 million. ROMJ finished the quarter with $7.6 million in cash versus $10.4 million in total debt, with $0.8 million due in the next 12 months.

Gilmer said Rubicon maintained its market position in the premium flower and pre-rolls categories at 5.3 per cent for the first quarter, which was consistent with the prior year period, while in the overall flower and pre-rolls categories its market share was up to 2.1 per cent versus 1.6 per cent a year ago. Gilmer said the doubling of ROMJ’s SKUs, including the expansion of its 1964 Supply Co brand and growth in its Simply Bare Organics line helped build market share.

“On the [conference] call it was noted that Rubicon is exploring contract grows the supplement the supply from its Delta facility as demand continues to outpace supply. Management outlined that its product offerings and brand positioning should drive continued growth in net revenue that will lead to higher gross profit and adjusted EBITDA in 2023 as well as positive cash flow for the year,” Gilmer wrote.

With the update, Gilmer tweaked his 2023 estimates lower, bringing his revenue estimate down by nine per cent to $43.8 million and his EBITDA estimate down by 13 per cent to $7.0 million.

“Rubicon continues to have strong market share within the premium segment across its markets. The Company remains prudent in operating expenses with a solid balance sheet. We believe the Company is positioned to establish itself in a strong niche segment of the market,” Gilmer wrote.