Exclusive Interview with Rubicon Organics Co-Founder and CEO Jesse McConnell
Rubicon Organics (TSXV: ROMJ) (OTCQX: ROMJF) is a Canadian licensed producer focused on premium organic cannabis. The company brings together legacy cannabis experience, high-tech agriculture and CPG talent, according to Co-Founder and CEO Jesse McConnell. He spoke with New Cannabis Ventures about his company’s Canadian market presence, international plans and building a strong innovation pipeline. The audio of the entire conversation is available at the end of this written summary.
Cannabis and CPG Talent
McConnell has been active in the cannabis space for years. He was involved with the Canadian medical cannabis program while earning his economics degree and graduate degree in philosophy. Then, in 2013, he founded Whistler Cannabis. While running that company with a co-founder, the idea to build a platform for sustainable production at a lower cost with high yields and quality was born. Rubicon was started as a result of that idea. Whistler was sold to Aurora Cannabis in a $175 million deal, and McConnell has been focused solely on Rubicon Organics since then.
While the Rubicon Organics team has that legacy cannabis leadership experience, as well as in-depth growing experience, McConnell knew the evolving industry would start to look more like the consumer packaged goods space. With that in mind, the company has worked to add CPG talent to its team.
Rubicon Organics was specifically interested in CPG talent with a focus on innovation and premium products. Tim Roberts, previously with Red Bull, serves as the President of Rubicon Organics. He helped to bring onboard Melanie Ramsey, who serves as the Vice President of Marketing and Innovation. Ramsey previously worked with beverage company Diageo. Richard Denton, Rubicon Organics’ Head of Supply Innovation, also comes to the company from Diageo.
Canadian Facility and Market Reach
When building its facility three to four years ago, Rubicon Organics took a different approach than much of the rest of the cannabis market, according to McConnell. Rather than focusing on funded capacity and the size of its footprint, the company built a smaller facility.
Its 125,000-square-foot greenhouse in British Columbia is designed for sustainable agriculture. The company grows in an indoor environment with a glass roof. It is able to benefit from the sun while deploying dehumidification, LD lighting and other technology to carefully control the indoor environment.
Rubicon Organics has national distribution in Canada, reaching six provinces. It is selling products in Ontario, British Columbia, Alberta, Saskatchewan, Manitoba and recently Quebec. The company plans to push into the Atlantic Provinces and other territories over the course of the year, according to McConnell.
The Rubicon Organics team sees cannabis as a global growth story. Right now, the company views a route to market in the EU as more important than securing a large cultivation footprint there. It has secured that route to market through a partnership with German cannabis distribution company Canacur GmbH.
The EU has been a target for the company for a while now, though it has faced delays due to the COVID-19 pandemic. If it weren’t for inspection delays due to the pandemic, Rubicon Organics would already be exporting to the EU, according to McConnell. He expects the inspection to take place in early to mid Q2.
Looking to the U.S., Rubicon Organics has experience and the potential to explore that market as it moves toward federal legalization. Last March, the company sold its facility in Washington to a group of investors in order to uplist to the TSX Venture. But, it retains a strong relationship with that investment group, which gives it a potential entry point to the U.S. market. Rubicon Organics also spent time as a California operator. At the time, the company found the supply chain in the California market problematic, but McConnell is seeing progress there. If the company does enter the U.S. again, it will likely look to leverage existing relationships and focus on Washington and California.
The Premium Organic Niche
Rubicon Organics never wanted to compete in the value segment. Rather, it is focused on the high margins in the premium space, according to McConnell. As a premium organic producer, the company does not see a lot of direct competition in its chosen niche. It does compete with other companies operating in the premium space, as well as smaller craft players, but the playing field is relatively small, according to McConnell.
Finding points of differentiation is important, particularly in a space that restricts how cannabis companies can market. Organic cannabis is an important differentiator for Rubicon Organics. It approaches branding its products with the intent of combining content, concept and packaging. The company’s content is terpene-rich premium organic flower. The concept of its Simply Bare brand is designed to evoke a sense of cleanliness, a product grown without pesticides and chemical fertilizers. Finally, its packaging is terracotta-colored, reminiscent of a potted plant.
The company has focused on building a significant innovation pipeline to push into new channels and new formats. It is exploring formats like vape cartridges, solventless products and rosins. It has also launched SKUs of different sizes, recently adding a 7 gram SKU in addition to its 3.5 gram SKU. Innovation is the path to driving revenue in the CPG space, according to McConnell. Rubicon Organics prioritizes innovation with a gross margin of over 55 percent.
M&A is appealing to the company, but it will need to be the right strategic fit. Rubicon Organics likely won’t be looking to add another greenhouse cultivator. Rather, it will be looking for deals that have IP in an area in which the company does not have a strength.
Strengthening the Balance Sheet
In February, the company completed a $23 million capital raise. Rubicon Organics decided to raise capital to strengthen its balance sheet. Some of that capital will go toward accelerating the company’s innovation pipeline and getting products to market faster. That capital also gives the company the option of pursuing opportunistic M&A. But, a large portion of the capital will remain on the company’s balance sheet as it moves toward profitability, according to McConnell.
Rubicon Organics has a track record of being anti-dilutive. If the company does decide to raise more capital in the future, it will be with a specific purpose in mind, such as M&A or expanding to a new market. The company focuses on strong capital stewardship. It has lower CapEx and overhead relative to its peers, according to McConnell.
The company expects to reach positive EBITDA and positive cash flow in the first half of this year. Growth will be driven by stores reopening in Ontario (many stores closed or never opened their doors because of the pandemic) and progress in new markets like Quebec. Rubicon Organics’ innovation pipeline will also be a major growth driver. The company has already launched several new SKUs this quarter and a dozen more are expected over the next couple of quarters.
McConnell pointed out that insiders and management own 50 percent of the company, aligning them closely with shareholders.
In the rest of 2021, Rubicon Organics will be focused on its national platform and innovation in the Canadian market. It will also be looking to international opportunities as the EU and U.S. markets begin to open up. As the company grows, it will continue to leverage the team’s cannabis and CPG experience to target the premium category and drive further innovation.
New Cannabis Ventures provides an Investor Dashboard for Rubicon Organics, which is a client of New Cannabis Ventures. Listen to the entire interview:
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