Q3 2025 Rubicon Organics Inc Earnings Call

Speaker #2: Following the quarter . We also finalized licensing for our Cascadia facility , formerly known as Hope , with first crops planted operations now October 25th and underway .

Speaker #2: sent a shipment to drop Australia under the 1964 And we brand , our first international branded shipment , and our first time shipping to the country .

Speaker #2: And we secured additional debt of $4 million . Rubicon continues to outperform the market , growing faster than total market . In three key premium categories in premium flour pre-rolls .

Speaker #2: grown our We've share market to 6.2% , up from 5.7% in premium We've vapes . made a big leap now , holding 13.2% of the national market , compared to zero just a year ago .

Speaker #2: This rapid market share capture reflects the power of and demand for our premium brands and wildflower standout . a number two topical brand in Canada , with over leading 27% share .

Speaker #2: Just a note on how we're performance reporting big going forward . Highflier the industry data quick source that pulls the data has changed its categorization and no longer includes our live resin vapes under the Live resin .

Speaker #2: keep things To category better reflect the consistent and performance , we've decided to report under the broader premium Vapes category , going forward , our 1964 brand , the engine of our business led , growth driven by and pre-rolls vapes , simply Bear saw modest growth but important remains an and profitable part of our portfolio wildflower maintained its , and leadership with Canada's selling topical skew top .

Speaker #2: We continue to launch new products that reflect our genetics , leadership and premium positioning . BC Black soap and apples and bananas launched under Simply Bear in 1964 , respectively .

Speaker #2: Notably , apples and delivered our bananas highest ever terpenes on record in company history of demonstrating over 5.8% , our continued increase and focus on quality , which we believe brands sets our apart from the competition .

Speaker #2: After our initial all in one launch in July , we delivered a second cultivar later in Q3 and two additional SKUs in market by year end expect .

Speaker #2: This launch strategy reflects the strong consumer demand for our leading premium baked portfolio . Before I hand things over , I want to take a minute to thank Glenn for his impact .

Speaker #2: Already here , at made here Rubicon , his leadership has definitely been felt across the business , and I'd like to congratulate him and welcome on board with his permanent appointment as CFO and our corporate secretary .

Speaker #2: now I'd like to pass the call to Glenn And .

Speaker #3: Thank you . Margaret . Good morning everyone . In Q3 , we had another solid quarter revenue . Net was $15.6 million , a 16% increase year over year .

Speaker #3: capacity biomass Despite our constraints , gross profit before value fair adjustments was $5.8 million , 32% from the same period up last year .

Speaker #3: our gross And margin was 33% , compared to 32% in Q3 2020 . For adjusted EBITDA was $1.7 million , down $200,000 from Q3 of year , which was expected made some as we targeted investments in SG&A support to future revenue growth .

Speaker #3: explore in a bit Now to depth more the drivers of our continued growth . 1964 remains the company's primary growth engine , delivering strong performance across the key segments of pre-rolls , vapes and flower .

Speaker #3: The pre-roll category notable continues to momentum , revenue same quarter show last than up more year and 1964 . Vapes . brand The dried 20% over the same flower , though availability is biomass in constrained in modest posted current gains period also Rubicon from fulfilling what we believe is significant unmet limited for 1964 flower , we expect to Cascadia facility to alleviate this partially constraint in the second half of 2026 , bear our leading ultra simply saw a brand small premium decline of just $100,000 compared to Q3 of last over year .

Speaker #3: flower was down Dried modestly , but was partially offset by gains in capsules . Wildflower . Although smaller in revenue than simply bear , carries 1964 , than average gross margins .

Speaker #3: pleased that the I'm brand was strongly up in Q3 2025 compared to last year . 60 gram sticks were up over 30% remaining .

Speaker #3: Canada's top SKU selling in the segment , according to Highfire and Wildflower Gummies , were up over 80% from the same quarter in 2024 .

Speaker #3: Homestead revenues remained low , which reflects the strong performance from our operations team in delivering high quality , premium product for our 1964 and Simply Bear brands .

Speaker #3: As you may , homestead know serves as an outlet for biomass that does not meet the premium standards of our flagship brands , but it still offers strong quality at competitive prices .

Speaker #3: Overall , gross profit before fair value adjustments was $5.3 million in Q3 and $14.2 million year to date , up from 4.4 million and 10.2 million in the prior year comparative periods .

Speaker #3: This translates to a gross margin of 34% in Q3 and 33% year-to-date, compared to 32% and 30% in the comparative periods last year.

Speaker #3: Margin improvement was mainly driven by higher volume throughput and efficiency gains . We implemented our pre-roll automation technology in Q3 , which is expected to reduce labor costs and increase annual gross profits by approximately $1 million based on current volumes , with pre-roll automation complete , we are now evaluating a number of additional operational efficiency projects that we should benefit our overall margin profile over time .

Speaker #3: We have also seen our ongoing focus on increasing cultivation . While yield never compromising on our quality standards . But it's starting to show results .

Speaker #3: Our Q3 2025 yields were up more than 10% over earlier in the year . Clearly , the personnel and cash flow , cash flow multiplier effect of attaining additional high quality cannabis without significant incremental cost has a meaningful positive impact on margins and on our ability to get more growth from existing assets .

Speaker #3: We believe we have room to continue to improve the yield at Pacifica and expenses in Q3 2025 increased $1.3 million over the prior year .

Speaker #3: As we invested in targeted marketing initiatives to drive brand growth and brought on key talent to to position the business for near-term expansion .

Speaker #3: We also saw increases in Health Canada fees , licensing and insurance costs as revenues continue to increase . And we brought on the new Cascadia facility as a reminder .

Speaker #3: In addition to incurring $4.2 million in excise taxes in Q3 , we is , as is the case for all licensed producers , also incur the Health Canada regulatory fee , which is calculated at 2.3% of net revenue and naturally rises as our revenue grows .

Speaker #3: Adjusted EBITDA for Q3 2025 was $1.7 million , compared to $2 million in the prior year . Importantly , this marks our sixth consecutive quarter of positive adjusted EBITDA , underscoring the resilience of our core business and our ability to deliver profitability while continuing to invest in long term growth initiatives .

Speaker #3: Turning to cash flow and financial health . Despite investing in building inventory for vape launches , this fall , we still generated half $1 million in cash from operating activities in the third quarter , as compared to $900,000 in Q3 2024 .

Speaker #3: That's six of the last eight quarters delivering positive operating cash flow. We closed the quarter with $6.9 million in cash and a strong working capital position of $24.1 million.

Speaker #3: As release in our earlier this press have secured additional debt financing totaling $4 million from an existing lending partner at similar terms to our current term debt .

Speaker #3: This strengthens our liquidity and provides us flexibility to support growth initiatives and strategic priorities . In short , we are delivering strong financial performance and growth within our existing footprint as we continue to revenue increase and margins and generate positive adjusted EBITDA in operating flow .

Speaker #3: By leveraging our high quality , efficient cannabis production . Exceptionally strong brands and excellent talent , we have delivered this financial performance while also investing strategically for the expected inflection .

Speaker #3: revenue Next year , as we bring on more capacity , we look forward to the hard but rewarding work of continuing to grow revenue and expand margins through scale and efficiencies , all while maintaining a robust financial position .

Speaker #3: Now back to Margaret .

Speaker #2: Thanks , Glenn . We've recently renamed our facilities to better reflect our regional presence . We now operate Pacifica , located in Delta , BC and next to the Pacific Ocean , and Cascadia .

Speaker #2: Based in Hope , BC . At the beginning of the Cascade Mountains . I'd like to share an update on Cascadia in early October .

Speaker #2: We received full licensing for cultivation , processing and storage at the site licensing , while the process drifted into the beginning of the fourth quarter , we are now moving forward operationally , and the slight delay gave us valuable time to refine our operational plans and ensure the facility was fully prepared .

Speaker #2: now We've planted our first batch of crops at Cascadia as these are our initial crops from this site , we're approaching quality expectations with caution given our high standards , we plan to sell this first batch through Homestead while our expert team continues to optimize the growth We strategy .

Speaker #2: anticipate reaching our usual high quality standards by the midpoint in 26 , and we will be we expect to be able to deliver the delivery quality for our 1964 brand .

Speaker #2: At that point , we expect to have the impact of the Cascadia operating costs of around 1.5 million per quarter , with revenue upside beginning in the second half .

Speaker #2: We are also adding some capabilities in other parts of our business in order to be ready for a larger top line and more throughput in 2025 , we expect to incur 1.5 million in Pre-revenue operating costs that the Cascadia facility .

Speaker #2: Additionally , we plan to invest around 1.6 million in capital expenditures at the site to support infrastructure , equipment and operational readiness , and the CapEx plan remains on budget as at November 12th .

Speaker #2: The significant majority of the work is complete designed for continuous . Cascadia is production with nine individual clusters of grow rooms , each operating on a staggered weekly planting cycle with cluster sizes varying from 1600 square feet to 3500ft² .

This approach supports consistent market, supply and aligns with our demand planning. We'll be continuously learning and adapting our cultivation strategy to drive quality improvements with each cycle.

This expansion increases our annual production capacity by 40% and it supports several key strategic priorities.

Firstly unlocking, International opportunities.

With greater scale. We're now better positioned to pursue select International markets, many of which are showing a gap in premium and super premium products.

And secondly strength strengthening our top priority Canada. The additional capacity allows us to better meet domestic demand particularly for our high performing capacity, constraint brands.

I get asked a lot about our ability to sell incremental premium flower from Cascadia and I would like to comment on 2 areas that give us confidence on this matter.

Well recently, there is net new production coming online in Canada for the first time in years and from other competitive, International markets, namely Thailand and Columbia.

But what we see is that this Supply is coming into the mainstream and value segments and not premium, and we're not seeing net new premium facilities turning on. We believe that this creates unique and valuable opportunity for us in the coming years.

Secondly in October a 5-week strike by BC's provincial distributor distributor halted sales in our second largest market.

We quickly redirected branded products to other provinces, showcasing the strength of our supply chain and the strong demand for our brands.

This disruption, confirmed, the unmet demand and reinforces my commitment to expanding internal capacity to capture that opportunity.

The strike is now ended with an agreement expected to be ratified very shortly. We have now, resumed sales and BC and our continuing to build momentum across Canada.

Throughout 2025, we expect to secure up to 2,000 kilos of incremental biomass and strengthen our manufacturing capabilities through strategic partnerships with home manufacturers and contract growers.

these initiatives, reflect our commitment to meeting the growing demand for premium products while maintaining the highest quality standards

Looking ahead. The addition of Cascadia will unlock new opportunities to expand our product portfolio. This facility positions us to explore new segments and format sizes. Further diversifying, our portfolio of Premium cannabis products

On the international front, we have successfully completed test shipments to 3, different markets, Poland Australia, and the UK these initial exports were designed as learning experiences, rather than margin driven transactions forming the foundation of our crawl. Walk wind strategy, the same disciplined approach we've taken in the past that were reason for our success in categories, such as topicals Edibles and bass.

These shipments are enabling us to build operational knowledge, navigate regulatory pathways, and establish relationships that support long-term success in international markets.

Finally, our additional $4 million in debt, secured in the form of a $3 million capital loan and a $1 million line of credit, will enable us to support all the growth opportunities mentioned prior.

2025 remains a transformational year for Rubicon Organics a recap of our priorities.

Secure.

Additional premium Supply via Cascadia and third-party agreements increased capacity through 2,000 kilos of wholesale biomass.

Strengthened domestic Market. Leadership Drive genetic Innovation with new cultivars test, international markets ahead of broader expansion in 2026 and continued expansion in The Vape segment.

We continue to forecast growth in net, revenue and adjusted ibida. Excluding Cascadia startup costs as we close out the year.

We'd now, like to open up the line for analyst questions, operator, please open the line.

Thank you. Lady gentlemen, we will now begin the question and answer session. Should you have a question, please? Press the star followed by the 1 on your touchdown phone? Should you wish to cancel your request? Please press the star followed by the 2. If you are using a speaker-phone, please lift the handset. Before pressing any Keys once again, that is star 1. Should you wish to ask a question?

And your first question is from Neil, Gilmer from Haywood Securities, your line is now open.

Any more sort of capex upgrades to do to the facility? It's just, um, building it or, um, planning out all the rooms. When do you expect to sort of be running at full capacity? I understand you commented that your standards, as far as quality, you said, I think around mid-26. But, you know, as you ramp that up, when do you think that we're sort of at that sort of full capacity run rate, and you'll get that sort of benefit from the 40% increased capacity through this acquisition?

Thanks Neil and good morning. Uh we have largely completed, the significant uh 2025 capex. I'm sure as we go through we're going to find things where we can optimize over the course of the next 18 months. Um, so very happy with where we're at today, in terms of where the facility is in and running. Um, we have we, we, as operators, we are planting, um, crops in batches so that they come down on a commercial scale and everything doesn't come down at once. So we wouldn't go in and, uh, I don't think it'd be wise to plant the whole facility at once. So everything came down at once, so the first, um,

Is planted. There are sort of, um, a a series of, of, of clusters of rooms. Um, what we expect to do is I would expect in the first quarter. We're fully planted. Uh, initially, we thought by the end of the year, I think it's, by the way, the, the the 2 sort of the weekly and 2 weekly Cycles go, it's probably in January, we're fully planted and we're expecting our Second Harvest to meet our quality standards. Um, so we do expect to have some

Revenue coming out of uh, of Cascadia in the first half. We're making sure that we are, um,

Are holding the quality standard in terms of it going into our into our product. Now, I would say, from a comment perspective, the pressure, I put on the team, is the very first batch out of Pacifica launch simply bare. So obviously, I'd love to beat that. Um, but I'm recognizing we're in a brand new facility that we have an operated in before.

So the midpoint next year, when we expect 1964 quality, we do expect to have some, some that will be able to monetize the production between now and then, but whether it goes in Homestead or, you know, there are small amounts that do meet our quality standard. Um, it it's hard for us to estimate today given that it's just been planted.

Yeah, totally understand.

Maybe you get the sort of the follow-up on that. Is that now that it's the licenses that came online in October here?

What sort of or how should, you know, investors be considering or thinking about your your gross margin over the next couple of quarters. I'm assuming it's going to have

Uh, you know, a short-term pressure on the margins, given your out of the new facility. It's not operating at full capacity. Is is that the right way to think about it? That we should see it. A little bit of a dip in Gross margins for the next couple quarters till it's ramped up.

Yeah, and I'll answer the first part of this and then I'll ask Glenn to step in what I would say is we expense our production costs.

Um as they're incurred. So you're going to see an incremental amount in there and the almost significantly. All of the costs from Cascadia go into that line. Um, because it's just a production facility and everything's um, packaged in uh, in our C in Pacifica. Yeah. Uh, Glenn, maybe you want to comment a little bit further on our margin expectations?

Yeah, Neil it's great question. Uh we we've said um, in past quarters that we're going to call out the amount of the Cascadia production costs that we're incurring in particularly pre-revenue. Um, so we'll make sure that everybody's aware of um, what the Run rate costs are Cascadia. Um, I do expect pressure on on the margins as reported under IFRS for the first couple of quarters until we get the volume and and the commercial production up. And I will say um, and we'll talk about this uh, that later. I'm sure we'll get a question on where we expect margins to go. But I think in the short term as Cascadia ramps up and we start to put more of that production into some of the unfulfilled demand, particularly in larger format, bags of 19624 flour or pre-rolls those necessarily come with um somewhat slighter. Gross margins, it's incremental dollars.

Love it but it still will put some pressure on the gross margin percentage percent. That's my expectation of the ramp up period next year. As we'll have some some pressure on the margins from exactly these things the ramp up and the fulfilling larger formats but we do have a number of initiatives to push back on that and push margins up.

So you commented that you just diverted, you know your your inventory or product into the other province that Sue.

You know, I'm trying to figure out how to weigh to say this. So you feel you weren't like overly impacted in the quarter from the strike. Or, you know, you feel like revenues would have been higher, had you not had to, you know, take that strategy and deal with the fact that strike was going on.

Yeah, look we we look at this commercially which was um we want to be there for our Retail Partners. Here in British Columbia what as and when they opened back up. Um, at the same time we have a product that is aging so we did a slow release. We didn't know when the strike was going to end. Um, so we did a very slow release into other markets, um, what it showed us and it it it provided a proof point that uh, there is significant demand as we've been saying, um, I believe that you know, we're going to, we'll, we'll largely make up the Gap from BC with the initial orders back in and with the work that's being done. Um, and the demand that we had in other parts of the country. So, we're, we're very pleased with it. We did want to have product available, like if we took all of the stuff that's in highest demand and pushed it to the other markets, we wouldn't have any product for BC and we wanted to be ready for 1 strike paying back on. So it was a bit of a balancing act. I was saying, um, I

I think I think we we we rode the line in the right way and we're very pleased with um with what's happened in terms of the demand elsewhere as a as that proof point.

Okay great thanks. Appreciate you answering my questions. I'll pass the line.

Thanks ma'am.

Thank you. Your next question is from Pablo zanic from Osan.

Your line is now open.

Thank you and good morning everyone.

Look, um, you've been very clear about explaining the decline in, in flower sales because of lack of capacity, but I'm just trying to understand, you know, how much is it really? Demand driven and how much Supply driven right? Like, according to h fire and I understand it's not perfect data, uh, your flower sales in in your pre-roll flower pre-roll sales in the last 2 quarters of about 40% year, on year, on the other hand, your flower sales, you know, down in the low teens, um, in the last 2, quarters year and year. So but but is there is there some demand element there or some competition in the in the premium flower segment that's having an impact. What is it? You allocating more biomass to pre-rolls because as more profitable than than premium flower right now just trying to distinguish between you know is this, is it solely a supply issue? What is there? Some demand issue that we should also Factor here. Thank you.

Great question, you know, from our side, we're not seeing a demand issue. I would say, we're seeing a shift in and I and I've spoken about it publicly, the rise of convenience, um, and the trust that's actually going into products at this stage consumers are shifting to pre-roll. We're being asked for pre-roll, and we have a certain amount of Supply we want to make sure we're where the consumer is, um, and where the consumers that want their brands, um, that's probably the largest shift. We've really been wanting to answer that, and we've seen incredible demand for pre-rolls as you've just noted, the 40% increase. Um, we are, uh, we're we're also extremely extremely happy with, um, with where our flowers going and the quality that we're getting out of it. And we believe that we're only getting better better from here. 1 of the, the pieces that people don't understand externally about our business. We, we try to talk about it is that we grade everything through a panel before it goes out, um, the highest ever grading we've ever had out of our path.

I want to look, I believe 82% on 100, which shows that we believe we've got a lot better and over the last year, the panel grades have gone up from sort of high 60s to low 70s mid-70s on our, um, on our products that are going out, what we're seeing even is even higher terpenes higher yields higher high, higher results overall. So we continue to believe that we're positioned very very well. The consumer is, is shifting their patterns quite a bit. Um, and 1 of the 1.

1 of the things that the data is also not showing is that the rise of the very large format packs,

Which is actually Shifting the numbers as well. So you know consumers are buying less 3 and a half grams and moving more to the 28 Grams and when your supply constrained you want to sell the higher margin item which is a 3 and a half gram versus a 28 gram. So we're looking for Cascadia to come and answer that question because in particular for the 1964 28 gram bag, we have very high demand and it will be a balancing act of managing, our gross margin um, to optimize that but also fulfilling consumer demand.

Okay. Um, just on on pre-rolls. I think in the past you've said that you're not competing in in the infused segment, right? So obviously, uh, very impressive growth given that most to a growth has been an infused until recently. Um, can you remind us why you're not competing in infused and uh um, and is there a plan to enter that segment? Thank you.

Great question. We actually are an infused but it's not a core focus of our business. Um, the reason is, uh, when we, when we go to market, we want to go with something that, um, is, is best to Market. So what you'll find in Market is, is simply their infused live rosin product. It's a very heavy-hitting and relatively expensive premium connoisseur product. Um, we're the largest segment of infused is is relatively low price?

High high high, high THC, Botanical terpenes, added, um, volume product. Uh, we don't see as much, um, demand from the from the premium side of the market in that and where we do, we are answering that. But we're not, we believe that a premium product is not necessarily that we don't need to add Botanical flavors to our, we'd have it be fabulous. And, um, we're very proud of that. So, you know, I think that's a bit of a race to the bottom in terms of consumers, walking in and asking for highest THC, lowest price. Um, we're looking for experience.

Experience. So it's not a category that yes, we've put some energy into it, we have some beautiful products there that speak to the premium experience, but there's a bit of a, a consume, a different consumer, that's looking at that.

Right. Thank you. And 1 last 1 look, again, I have to say follow and frustrated. I would love to do better there.

I hear you. Thank you. It's done.

Uh, and 1. Last 1, uh, look again, going back to high fire, the the pricing for simply wear and and 1964, uh, at least based on the data, it's looking very similar, right? And I'm just wondering, is that, is that just the nature of the market? Uh, are, are the brands? You know, losing that differentiation? Is that something that you need to manage better? Uh, is that a concern or, or not an issue because they're just different brands targeting, maybe different segments. And it's not about the price differentiation between the 2 Brands. Thank you.

Great question. Um,

We you know, from our experience, they're not meant to be priced. Similarly I think some of that is happening with retailers in store and certainly not happening on our end. Um what we do find is some people increasing price on some of our products um to take more margin because of the rate of sale on them

But, um, nope, we've got the brands, quite quite pulled apart in terms of the wholesale pricing into market and where they're sort of MSRP would be, uh, an eighth of Simply bare should be around. $58.79 should be around $55. So, to us, there's there's quite a big differentiation. If you're looking at that on a blended ratio, perhaps it's from how retail data is being scraped. I I can't really answer why that's happening other than I, I have seen that in the odd circumstance, um, anecdotally in store but um, but that's not where the position.

To write. Okay. Thank you.

Great. Thanks. Pablo.

Thank you, and our next question is from Nicholas Dellucci from Atrium. Your line is now open.

Hey Margaret. Hey, Glenn. Congrats on the quarter and uh, also congrats on the road, Glenn.

So um first question here, I wanted to ask you guys about if you had any additional commentary on Australia with the test and learn strategy and how that strategy looks going forward.

Great question. You know as we've said many times before we're brand builders um not looking to sell hockey bags. If weed internationally and we believe that there is a long way to go with cannabis in the international markets and what's going to happen with brand. So what we've used the last um,

House. We haven't actually heard those results but very keen to see how in a newer Market. Um people react, what we are starting to hear more, and more is um, that there's a very big gap that the international markets have been filled with, um, a lot of bulk lower value and quality weed and even the, the leaders of those businesses in the spring 1 of them said to me, um, ah, this this Market's never going to go premium, they're never going to want it. We're never going to understand it. And called me 3 weeks ago and said, hey, can we buy all your wholesale products? So I think uh, you know, that the the the recognition that this will

People at some.

Um, Quality Supply is is getting recognized.

Got it.

And then shifting to the the death proceeds, how do you guys plan to utilize that? And what are the next Milestones that we should expect from a Cascadia?

Glenn, I'm going to ask you to jump in on that 1.

Yeah. Thanks. Nicholas. And

In the gamut from, um, some, you know, some targeted investments in the cultivation side of the business to really Drive yield. Um, as I said before, I would ever compromise in quality but you know, some great opportunities there. Um, but also a number of projects on the operational efficiency side. So we mentioned just finishing up the pre-roll automation which has been a quite a

I'm going to say very successful on time on budget and delivering at the rate that we expected it to. So we've got more of those projects. We're going through the prioritization. Quite honestly. We've got more opportunities. Um and you know, million dollars will speak to. Uh, so we want to make sure that we, you know, hit the ones with biggest impact. Obviously, our top priority right now is standing up Cascadia and making sure that's delivering the call complexion. But at the same time though over the over the next number of

Uh months uh announced some more projects that look more like the pre-roll automation.

It's amazing. And then the last 1 for me, just on the gross margins. I know they improved pretty well year over year. They've been consistent. The last 2 quarters. How does that look going forward? Is this the new base? Or we still see a little bit of compression going into Q4 or how do you see that?

I'm gonna get you to take that 1 again. Yeah, sure it's a part. Yeah, um yeah. This is a a really interesting question Nicholas. You know, I think um as we look at the business, we see huge opportunity, some real leverage on the gross margin line. Um, just you know, simply bringing on the additional capacity from Cascadia will over time, help us with volume throughput. You know, all the post-harvest activities. For the most part will happen at Pacifica. So, you know, scale, there putting more throughput will help on the margins for sure. Um, just, you know, as context there will be some headwinds, you know, over the next 12 months as we stand up Cascade as we start to supply, some of the larger format, um, sizes in the market that we currently aren't Sublime. Um, again that's it's nice, it's incremental margin but in terms of percentage as a premium positioned company and, you know, it's pretty clear that we're doing

Very well in that segment. But our margins. Um, we have greater Ambitions for those gross margins and, um, quite quite a ways to go on those. Um, but the nice thing is, we've got a very clear pathway, uh, to get there. So

Uh I would say over the next uh 12 to 18 months. Our our objectives would be to get the margin overall. The gross margin of the company up into the mid 40s. Um, I wouldn't say that we're done then but I would say that's a nice mile mile post that we can check in, you know, 18 months from now that we're delivering their, um, because I think as an executive team, we see a very clear path to that with some of the, um, initiatives. I talked about just a bit earlier.

Right. Well, thanks for answering my question and have a good day.

Yeah, thank you.

Thank you. Your next question is from Andrew sample. From ventum Financial, your line is now open.

Good morning. Uh, thanks for taking my question here and, uh, congrats on another solid quarter, uh, maintaining the cash flow profile of the business, uh, despite the, uh, cost to carry uh Cascadia. Um, first question, I'm going to return to margins. Um, I'm going to ask about ibida margins and and maybe press a little bit on the degree of, uh, operating leverage. We, we might be able to see ahead, um, you know, even a margins were 11% in the current quarter. I think it was closer to 15% in the year ago period. Um and that's despite gross margins up a little bit more than 1 percentage Point year on year.

Uh so presumably that was largely due to uh maybe some of the costs to carry a Cascadia.

Once the Cascadia is in full production, do you think even our margins could return to that mid teams level or perhaps even better than that? I just want to get your thoughts on, uh, opportunities for margin. Uh, and operating leverage ahead.

Absolutely. I'll answer the first part and I'll get Glenn to come in, but you know, as with any business as you're turning on a new facility, there's incremental cost and we started to see that and we've started to we have our direct Cascadia costs but then we also have costs for transforming our business which is happening in 2526. To have much more revenue and more throughput. For example, we needed additional trailers at site which is an annual um, cost of 100,000 bucks a year. So those types of costs add up, we, you know, we we needed uh,

Some more people on various teams to be ready for what's next, that those costs are being incurred and the Run rate, um, that I believe that will be out in the fourth quarter, um, will will will be fairly consistent thereafter and we'll start to see The Leverage in the second half of next year and and Glenn, maybe I'll get you to add in.

Yeah, for, for sure, our, our objectives on the evict, the line are to return it, you know, to where it was or, or to do that, to do better.

Again, the lever gained the lever.

I'm sorry, I'm getting quick now. Um, The Leverage that we'll get on, the gross margin line, we don't want that to disappear and and not show up on the bottom line. Like we're, we're about driving you but the cash flow here. So, um, yes, as Margaret said, we are investing in what we've called transformational costs and I would estimate it, at least $300,000 in Q3 of the what we've characterized this transformation to some of the costs that Margaret alluded to. And, you know, and also just becoming a bigger company. We've got a, a new facility on insurance costs Etc. So, so and just to cross the board, but we keep the very close eye on our sgna costs. Um, it's hard for our team to, uh, get us to say yes, to new Investments, whether it's, you know. But but strategically we want to make sure the dollars are focused their on their key account strategy in the, in the, on the marketing side of the, the business we've invested more there, so

You are seeing ramp up with some of those costs that are getting us. You know, not only helping deliver the business that we did in the third quarter. But are preparing us to be that um, you know, larger more larger scale, more complex companies we bring on Cascadia and as we start to enter into new markets and new formats. So yes uh short answer is we expect IBA to margins to uh come back and our longer term objective would get to would have us getting those to, uh, you know, at least 20%.

Great. Okay, that's helpful. Um, maybe turning attention to, uh, the recent financing. Uh, congrats on that. By the way. Um, you know, we can calculate kind of the loan to value ratio on, on Cascadia, I guess is the percentage of the purchase price.

Um, but I'd be curious if you'd be willing to share what the loan-to-value ratio might have been as a percentage of the appraised value.

And then, uh, do you see room to maybe move that higher over time, you know, once that facility's, uh, into commercial production?

Yeah. Margaret you again. Yeah sure. Um

As the company stands right now and until we start to deliver stronger cash flow, you know, I think the term debt opportunities are somewhat limited. You know, obviously there's other financing structures. We can look at in terms of that nice low rate. Uh, patient term debt. Um, you know,

views on what the appraised values but for use as a cannabis facility and a certain value, but um, short short answer is, I don't think there's a lot more room in the business in the next 12 months to return that

Got it. Okay, that's helpful. And then uh maybe finally uh just on the yield enhancements, you indicated that was uh up 10% this quarter relative to earlier this year and spoke to further uh potential gains possible. Um, maybe just kind of the timing on how you see the map playing out in the magnitude of the kind of the Fertile further yield gains. Uh you would expect to see uh over the coming years.

Thanks. Um, Andrew look, we have a, as we, as I mentioned, in my remarks to Pablo about how much further that we think we can go on quality in terms of um whether it's genetics, Mobility, Tarpon, um, THC, Etc. And and in terms of how we grow the plant, we also believe that in doing. So we will see gains on in getting better at cultivation. We'll see gains on yield because they are typically linked, um, you know, the, the impact of of every few percentages millions of dollars on the top line, which, you know, given that the the the the cost basis is the same it flows right through. Um, we have a disclosed exactly where we are on production, but if you think that we're at a 11,000, um, kilos of production capacity,

From um, from Pacifica. Um, and there's, you know, annual maintenance downtime. It's somewhere. You, you want to be in the target of 85, 90% as any good manufacturing site. We'd like to be moving past that over the next couple of years and have Ambitions to, to grow that line. We, as, as Glenn mentioned, the sweat, the assets projects that we're looking at. We believe we have 2, fantastic assets right now with the indoor ability and the hybrid Greenhouse ability to maximize genetics that we've got in our facilities. Um, so we do believe that we'll be able to get and I, I think at a minimum, 10% more yield out of out of Pacifica, would be a good Target. Um, we've got Ambitions much much greater than that and I Glenn, if you want to add anything, please do.

No Margaret. I think you said it well um you know it's absolutely a a top Focus for us and we've got over the last 12 to 18 months of brought in some really great cultivation experts for the people that lead the business

Really know what they do and what they're doing and Mary the science and the Art of growing cannabis. So we certainly do have Ambitions to focus on that because of the sort of the outsized impact on the corrosive profit line that it has when you can deliver both more Revenue at a very low cost to produce. Um so you know I think you know, another 10% above where we're at

Um, we have a very clear path to get there. Um, but we always have greater ambitions to pull on the biggest levers of the business to continue to improve the bottom line.

That's great. And looking forward to seeing that flow through, I will turn it over. Thank you.

Thank you. Once again, please press star 1.

Just to ask a question and your next question is from Josh Felker from CB1 Capital. Your line is now open.

Hey, good morning everyone. Congrats on the quarter in Glen, congrats on the permanent CFO position. Um, I'm wondering as you noted, the BC strike, you diverted volumes to other provinces. I'm just wondering how much confidence did that give you in your ability to sell the additional demand from Cascadia? Do you think you have any clearer view now on the demand for that full facility in the demand that exists in the market?

Yeah, I know it's a great question and

It's, it's been.

You know, tough on the province to have a strike but I would say from a Rubicon perspective, you know, we are our our supply and operations planning, our snahp indicates a lot of on the, on the demand, in particular, for 1964, 1964 flower. Um, we were able to supply

You know, the opportunity for gross margin internationally and satisfying our Canadian suppliers.

Got it. And then on the Cascadia facility, you previously indicated an annual run rate of about 4,500 kilos. I know the previous owners, while a little more exuberant, noted figures close to 6,900 kilos. I'm just wondering, do you have any improved view on whether that higher level is realistic? And I guess from your view, what production volume would represent?

a success, and then more importantly, when do you think you'll start understanding internally what an improved production number could look like?

Great question. When we talk about our production numbers at Rubicon, we talk about something called lmsa. So product that we could sell is premium flour. That's how we measure ourselves. There is byproduct and other product that can go into a lot of other things. I, I would say that the 6900 kilos, but the, the previous owners, um, had used is achievable. Um, I don't think it's a, it's a major stretch Target, and I hope in a couple of years. We're, we're looking to achieve that. I want to be realistic in terms of the expectation setting to say, let's start out with 4500 kilos and and I'm talking of Premium flour in today's market that, um, that knocks it out of the park. That's what we're looking at. The 4500 kilos, we believe that's very realistic.

Um, but we 1 of our values is excellence, and I can tell you our team is believes. We can do a lot better than that. And, and now obviously, I'm pushing them to do that. I'd rather turn it on, right? And get and, and not lose crops, and do it. Um, and do it the right way to get the, the right level of quality and learn that first, because we're not in the business of selling meds.

Got it.

And maybe while I stay on overall yields and very sorry to make you do it or to ask the question, but do you have any improved view on the potential bifurcation between domestic and international markets and where you view that uh additional volume going going forward? Yeah, it's a good question and, you know, we're in the midst of it, we need the volume from Cascadia to come out before we can start, um, turning on the international muscle more. Um, but that gives us time because it again, we are brand builders. And we're not looking to, to, to sell to be Traders selling selling wholesale weed. Um, so we are assessing how and and where we would launch brand internationally. They'll be more from us on that in the new year. What I do expect, um, is that we are looking, we we need cascading to be online, um, you know, hitting no knocking quality, so that we can fill both growth in Canada. And growth internationally, I think it's probably in the second half of next year.

Um, and my expectation is, it's maybe up to 50% of the Cascadia volume. So if its 4500 kilos, it's around 2,000 kilos, we're looking to to take internationally and I think as a, you know, these These are preliminary views. Um, we'll have a, a better, uh, a better answer probably in our Q4, um, results in the spring but, um, but I think that's sort of where we're we're targeting now. But again, if we expect Cascadia to be at, um, you know, Midway through the year hitting 1964 quality, we've got to get to that before we can launch, but we're, we we're doing the work to be ready to

Super appreciate the color. Congrats on the quarter. Thanks, thanks Josh.

Thank you.

There are no further questions at this time. I will now hand the call back over to Margaret Broody for the closing remarks.

Thank you for joining us today. Rubicon Organics is Canada's premium cannabis leader and we're investing today to build, enduring premium cannabis Brands to last

My personal recommendation for this quarter, which I always like to get in is to try simply Bears, BC, organic black zop, it just launched in Ontario. It's an Indica which offers really complex flavors and Aromas but has some sweet notes and a soapy and gassy profile, hope you all enjoy.

Thank you. Ladies and gentlemen, the conference has now ended. Thank you all for joining. You may all disconnect your lines.