ROMJF - Rubicon Organics Inc.
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Q1 2022 Earnings Call
May 24, 2022 12:00 AMOperator: Good morning, everyone. Welcome to Rubicon Organics First Quarter 2022 Financial Results Conference Call. As a reminder, this conference call is being recorded today, May the 24, 2022. At this time, all participants are in a listen-only mode. Following the presentation, we will conduct a question-and-answer session and instructions will be provided at that time for research analysts to queue up. I would now like to turn the conference over for the presentation, please go ahead.
Jesse McConnell: Before we begin, I'd like to refer everyone to Slide Number Two of our presentation, which contains Rubicon's caution regarding forward-looking statements and non-GAAP measures. Today's presenters will be Jesse McConnell, Chief Executive Officer and Margaret Brodie, Chief Financial Officer. I will now turn the call over to Jesse for the presentation.
Jesse McConnell: Thank you and good morning, everyone. We have been unwavering in our mission to grow the best cannabis on earth and for the earth. We continue to invest in our people, our facility and our cultivation systems, which has resulted in a progressive reduction in our production costs and continued increase in our yield and our quality. This has helped us to grow our margins and deliver on our brand promises to the consumer. Building premium brands that consumers love and are loyal to, begins with a culture that prioritizes quality. Our reference to deliver that promise have seen Simply Bare Organic remain the number one premium brand in Canada and flower and pre-rolls the 7.1% market share of the premium segment for the 12 months ended March, 2022. We are proud to have maintained market share in the premium segment, which has begun to outpace the growth of the overall market. As consumer tastes refine and more legacy market customers enter the legal market, we expect to continue to see this premium growth trend. In more mature markets, such as Colorado and Washington, Premium segment accounts for both 25% of consumer dollars spent in the total market. We continue to experience immense growth in our home province of British Columbia for simply bear organic holds the number one premium Flower brand position and have built our license brand Wildflower CBD sticks into the number one topical brand in Canada, a credit to the efforts of our sales and marketing team. During quarter one, we operated with our entire portfolio of brands and market with coast-to-coast distribution. We held a 1.9% and 2% market share across all flower and pre-rolled products for the 12 and three months ended March 31, 2022 respectively. Big part of our success relates to the national rollout of our good, better, best brand portfolio strategy. This has enabled us to optimize margins across all the products we produce. Having established our brands in market, we are now focused on continuing to expand retail distribution and driving the rate of sale across the entire portfolio. For the time being, I will pass the call over to Margaret to share some specifics about our financial performance after which I will share some updates on our progress against the three pillar strategy we defined on our last earnings call. Over to you, Margaret.
Margaret Brodie: Thank you, Jesse and good morning, everyone. I am pleased to report that in the three months ended March 31, '22, Rubicon Organics reported net revenue of $5.1 million. This is a 25% or $1.3 million increase over the same period in 2021 and on a trailing 12 month basis, net revenue is $23.6 million, 81% or $10.6 million increase as compared to the same period in 2021. Rubicon experienced 25% growth in net revenue for the three months ended March 31, '22 as compared to the prior year and saw significant growth from its 1964 supply co-brand with 141% growth in net revenue as compared to the prior year; excuse me, prior period. As you are aware, consistent with other cannabis companies, the first calendar quarter is the weakest quarter, given the seasonality of the consumer for dry January, coupled with the largest provincial distributors, BC, Alberta, Ontario and Quebec, managing their own inventory for their year-end at the end of March. We expect our revenues to rebound to pre-first quarter trajectory as we progress through 2022. Despite the seasonal weakness in the first quarter, Rubicon continues to deliver on the trend of positive gross profit from operations as we see the results of higher yield from cultivation, as well as cost savings at our Delta facility. The company has maintained a strong balance sheet with $8.8 million in cash and $19.4 million in working capital. We are in discussions to extend or refinance to a longer-term debt facility at similar rates and expect to finalize these discussions toward the end of the second quarter. Rubicon's cash position and working capital mean that we are confident in our ability to fund the growth in the second quarter of 2022. We have only one large capital project budgeted for '22, and it is underway. The BC hydro grid connection is funded by our existing capital. This project was due to be completed by the end of June '22, but with the global supply chain delays, it is likely to drift just into the first port of the third quarter. We are pushing this project forward as quickly as possible as the cost savings of being on the hydro grid are significant to our business and are expected to result in well over a million dollars in operating cost savings annually. As compared to 2021, the increase in our net revenue is attributable to our expanded skew [ph] count and significant growth from the 1964 supply core product. As expected and as I said before, in the chart, you can see that the company experienced a seasonal dip in sales as provincial distributors sold off stock from the busy November and December months and reduced inventories leading to their fiscal year end of March. We saw a disproportionately larger decrease in the cost of sales as compared to the dip in product sales, which is an indication of the improvements we are seeing in the cost structure. We expect these improvements to be seen more prominently in the remainder of '22, as the rate of sale of our products and throughput of the Delta facility is expected to continue to ramp up. Continued focus on efficiencies within our operations is expected to drive down our cost base and will further improve the cost of production as our cultivation volumes improved. While we also expect to identify further areas of cost savings and efficiency at the Delta facility, we are conscious that delays in and current circumstances of global supply chains mean the risk of additional inflationary pressures may offset the gains we make in operating efficiencies and are working hard to have these at a minimum level out. Looking at the business on a trailing 12 month basis, we see consistent growth and improved growth profit per period. We have realized 81% growth in net revenue for 12 month period ended March 31, '22 as compared to the prior period. We have enjoyed a growing -- a growing positive gross profit over the last three quarters and expect this trend to continue through 2022. With our full portfolio in market and the current business structure, we remain on track to deliver on our guidance of positive operating cash flow and positive adjusted EBITDA in 2022. I will now turn the meeting back to Jesse to share more about our '22 outlook.
Jesse McConnell: Thank you, Margaret. At our last call, we introduced you our 2022 strategy to meet our overall goal of sustainable profitability in the second half of 2022. We developed clear priorities for the business, which consist of a three pillar strategy focused on firstly; optimizing yield and quality from our production facility to improve the gross profit pool possible for every brand produced and deliver on our brand quality promises. Secondly, improving the product mix to maximize the Canadian domestic market opportunity, and thirdly, obtaining the necessary certifications to build the route to market internationally, enabling us to take advantage of early market price premiums, and to be an early mover in establishing our brands in the global market. Each of these key pillars is expected to have a positive impact on our profitability and cash flow near term. With respect to maximizing our yield, we have streamlined certain cultivation practices and increased our planting density to achieve our current run rate of approximately 9,000 kilos per annum. This increase in yield together with increasing THC percentage is just starting to hit the market at the beginning of the second quarter and is allowing us to continue to demonstrate consumers that they can consistently rely on our high quality and that we can bring new and even better experiences to them. Furthermore, I believe we are well on our way to achieving our yield gold of 11,000 kilograms annually and we continue to see quality improvements and potency increases. This should result in a higher top line and an increased rate of sale for the remainder of 2022. The company has decreased its operating costs and built out its portfolio of brands to establish an optimal mix of products and price points in Canada. Most notably, we've seen 141% increase in the product sales of 1964 supply co. as compared to the prior period. We are focused on expanding the success of 1964 by growing its product portfolio helps us utilize a 100% of our increased yield while growing our gross profit pool. By focusing on the unique needs of each province and its consumers, we expect to leverage our cost base to establish positive adjusted EBITDA and cash flow in the second half of 2022. And as to our third pillar, we've advanced our international strategy and last week we announced that Rubicon has received its IMT GAAP certification, which is a key milestone that allows us to sell cannabis into certain international markets, including Israel and to EU GMP processing facilities for access into Europe and Australia. The company also expects to receive its EU GMP certification in 2022, allowing for direct export to the European market. While there is a home for our flower domestically in Canada, and we believe that the premium segment will continue to grow, we see the opportunity to maximize our growth profit through the international markets where our product quality is expected to stand out and command a high price. We're building the international route to market. Our brands will have an early mover advantage and we will obtain stronger gross margins. The international medical cannabis markets are moving toward the establishment of recreational markets. We are excited to be part of this ending of the prohibition of cannabis. Company realized several key milestones in the first quarter towards a goal of achieving profitable self-sustaining operations in 2022. The Company's current expectation is to be operating cash-flow positive and adjusted to EBITDA profitable in 2022. We believe that despite any market volatility in 2022, our focus on our three key priority areas coupled with our brand portfolio expansion achieved last year in 2021 will position Rubicon to continue to deliver on its commitments and to win in the premium cannabis market. I'd now like to open the line for questions. Operator, please open the line.
Operator: [Operator instructions] Your first question comes from Neil Glimmer of Haywood. Please go ahead.
Neil Glimmer: Yeah, thanks very much. Good morning everyone. Probably two questions for me. I think I'd start on the international side, obviously with that news last week with the IMC GAAP certification. How should we think about, when shipments would start internationally in maybe, as a subset to that question, your current inventory levels, do you have inventory that is available for shipment in the near term? Or is that something you need to build up through some of your cultivation and maybe more of a second half story on the international front?
Jesse McConnell: Great question, Neil. So there's two certifications as we indicated the IMC GAAP, which gives you access to certain marketplaces Australia, Israel, and a few others and then there's the EU GMP route. We anticipate shipping in the third quarter to Israel under the IMT GAAP certification. We don't anticipate shipping under EU GMP until the fourth quarter. The way that we've managed our inventories and through that is we've been growing to that standard now for quite some time and a number of our crops meet that standard. With that said, and as you know, it's taken almost two years to get an auditor over here during COVID time in order to get our certification. So we didn't build and hold inventory and anticipation of that. When we had our IMC GAAP audit about -- a little over a month ago, two months ago, we began to build inventories with the expectation of that receipt, so while we will be shipping in the third quarter to Israel.
Neil Glimmer: Okay, great. Thanks for that. Second question just sort of on the gross profit/gross margin line, sort of how that may trend, I know your comments in the prepared remarks, but, if I sort of reading through the lines you have more margin expansion opportunities in Q3 and Q4, or is your increase in cultivation that you sort of think you said in the press release that 9,000 kilogram level that you're at now going to provide a boost in Q2. Just sort of looking at the cadence on how you realize some of those synergies from the increased production.
Jesse McConnell: Yeah, we will realize go ahead. Do you want to take that Margaret? Go ahead.
Margaret Brodie: No, you ahead. You got it.
Jesse McConnell: Yeah. We'll realize those energies in quarter two. We saw started to really see significant yield increase toward the end of the year, realizing you were familiar with the sales cycle, it takes approximately three months from harvest till the consumer begins to has that product available on shelf. So we have about a 30% increase in yield, is what we're indicating at this point and trending toward even, even higher numbers. So you'll see an increase in that broke gross profit line right now in quarter two.
Neil Glimmer: Okay. That's good.
Margaret Brodie: The, other thing that you're going to see come into that is the effect of the hydro project of if you took on the low end, a million bucks over each quarter, sorry, over the year, that'll go that drops right to the bottom line as well. So, the trend is absolutely going in the right direction across, and we can see that already and how things are moving through the facility. My comment on inflation, we continue to find cost savings. Hard to know with inflation and global supply chain and shipping costs, I think we're going to have a win there, but if we break even, I think we're doing very well in this environment.
Neil Glimmer: Yeah. Fair enough. Okay. Thanks for taking my questions.
Jesse McConnell: Thanks, Neil.
Operator: Your next question comes from Rahul Sarugaser of Raymond James. Please go ahead.
Rahul Sarugaser: Good morning, Jesse and Margaret. Thanks so much for taking my questions. Also congrats for managing to a relatively difficult seasonal quarter. So, as you highlight, you're looking at driving towards EBITDA positive, in the second half of the year and Jesse you highlight that cultivation capacity is, is one of the key levers towards to that end. And so at 9,000 kilograms now driving to 11,000, what is that, essentially capacity [ph], what does that cultivation capacity look like for break even, and how sensitive is that to sales and in the good, better, best, categories that you are that essentially driving?
Jesse McConnell: Good question. Let me reframe it a little bit, Raul. We've indicated in the past that somewhere between approximately $7.5 million in revenue is breakeven for us at current product mix. Of course our gross margins differ in each one of our brands and I think the best way to think about that is the revenue line at around $7.5 million. As our cultivation -- as our yields increase, even if our product mix went against us, so we would have to sells, say more homestead if the demand topped out for 1964 and simply bear, which we do not believe is currently the case, but to take that hypothesis, then that incremental yield still gives us an ability to break even at a lower number.
Rahul Sarugaser: Okay, terrific. That's really helpful. And given that you're essentially so close to that point now and maybe this is more of a question for you, Margaret, is that, given the relative cash position, you identify in the press release that Rubicon is looking at potentially tapping some existing in new debt. Could you give us a little bit more of a commentary on essentially how you see the balance sheet and driving towards EBITDA and eventually cash flow positive?
Margaret Brodie: Absolutely. I think our balance sheet in the sector for a company of our size is reasonably strong. We are in final stage discussions as we've said before on extending our existing data, like pretty similar facility to where we are now. And I think we've got a great counterparty there, and it really just keeps the company in a strong position. And what we want to do is keep our working capital and balance sheet in nice spot. As we look forward, I expect that our cash trend is going to be starting to move positive after the BC hydro project gets completed at the end of June. And we're very quickly in the turn here on profitability and certainly in the second half of the year, and we shall see how the second quarter goes. But I think the trends you're seeing in market rate of sale of our new products is giving us a lot of confidence right now. That being said, I think in a market with volatility and a lot of companies with interesting behavior to try and desperately sell their product as well as a retail environment, which where the large chains are really trying to dominate with their pricing, it's going to be interesting to see what happens through the year. So we're very focused on our business and our costs and our great quality, and we believe that will put us in a great position going forward to the winner in the Canadian cannabis space.
Rahul Sarugaser: I think that's really helpful. And thanks again for taking my questions. That's all from you today.
Margaret Brodie: Thanks Raul.
Operator: [Operator instructions] There are no further questions from the phone lines. I would like to turn the call back to your hosts for closing remarks. End of Q&A
Jesse McConnell: Thank you all for joining our quarter one call today. We are very excited about the position that we hold in the premium cannabis segment in the Canadian market right now. We are being very careful with managing our balance sheet and managing our cost structure and what is certainly a volatile environment, both in our sector and more broadly, but extremely confident in what we are seeing in our facility and the rate of sale increases that we're seeing in the marketplace. So we are going to continue to remain focused there and deliver on our commitments. Thanks everyone. Have a great day,
Operator: Ladies and gentlemen, this does conclude your conference call for this morning. We would like to thank you for participating and ask that you please disconnect your lines.
Jesse McConnell: Before we begin, I'd like to refer everyone to Slide Number Two of our presentation, which contains Rubicon's caution regarding forward-looking statements and non-GAAP measures. Today's presenters will be Jesse McConnell, Chief Executive Officer and Margaret Brodie, Chief Financial Officer. I will now turn the call over to Jesse for the presentation.
Jesse McConnell: Thank you and good morning, everyone. We have been unwavering in our mission to grow the best cannabis on earth and for the earth. We continue to invest in our people, our facility and our cultivation systems, which has resulted in a progressive reduction in our production costs and continued increase in our yield and our quality. This has helped us to grow our margins and deliver on our brand promises to the consumer. Building premium brands that consumers love and are loyal to, begins with a culture that prioritizes quality. Our reference to deliver that promise have seen Simply Bare Organic remain the number one premium brand in Canada and flower and pre-rolls the 7.1% market share of the premium segment for the 12 months ended March, 2022. We are proud to have maintained market share in the premium segment, which has begun to outpace the growth of the overall market. As consumer tastes refine and more legacy market customers enter the legal market, we expect to continue to see this premium growth trend. In more mature markets, such as Colorado and Washington, Premium segment accounts for both 25% of consumer dollars spent in the total market. We continue to experience immense growth in our home province of British Columbia for simply bear organic holds the number one premium Flower brand position and have built our license brand Wildflower CBD sticks into the number one topical brand in Canada, a credit to the efforts of our sales and marketing team. During quarter one, we operated with our entire portfolio of brands and market with coast-to-coast distribution. We held a 1.9% and 2% market share across all flower and pre-rolled products for the 12 and three months ended March 31, 2022 respectively. Big part of our success relates to the national rollout of our good, better, best brand portfolio strategy. This has enabled us to optimize margins across all the products we produce. Having established our brands in market, we are now focused on continuing to expand retail distribution and driving the rate of sale across the entire portfolio. For the time being, I will pass the call over to Margaret to share some specifics about our financial performance after which I will share some updates on our progress against the three pillar strategy we defined on our last earnings call. Over to you, Margaret.
Margaret Brodie: Thank you, Jesse and good morning, everyone. I am pleased to report that in the three months ended March 31, '22, Rubicon Organics reported net revenue of $5.1 million. This is a 25% or $1.3 million increase over the same period in 2021 and on a trailing 12 month basis, net revenue is $23.6 million, 81% or $10.6 million increase as compared to the same period in 2021. Rubicon experienced 25% growth in net revenue for the three months ended March 31, '22 as compared to the prior year and saw significant growth from its 1964 supply co-brand with 141% growth in net revenue as compared to the prior year; excuse me, prior period. As you are aware, consistent with other cannabis companies, the first calendar quarter is the weakest quarter, given the seasonality of the consumer for dry January, coupled with the largest provincial distributors, BC, Alberta, Ontario and Quebec, managing their own inventory for their year-end at the end of March. We expect our revenues to rebound to pre-first quarter trajectory as we progress through 2022. Despite the seasonal weakness in the first quarter, Rubicon continues to deliver on the trend of positive gross profit from operations as we see the results of higher yield from cultivation, as well as cost savings at our Delta facility. The company has maintained a strong balance sheet with $8.8 million in cash and $19.4 million in working capital. We are in discussions to extend or refinance to a longer-term debt facility at similar rates and expect to finalize these discussions toward the end of the second quarter. Rubicon's cash position and working capital mean that we are confident in our ability to fund the growth in the second quarter of 2022. We have only one large capital project budgeted for '22, and it is underway. The BC hydro grid connection is funded by our existing capital. This project was due to be completed by the end of June '22, but with the global supply chain delays, it is likely to drift just into the first port of the third quarter. We are pushing this project forward as quickly as possible as the cost savings of being on the hydro grid are significant to our business and are expected to result in well over a million dollars in operating cost savings annually. As compared to 2021, the increase in our net revenue is attributable to our expanded skew [ph] count and significant growth from the 1964 supply core product. As expected and as I said before, in the chart, you can see that the company experienced a seasonal dip in sales as provincial distributors sold off stock from the busy November and December months and reduced inventories leading to their fiscal year end of March. We saw a disproportionately larger decrease in the cost of sales as compared to the dip in product sales, which is an indication of the improvements we are seeing in the cost structure. We expect these improvements to be seen more prominently in the remainder of '22, as the rate of sale of our products and throughput of the Delta facility is expected to continue to ramp up. Continued focus on efficiencies within our operations is expected to drive down our cost base and will further improve the cost of production as our cultivation volumes improved. While we also expect to identify further areas of cost savings and efficiency at the Delta facility, we are conscious that delays in and current circumstances of global supply chains mean the risk of additional inflationary pressures may offset the gains we make in operating efficiencies and are working hard to have these at a minimum level out. Looking at the business on a trailing 12 month basis, we see consistent growth and improved growth profit per period. We have realized 81% growth in net revenue for 12 month period ended March 31, '22 as compared to the prior period. We have enjoyed a growing -- a growing positive gross profit over the last three quarters and expect this trend to continue through 2022. With our full portfolio in market and the current business structure, we remain on track to deliver on our guidance of positive operating cash flow and positive adjusted EBITDA in 2022. I will now turn the meeting back to Jesse to share more about our '22 outlook.
Jesse McConnell: Thank you, Margaret. At our last call, we introduced you our 2022 strategy to meet our overall goal of sustainable profitability in the second half of 2022. We developed clear priorities for the business, which consist of a three pillar strategy focused on firstly; optimizing yield and quality from our production facility to improve the gross profit pool possible for every brand produced and deliver on our brand quality promises. Secondly, improving the product mix to maximize the Canadian domestic market opportunity, and thirdly, obtaining the necessary certifications to build the route to market internationally, enabling us to take advantage of early market price premiums, and to be an early mover in establishing our brands in the global market. Each of these key pillars is expected to have a positive impact on our profitability and cash flow near term. With respect to maximizing our yield, we have streamlined certain cultivation practices and increased our planting density to achieve our current run rate of approximately 9,000 kilos per annum. This increase in yield together with increasing THC percentage is just starting to hit the market at the beginning of the second quarter and is allowing us to continue to demonstrate consumers that they can consistently rely on our high quality and that we can bring new and even better experiences to them. Furthermore, I believe we are well on our way to achieving our yield gold of 11,000 kilograms annually and we continue to see quality improvements and potency increases. This should result in a higher top line and an increased rate of sale for the remainder of 2022. The company has decreased its operating costs and built out its portfolio of brands to establish an optimal mix of products and price points in Canada. Most notably, we've seen 141% increase in the product sales of 1964 supply co. as compared to the prior period. We are focused on expanding the success of 1964 by growing its product portfolio helps us utilize a 100% of our increased yield while growing our gross profit pool. By focusing on the unique needs of each province and its consumers, we expect to leverage our cost base to establish positive adjusted EBITDA and cash flow in the second half of 2022. And as to our third pillar, we've advanced our international strategy and last week we announced that Rubicon has received its IMT GAAP certification, which is a key milestone that allows us to sell cannabis into certain international markets, including Israel and to EU GMP processing facilities for access into Europe and Australia. The company also expects to receive its EU GMP certification in 2022, allowing for direct export to the European market. While there is a home for our flower domestically in Canada, and we believe that the premium segment will continue to grow, we see the opportunity to maximize our growth profit through the international markets where our product quality is expected to stand out and command a high price. We're building the international route to market. Our brands will have an early mover advantage and we will obtain stronger gross margins. The international medical cannabis markets are moving toward the establishment of recreational markets. We are excited to be part of this ending of the prohibition of cannabis. Company realized several key milestones in the first quarter towards a goal of achieving profitable self-sustaining operations in 2022. The Company's current expectation is to be operating cash-flow positive and adjusted to EBITDA profitable in 2022. We believe that despite any market volatility in 2022, our focus on our three key priority areas coupled with our brand portfolio expansion achieved last year in 2021 will position Rubicon to continue to deliver on its commitments and to win in the premium cannabis market. I'd now like to open the line for questions. Operator, please open the line.
Operator: [Operator instructions] Your first question comes from Neil Glimmer of Haywood. Please go ahead.
Neil Glimmer: Yeah, thanks very much. Good morning everyone. Probably two questions for me. I think I'd start on the international side, obviously with that news last week with the IMC GAAP certification. How should we think about, when shipments would start internationally in maybe, as a subset to that question, your current inventory levels, do you have inventory that is available for shipment in the near term? Or is that something you need to build up through some of your cultivation and maybe more of a second half story on the international front?
Jesse McConnell: Great question, Neil. So there's two certifications as we indicated the IMC GAAP, which gives you access to certain marketplaces Australia, Israel, and a few others and then there's the EU GMP route. We anticipate shipping in the third quarter to Israel under the IMT GAAP certification. We don't anticipate shipping under EU GMP until the fourth quarter. The way that we've managed our inventories and through that is we've been growing to that standard now for quite some time and a number of our crops meet that standard. With that said, and as you know, it's taken almost two years to get an auditor over here during COVID time in order to get our certification. So we didn't build and hold inventory and anticipation of that. When we had our IMC GAAP audit about -- a little over a month ago, two months ago, we began to build inventories with the expectation of that receipt, so while we will be shipping in the third quarter to Israel.
Neil Glimmer: Okay, great. Thanks for that. Second question just sort of on the gross profit/gross margin line, sort of how that may trend, I know your comments in the prepared remarks, but, if I sort of reading through the lines you have more margin expansion opportunities in Q3 and Q4, or is your increase in cultivation that you sort of think you said in the press release that 9,000 kilogram level that you're at now going to provide a boost in Q2. Just sort of looking at the cadence on how you realize some of those synergies from the increased production.
Jesse McConnell: Yeah, we will realize go ahead. Do you want to take that Margaret? Go ahead.
Margaret Brodie: No, you ahead. You got it.
Jesse McConnell: Yeah. We'll realize those energies in quarter two. We saw started to really see significant yield increase toward the end of the year, realizing you were familiar with the sales cycle, it takes approximately three months from harvest till the consumer begins to has that product available on shelf. So we have about a 30% increase in yield, is what we're indicating at this point and trending toward even, even higher numbers. So you'll see an increase in that broke gross profit line right now in quarter two.
Neil Glimmer: Okay. That's good.
Margaret Brodie: The, other thing that you're going to see come into that is the effect of the hydro project of if you took on the low end, a million bucks over each quarter, sorry, over the year, that'll go that drops right to the bottom line as well. So, the trend is absolutely going in the right direction across, and we can see that already and how things are moving through the facility. My comment on inflation, we continue to find cost savings. Hard to know with inflation and global supply chain and shipping costs, I think we're going to have a win there, but if we break even, I think we're doing very well in this environment.
Neil Glimmer: Yeah. Fair enough. Okay. Thanks for taking my questions.
Jesse McConnell: Thanks, Neil.
Operator: Your next question comes from Rahul Sarugaser of Raymond James. Please go ahead.
Rahul Sarugaser: Good morning, Jesse and Margaret. Thanks so much for taking my questions. Also congrats for managing to a relatively difficult seasonal quarter. So, as you highlight, you're looking at driving towards EBITDA positive, in the second half of the year and Jesse you highlight that cultivation capacity is, is one of the key levers towards to that end. And so at 9,000 kilograms now driving to 11,000, what is that, essentially capacity [ph], what does that cultivation capacity look like for break even, and how sensitive is that to sales and in the good, better, best, categories that you are that essentially driving?
Jesse McConnell: Good question. Let me reframe it a little bit, Raul. We've indicated in the past that somewhere between approximately $7.5 million in revenue is breakeven for us at current product mix. Of course our gross margins differ in each one of our brands and I think the best way to think about that is the revenue line at around $7.5 million. As our cultivation -- as our yields increase, even if our product mix went against us, so we would have to sells, say more homestead if the demand topped out for 1964 and simply bear, which we do not believe is currently the case, but to take that hypothesis, then that incremental yield still gives us an ability to break even at a lower number.
Rahul Sarugaser: Okay, terrific. That's really helpful. And given that you're essentially so close to that point now and maybe this is more of a question for you, Margaret, is that, given the relative cash position, you identify in the press release that Rubicon is looking at potentially tapping some existing in new debt. Could you give us a little bit more of a commentary on essentially how you see the balance sheet and driving towards EBITDA and eventually cash flow positive?
Margaret Brodie: Absolutely. I think our balance sheet in the sector for a company of our size is reasonably strong. We are in final stage discussions as we've said before on extending our existing data, like pretty similar facility to where we are now. And I think we've got a great counterparty there, and it really just keeps the company in a strong position. And what we want to do is keep our working capital and balance sheet in nice spot. As we look forward, I expect that our cash trend is going to be starting to move positive after the BC hydro project gets completed at the end of June. And we're very quickly in the turn here on profitability and certainly in the second half of the year, and we shall see how the second quarter goes. But I think the trends you're seeing in market rate of sale of our new products is giving us a lot of confidence right now. That being said, I think in a market with volatility and a lot of companies with interesting behavior to try and desperately sell their product as well as a retail environment, which where the large chains are really trying to dominate with their pricing, it's going to be interesting to see what happens through the year. So we're very focused on our business and our costs and our great quality, and we believe that will put us in a great position going forward to the winner in the Canadian cannabis space.
Rahul Sarugaser: I think that's really helpful. And thanks again for taking my questions. That's all from you today.
Margaret Brodie: Thanks Raul.
Operator: [Operator instructions] There are no further questions from the phone lines. I would like to turn the call back to your hosts for closing remarks. End of Q&A
Jesse McConnell: Thank you all for joining our quarter one call today. We are very excited about the position that we hold in the premium cannabis segment in the Canadian market right now. We are being very careful with managing our balance sheet and managing our cost structure and what is certainly a volatile environment, both in our sector and more broadly, but extremely confident in what we are seeing in our facility and the rate of sale increases that we're seeing in the marketplace. So we are going to continue to remain focused there and deliver on our commitments. Thanks everyone. Have a great day,
Operator: Ladies and gentlemen, this does conclude your conference call for this morning. We would like to thank you for participating and ask that you please disconnect your lines.