I will be acting as the chair. With your approval, I will appoint Margaret Brodie, act as secretary for this meeting.
We have the votes to do that.
Okay. With your approval, I would like to ask Lia Zandvliet of Odyssey Trust Company to act as scrutineer of the meeting. I'd also like to introduce the other members of the Board of Directors and the officers of the company in attendance. John Pigott, Margaret Brodie, Jesse McConnell. Mel's not here.
No.
Okay. Will the secretary please assure us that the Annual General and Special Meeting has been properly called?
I have before me an affidavit of a representative of Odyssey Trust Company, attesting that the notice of the AGM Annual General and Special Meeting, together with the information circular and form of proxy, was delivered in accordance with the Business Corporations Act of British Columbia and applicable securities laws. The Chair, this annual and special meeting has been properly called.
I'm advised that according to the preliminary report of the scrutineer, a quorum is present. The scrutineer's report will be read later when it has been compiled in detail. I now declare that the Annual General and Special Meeting is regularly called and properly constituted for the transaction of business. Before commencing with the business of the meeting, I would like to ask the secretary to explain the voting procedures to be followed in the meeting.
Thank you, Dave. There is one class of shares in the company, common shares without par value, which are entitled to vote. The holders of the common shares are entitled to one vote for each common share held. Voting will generally be by show of hands. Each holder of common shares is entitled to be present, excuse me, to be present is entitled to vote. The articles of the company allow any person present who is entitled to vote in person or by proxy to request a poll, in which case voting will be by ballot, with each shareholder or proxy holder having one vote per share. The chair can also request that a poll by ballot be taken on a resolution. Proxy votes will only be counted on a poll by ballot.
Those of you who have not filed proxies will receive ballots if a poll is requested or required.
The next item of business is the presentation of the audited financial statements of the company and the report of auditors thereon for the fiscal year ending December 31st, 2021. Copies of the audited financial statements and auditor's report are available from the secretary. Unless someone s-specifically requests, the auditor's report will be read to the meeting.
Will not be read to the meeting.
Will not be read to the meeting. Thank you. Unless there are questions arising from the audited financial statements and auditor's report, I shall consider them received by the shareholders as submitted to this meeting. It is now in order to proceed with fixing the number of directors to serve on the company's Board of the upcoming year. There are five directors standing for election this year, therefore the company wishes to fix the number of directors at five for the ensuing year. I ask for a motion to fix the number of directors at five.
Moved.
Is there any discussion on the motion? Seeing none. All those in favor, please signify by raising their hand. Opposed, if any. Carried. It is now in order to proceed with the election of directors for the upcoming year. The information circular, which was mailed to shareholders, contains the names of and information about management's nominees to the Board of Directors. There are five positions to be filled, each for one year term until the next annual meeting of the shareholders. It is proposed that separate ordinary resolutions be passed, electing Jesse McConnell, Margaret Brodie, John Pigott, David Donnan, and Melanie Ramsey as directors of the company, and to hold office in the accordance with the articles of the company.
Each of the nominees has previously consented in writing to act as a director. If there are no other nominations, I will ask for a motion that nominations be closed. Margaret.
Apologies. Moved.
Is there any discussion on the motion? All those in favor of the motion, please signify by raising your hand. Opposed? Seeing none, carried. I would ask that each shareholder signify their vote on the following by raising their hand. All those in favor of the appointment of Jesse McConnell. Withheld, any? Carried. All those in favor of the appointment of Margaret Brodie. Withheld, if any? Carried. All those in favor of the appointment of John Pigott. Withheld? Carried. All those in favor of the appointment of David Donnan. Withheld? Carried. All those in favor of the appointment of Melanie Ramsey. Withheld? Carried.
I declare that Jesse McConnell, Margaret Brodie, John Pigott, David Donnan, and Melanie Ramsey have been elected as directors of the company for the meeting year to hold office until the next annual meeting of the company or until their successors are elected or appointed.
The next item of business is the appointment of the auditors of the company. It is proposed that PricewaterhouseCoopers LLP, be reappointed as the auditors of the company to hold office for the ensuring year until the close of the next annual meeting of the shareholders of the company and of the Board of Directors be authorized to set their remuneration. I would ask for a motion with respect to reappointment of PricewaterhouseCoopers as the auditors of the company.
Moved.
Is there any discussion on the motion? All those in favor of the motion, please signify by raising your hand. Any opposed? Carried. The next item of business is to consider the approval of ordinary resolution, amending the aggregate 715,000 stock options of the company previously granted to insiders of the company to reduce the exercise price from $3.25 to $0.86, and to extend the expiry date from July 31st, 2023 to December 31st, 2025. Full details concerning the amendment of the previously granted stock options are set out in the information circular, including the proposed text of the resolution of this motion.
I ask for a motion with respect to the ordinary resolution, approving the repricing and the extensions of the expiry date of the aggregate of 715,000 stock options previously granted to the insiders of the company as more particularly described in the information circular.
Moved.
Is there any discussion of the motion? In view of the fact that it is not clear that the resolution has received the requisite majority, we will conduct a poll. I therefore ask the secretary of the meeting to distribute the ballots. With the consent of the meeting, I ask Lia Zandvliet to act as the scrutineer for the poll.
There are only four people. Yeah, you've got this. Okay.
I now call on the secretary of the meeting to give instructions on the use of the ballots.
I will ask you please to complete the ballot and provide the completed ballot to the persons collecting them. Each person or proxy holder entitled to vote on this motion has been given a ballot entitled General Ballot. You're entitled to one vote for each common share you own or represent by proxy. You may vote all of your shares you own or represent either in favor of, in favor of, or against the motion, or withheld, or you may vote a portion of your shares you own or represent in favor of and a portion you own or represent against or withhold. However, you may not vote more than the number of shares you own or represent, either in favor of or against the motion.
I declare that the resolution has been defeated by the required majority. Will the scrutineer please admit the report on attendance to the secretary. The secretary will now read the scrutineer's report.
The scrutineer's report, I apologies, I was looking at that for the. In terms of the resolutions, there were represented in the room 12,513 securities. Securities represented by management proxies, 42,811,182. In total, securities represented at the meeting were 42,831,695 or 76.38% on the outstanding voting securities of 56,074,994.
I adopt the scrutineer's report and declare accordingly that a quorum is present. Any further business? I now call for a motion to conclude the formal portion of the Annual General and Special Meeting of the company.
I move that this meeting be concluded.
All those in favor, please signify by raising your hand. Opposed, if any. I declare the Annual General and Special Meeting of the company concluded. Thank you for your attendance and continued support.
Great. We are now going to move to the presentation portion of the meeting. I wanna welcome you all here today. Thank you. For those who don't know me, I'm Margaret Brodie, as you can see from the screen, and you should be able to see at home as well. I'm gonna start with where we are today and what we have achieved in 2022, then I'm gonna discuss our plans for 2023 and beyond. First, what is Rubicon Organics? We are a flower first company, we play where we can win. We are focused on industry leading premium high quality, consistent product to our consumers. Where is Rubicon Organics today? Commercially, we've had a very good year.
In 2022, we achieved for the first time a ranking of a top 10 LP, and we have delivered the number one premium brand in Canada consistently with Simply Bare Organic. In addition to that, we have delivered one of the only profitable Canadian cannabis companies, and we expect to continue that with our financial guidance in 2022, and you will see that further beyond into 2023. We remain unchanged in that we will land 2022 with positive adjusted EBITDA and operating cash flow positive in the second half of the year. In addition, we refinanced our debt and are in a strong position on that as well, with very competitive interest rates in this environment where interest rates are rising quite rapidly.
We have had some changes at Rubicon Organics in terms of the leadership with Jesse McConnell, our co-founder and CEO, stepping away at December 31st. I'll talk more about that in due course. As well, we've had some changes on the Board and there's more leadership changes to come. Sorry. Excuse me, on the Board, I should be clear. From a capital markets perspective, it's been a very difficult year. Cannabis stocks all around have been really negative with retail investors. We've seen that in our stock without a lot of interest in buying as well. Unfortunately, we've traded down. There's just a general lack of retail consumer interest in the sector. We've seen bankruptcies, long paths to viability.
Many players have negative sentiment and have really gotten over their skis in terms of what they can deliver. We expect that winners are starting to emerge, and Rubicon expects to be one of those winners. We do believe in 2023 there will be continued pressure on the cannabis sector as many of these companies are weeded out until the industry can begin to show that there are profitable companies emerging or there's some regulatory changes. Rubicon intends to maintain its financial discipline and drive revenue growth and growth margin to continue its profitability as we go forward. In terms of our facility, I'm gonna ask you to change the slide, please. Our Delta facility is really the heart of our business. This is where everything critical happens and where we produce our winning brands.
In 2022, we had several successful CapEx projects. We have reduced costs and improved our production quality significantly. We continue to focus on that, and that will be one of the key pillars as we move forward into 2023. Consistent premium quality is absolutely critical to our brand success. What that means is when a consumer opens the jar, they will always know that they're getting the best expression of a strain and a beautiful product on the other side. When we do that, we're actually starting to build loyal customers. When they pick up a Simply Bare Organic jar, they understand that that's gonna be a beautiful expression of that strain. It's gonna be a great product. If it's not, we're gonna make it right.
As we go into our brands themselves, Simply Bare Organic has moved out to be the number one brand in Canada and really starting to build that brand promise, as we just discussed. When we've started to see that as we walk around the industry, Simply Bare and the halo that it's beginning to have on all of Rubicon products is really critical and important as we go. 1964 is our upper-tier mainstream product, and it is targeting the legacy market consumer. It was launched nationally in Q4 of 2021 and now is a top 10 LP in Canada and one of the fastest-growing, e xcuse me, top 10 brand in Canada and now one of the fastest-growing brands in the Canadian marketplace.
We've recently and very proudly just won indica of the year with our Comatose strain, that was last year at the KIND Awards, and I can tell you the team was very excited, and the demand for Comatose is really overwhelming. In addition, this year in the fourth quarter broadly, we launched an infused pre-roll. An infused pre-roll in Simply Bare Organic, which is a live rosin pre-roll, and two hash pre-rolls and diamonds in 1964. We believe that's a really important part of the market to be at, those brands. I apologize, I'm hesitating slightly. I've got a mechanical noise right behind me that's a little distracting.
The launch into the infused pre-roll market is absolutely critical as we go forward because we're seeing the infused pre-roll market actually start to take share of the overall pre-roll market and flower market. We believe that the, you know... We took our time in getting there with our launch, but we believe that the product that we've put out is excellent. We believe consumers will love it, and we're gonna get more interest and attraction into our brands. What's very important as well as we move forward is looking at a high inflationary environment in 2022, going into higher interest rates in 2023.
We're seeing across the Board pressure on people's wallets and price points, and we've looked at our portfolio to make sure that there are products across all of our brands that consumers will love, they can afford, and that will get them in and loyal to what we are doing, which they know every time will be top quality. We recently also purchased the Wildflower brand in Canada. We own the trademark and the IP around that brand. We believe that we will be able to successfully build a wellness brand with the Wildflower brand as a great entry point into the Rubicon suite of products for people that are new consumers also into cannabis. I can tell you myself that I enjoy using that brand every day on a bum knee. It really makes a difference.
It's a great product, and I would encourage all of you to go out and put it in stockings. We wouldn't be salespeople if we weren't looking at that. What is also interesting about Wildflower and why it's important to Rubicon is it doesn't actually take the capacity utilization of our existing Delta facility. We could produce that in areas that we don't need for the demand on our flower products, and that's really critical for our revenue growth and our gross margin growth. We also believe we can iterate with line extension and more products in Wildflower, building the growth margin overall. Right now, the topicals area is a small area. It's not like our flower and pre-rolls. As time goes on, we believe that that category is going to grow and there'll be more opportunity there.
Next, I'm gonna talk about what's actually happening in the premium market and what's happening in the market overall. You'll see here with the purple line that's the sales in the total market, and it has been on a decline. This is rolling three-month average, rate of sale increase. You'll see it's 9% in October on the last three months. There has been a decline in the overall market in cannabis. What you've seen is premium actually doing very well in that market. Premium sitting at around 22% growth. We expect right now, premium is around 20%-21% of the overall market. We expect that to land as the market matures, somewhere between 25%-27%, as we've seen in leader markets such as in Washington, Colorado, and California.
Premium takes an important share of dollars, but more importantly, it's where the money is made. It's where the profitability is, it's where you can actually succeed in this business, in our view. Look, my focus with Rubicon is to make it the most profitable Canadian cannabis company, not necessarily the largest, the one that's actually going to deliver profitability for our shareholders and for our business. There's a number of ways that we can look to do that. Staying in the premium segment and doing that extremely well is where we can win. You'll see here the trajectory and the movements of Rubicon's growth. You know, the growth we've had at 164%, it looks like the chart's gone down. That's because the base has been reset with that growth.
I hope that's not too misleading. If anybody has any questions, I'm happy to come back to this one, but it's actually a very exciting chart because what you'll see is we've just had consistent growth. Even most recently, we're growing at 63% in terms of our sales, rate of sales and market. I'm gonna ask you to move to the next slide. Our original investment thesis was that we'd be able to sell all the products that we had under the Simply Bare brand. If we were doing that, the numbers are really compelling. What we found is the market is actually not completely there yet in terms of the size of the premium market. We do need it to grow. That being said, we launched 1964, and that's allowed us to actually sell all of our product.
We believe that focusing on the growth of Simply Bare is going to be really powerful as we go forward. In terms of where we are on the financials, we are reiterating our positive adjusted EBITDA for the year 2022 and operating cash flow positive in the second half. The numbers here from Q3, obviously we haven't closed the fourth quarter, are compelling, and you can see the trajectory that we are on in terms of growth. I did message at Q3 that our fourth quarter we expect to be reasonably flat owing to some maintenance downtime at the facility and less biomass that we have available, but we do have demand for that product, particularly in the 1964 brand. We're very excited and proud of where we are in a balance sheet in this industry.
There is more work to do. Rubicon is going to stay focused on our costs. You will continue to see growth and opportunity from us as we go forward. I'd like to move to the next slide, which talks about our adjusted EBITDA growth. Where we are overall is we are moving. We are turning the corner. 2022 has been the year of turning the corner on actually using our operating leverage to drive profitability. We expect that to continue. We will be focused and fierce to protect that. We believe that helps us to stand out in this sector where others are in a very difficult position. We are focused on building our business and not someone else's or taking on anybody else's problem. We believe there is a lot of room to go.
If we look at growth, that growth is gonna come from watching our working capital, watching our costs, staying disciplined, doing our monthly budget to actuals in every department, drilling it down and keeping the discipline that we have. That is extremely important in this market. At the same time, growing the revenue line is critical. Growing the revenue line for us once we hit over our, sort of a around a CAD 8 million number, depending on product mix, everything drops to the bottom line. We expect to expand that number as we go into 2023. Next, I wanna talk about the key priorities we had in 2022. Circle back on where we are on those before I launch into what our key priorities are for 2023.
In 2022, we had our first focus, which will remain our focus and is core to our business, which is optimizing our yields. When we talk about yield, we're talking about not just the total amount of biomass. We do not measure ourselves on everything that comes out of the facility. We measure ourselves on top shelf that comes out of the facility, full stop. Other businesses, and if you were to look at our numbers now, we're there on the numbers in terms of 11,000 kg. What we want is what we would call, you know, internally large, mediums, and smalls, and A's. Those are products that go into our top-shelf flower, 1964 and Simply Bare, and go into our pre-rolls. Everything else we use into other products, but we believe in being the best and being premium, so we will always aspire to those types of numbers.
We also have seen a dramatic increase in our THC numbers as, and percentage as we've gone through the year, being focused on looking for winning strains, maintaining quality and consistency. We expect that focus to continue into 2023. It will always be the heart of our business as we talk about it. Look, in my view, Rubicon Organics or whatever we grow to in the future will be the home of, o ur Delta facility will be the home of Simply Bare for 20 and 30 years to come. It's a beautiful facility in the heart of agricultural land with an access to a workforce in the Lower Mainland, easy to get agricultural labor.
We have a wonderful Guatemalan team, our temporary foreign workers that are a key part of our business, and we're very focused using the BC legacy and love of the cannabis product and of weed to create great products. Next, I wanna talk about how do we maximize the Canadian premium brand opportunity. This year, we've demonstrated that we can sell everything that we grow. We can sell everything. About 1/3 of our product, Simply Bare, and the remainder in 1964. We do not grow for Homestead. I would like that to be ideally 5% or less of our product. We don't put marketing budgets behind it. We are focused on building 1964 and Simply Bare, and we've seen that as a demand with some of the success of things in the market, including Comatose in 1964.
We have a lot of demand and excitement around our products. We expect that to continue. We will work hard to continue to win in that market. As we look at managing that, managing and maximizing the growth margin, we have to stay focused on our costs. We are in a half position in the cannabis industry in Canada, and we will not lose sight of that as we go forward. Managing our costs and looking at packaging optimization and other things, something I'm gonna talk about in a minute as we look into 2023. Lastly, at the beginning of the year, we expected to launch into international, and we still believe that international is a significant opportunity for cannabis in the medium term. We believe in the short term that that opportunity is lumpy, it's inconsistent, and it's expensive.
We would like to play there, but we will play there in a very disciplined way. When we play there, it will be after the routes to market are open up, and we can come in with our winning premium weed that there is a demand for. We have a lot of inbound questions and comments and calls for our weed, but they're broadly in small lots and individuals that are building the routes to market. Right now, we can win in Canada with that weed, and that continues to build the strength of our business. Next, I'd like to talk about something that is also incredibly important to us, but not only to Rubicon as a business, it's important to our customers, our consumers, our employees, and broadly across the sector. This is ESG, and we have taken an ESG leadership position.
It is interesting because we naturally do it. It's, again, something that is just core to Rubicon, and we are measuring ourselves in our journey on ESG. We're not perfect, but we're gonna keep getting better. Looking forward, my goal, again, is to have Rubicon to be the most profitable Canadian cannabis company. You know, the wider industry is challenged, but I believe we will begin to emerge as a winner. What are we gonna do in 2023? In 2023, this chart of four key elements probably looks fairly consistent because we believe we have a winning formula, but there's refinement and work still to be done. Firstly, we will always be focused on our premium quality flower out of our Delta facility. There is more work to be done. We can get better every day.
We can be more consistent, but we also are looking at maintenance schedules to minimize risk. This year, we've connected onto the BC Hydro grid, which is significant. As we did that, we put a generator on site to make sure that we were protecting the downside risk of any turnoff of power. We can power the facility for several days after that once we've got that diesel generator up, and I believe it's actually turned on this week. We also are investing in a second boiler in case there's an incident with our first boiler. We have a wonderful facility. We're gonna look at maintenance and maintaining it for success and with keeping it in great shape, like our Ferrari, making sure it moves really nicely down the road. That's really important to this business so we don't have unexpected surprises.
Next, it's maximizing the Canadian premium brand opportunity. The challenge that I've put to Mel Ramsey, our Chief Commercial Officer, is how do we grow the Simply Bare Organic brand? How do we grow it to be 50% of our facility or beyond that? If we do that, it drops immediately to the bottom line. Look, we can grow that product at Simply Bare quality. We need the demand in the market. We need to build the premium sector in Canada. It's important to us that the premium sector overall grows in Canada which means we need good competition out there. We just like to be the jar that people pick up every time. Next, we're looking at, as we review, maximizing gross margin for every single gram that's out there that we're producing.
Where can we sell it for the most amount of money, where consumers are going to love what we do, and we can have repeat purchases and tick up our rate of sale, the amount of time people come back to that product. After that, it's how do we grow the revenue line with one facility? We're looking at two items. One is outsourcing and contract grow for some of our strains, and I won't give away which ones yet, but that's an active project that's underway. It will be to Rubicon Organics quality standards, and we will not be doing anything that doesn't live to our quality standards, full stop.
That would damage our brand and what we do, so we're gonna continue on that train, but we are underway and looking at how we can get bigger with additional product. We're also looking at how can we launch new products that don't need the Rubicon Organics Delta facility capacity utilization. I talked about the extension of the Wildflower brand. We're also looking at things like edibles. Where we are right now as a business is our costs are actually covered by our existing flower business out of Delta. Anything we add on just adds to our profitability. Last, excuse me. Thirdly, we're looking at driving efficiency and processes, and this doesn't sound very sexy, but it's absolutely critical. This business has been running so fast, we haven't had time to get things in place. We need to have redundancy for our key people.
We need systems and procedures that are repeatable and putting less stress on the system with less risk of error. It's extremely important to us as we grow this business and create long careers for people. That dovetails very well into team engagement and satisfaction, reducing our rate of turnover and making Rubicon a great place to work. As a premium brand, as you know, in order for everybody to be working together to get that great quality of product out, people need to be proud of what they do, feel great about it. You know, the consumer, it will go all the way to the consumer. That's something that we're working on. We've worked very hard on that this year. We will continue to make Rubicon a respectful, fun, and hopefully very successful place to work.
Moving along, I'm gonna talk about the key milestones in 2023. Really what you can see here is 2022 has been a year of delivering on our promises and consistency. Next year, in April, excuse me, you're gonna see our Q4 results. Beyond that, we expect to launch some new products and do some new things in the market, really solidify our position and grow our business and grow our revenue lines. After that, what next in the cannabis sector? How are we gonna get out from underneath the sheer pressure of the market? Well, Rubicon is gonna focus on delivering us and getting towards, continued profitability. We need to show more than one quarter of profitability. We want the market to see consistent profitability from our business.
We do believe that the winners are starting to emerge, and that's actually gonna start to separate the pack. We expect to be one of those winners, as I said before. We also expect the weaker companies to fall away. That's an important part of this process. We don't wish that on any of our competitors. We're focused on our business. There is a lot of inconsistent, and almost irrational, I would say, behavior in the market in terms of pricing, clearing of stock, and decisions that people are making. We are not in that position, and we'll just be focused on building our business. After that, there's rumors of a change in the excise tax structure that will be very, very beneficial to our business. It's unknown whether that will happen. We're focused on running our business as it is.
We can't impact regulatory change other than submitting letters and information on what the state of the business and is happening both provincially and nationally. We participate in that dialogue, and we do expect there will be some changes this year. TBD on what those changes are. We don't bank on them, we're running where we are. Then lastly, a really important point is around what's happening with our leadership team. We've had significant changes at Rubicon this year. Jesse McConnell, our co-founder and CEO until December 31, is actually exiting at that stage. I'm proud to say, as of January 1, I'll be appointed the interim CEO as the Board continues to look at internal and external candidates, and they are in the midst of the search right now.
I do expect in the, in the coming months, there will be more to report. Also, our Board is actively seeking three new external independent directors. We are in a search. We are open to suggestions. Please send them on to me. I'll send them to the search committee. We're very excited for the next stage of Rubicon. We believe we're in a great position, and we're looking for people to be part of that. We believe that our future chair will be coming from that group, and right now, we do not intend to appoint a chair. Dave Donnan is sitting in the Lead Independent Director position, and once the new Board is set up, that's where the chair position will likely be.
That will, that will take place over the course of the coming months, and you'll hear more from us on that. Now I look forward at, you know, where are we overall. In closing, we've had a lot of leadership changes in 2022, but we're driving forward with a clear plan on 2023. We know what we're doing. We know what we need to do. We're going to stay focused as a business. We're gonna drive forward on revenue. We're gonna focus on our cultivation. We're gonna do everything premium and quality. That's how we win. We're gonna watch our costs and keep this business safe as others around us are in a tricky spot. Rubicon needs to continue to deliver and execute on our business plan. That is everything in what we do.
The markets are gonna be what the markets are gonna be. We'll put some energy behind that, but we need to continue to demonstrate what we can do in order to making some moves there so we can stand out in a sea of companies that have really under-delivered. I'd like to thank the team. We have an incredibly strong team all the way through the business, from cultivation to the Board. I'm very proud to work with everybody, and I wanna say thank you because it's been a heck of a year. We're really excited on where we're going. I'd now like to open up the room to questions in here. Unfortunately, we can't take them from those on the phone. If there's any questions. If not, a nything? No?
If not, then we'll conclude the AGM. Apologies for the slightly distracting construction behind me, which, was not as easy to concentrate on. I'm really proud to be here, excited for where we're going, and thank you for coming.