Rubicon Organics (OTC:ROMJF) Inc. (CSE: RUBI) has announced its financial results for the fourth quarter and full year ended December 31, 2023, highlighting a year of growth despite broader industry challenges. The company reported a 13% increase in year-over-year revenue and substantial cash flow, with plans to expand its product offerings into the vape category in 2024.
Key Takeaways
- Rubicon Organics achieved a 13% year-over-year revenue growth.
- The company recorded $4.4 million in adjusted EBITDA, $5.1 million in operating cash flow, and $2.5 million in free cash flow for 2023.
- A record number of SKUs were launched across Rubicon's flagship brands.
- Rubicon captured a 14% share of the premium edibles market and plans to enter the vape category in 2024.
- Despite industry challenges, Rubicon is confident in its growth prospects and expects ongoing organic category growth.
Company Outlook
- Rubicon Organics plans to launch full spectrum extract resin vapes in Q2 2024.
- The company is focused on maintaining a strong brand reputation and premium product offerings.
- Strategic projects for 2024 include the vape line launch, ERP implementation, and debenture refinancing.
Bearish Highlights
- Margins dipped in the second half of the year due to product mix and pricing pressure.
- The company expects margins to improve in the second half of 2024.
- Uncertainties in the market and consumer down trading were noted.
- Some companies may exit the market due to financial pressures.
Bullish Highlights
- Rubicon Organics remains optimistic about the future of the Canadian cannabis industry.
- The company expects pricing to rebound in 2024 or 2025 as excess inventory is sold off.
- Rubicon is focused on driving its position as a leader in premium and organic cannabis.
Misses
- Challenges in the Canadian cannabis industry included financial distress among LPs and non-payment of excise taxes.
- The company faced pricing pressure in the ounce product category.
Q&A Highlights
- Rubicon's capital budget for 2024 will be at maintenance levels, with a focus on efficiency-driven projects.
- The company is in the process of refinancing debt, aiming for lower interest rates.
- Rubicon Organics expressed optimism about potential excise tax reforms impacting industry economics.
Rubicon Organics has shown resilience in the face of a turbulent Canadian cannabis market, marked by financial distress and regulatory pressures. The company's strategic focus on premium product segments, such as edibles and soon, vapes, has allowed it to capture significant market share and maintain a strong financial position. With a disciplined approach to capital expenditure and cost management, Rubicon is preparing for a future where it not only withstands the current market volatility but also emerges as a leading player in the premium cannabis space. The upcoming launch of their vape products and the anticipation of a healthier market landscape point to a potentially bright future for Rubicon Organics and its stakeholders.
InvestingPro Insights
Rubicon Organics Inc. (ROMJF) has displayed a notable resilience and strategic acumen in the face of a challenging cannabis market, as evidenced by their year-over-year revenue growth and expansion into new product categories. To further inform our understanding of the company's financial health and market position, let us consider some key metrics and insights from InvestingPro:
InvestingPro Data:
- Market Cap (Adjusted): 16.61M USD, reflecting the company's current valuation in the market.
- Price / Book (last twelve months as of Q4 2023): 0.59, suggesting the stock may be undervalued relative to the company's net asset value.
- Revenue Growth (last twelve months as of Q4 2023): 12.95%, indicating a solid increase in revenue year-over-year.
InvestingPro Tips:
- Valuation implies a strong free cash flow yield, which is a positive sign for investors looking for companies that can generate cash efficiently.
- Analysts do not anticipate the company will be profitable this year, which is a critical consideration for those evaluating the short-term earnings potential.
Rubicon Organics' strategic initiatives for 2024, including the launch of full spectrum extract resin vapes and ERP implementation, align with the company's focus on maintaining a strong brand reputation and premium product offerings. The company's moderate level of debt and decision not to pay dividends to shareholders at this time suggest a cautious approach to financial management, aimed at supporting these growth endeavors.
For readers interested in a deeper dive into Rubicon Organics' financials and market prospects, there are additional InvestingPro Tips available at: https://www.investing.com/pro/ROMJF. Utilize the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription, and explore the full suite of insights, including over four more tips that could help inform your investment decisions.
Full transcript - Rubicon Organics PK (ROMJF) Q4 2023:
Operator: Good morning, everyone. Welcome to Rubicon Organics Fourth Quarter and Year Ended December 31, 2023 Financial Results Conference Call. This call is being recorded on March 28, 2024. At this time, all participants are in listen-only mode. Following the presentation, we will conduct a question-and-answer session. Instructions will be provided at that time for research analysts to queue up for questions. Before we begin, I will refer you to Slide 2 of our presentation, which contains Rubicon's caution regarding forward-looking statements [indiscernible] I will now turn the call over to Margaret Brodie for the presentation.
Margaret Brodie: Thank you and good morning, everyone. Today, I'll provide an update on Rubicon Organics and the performance in 2023, highlighting our progress as a leader in the Canadian cannabis market and discuss our plans for 2024. In 2023, we made substantial progress across all aspects of our business, grew our revenue 13% year-over-year delivering 2x larger adjusted EBITDA and 5x larger operating cash flow versus 2022. We delivered $4.4 million of adjusted EBITDA, $5.1 million of operating cash flow and $2.5 million of free cash flow in 2023. In the year, we launched a record number of SKUs across all our flagship brands and further leveraged the power of our leading premium brand portfolio by entering into and capturing a meaningful 14% share of premium edibles with our first entry into the edibles category. Today, I'm excited to share our plans for 2024 which includes our launch into the fastest growing category in cannabis, vape with our premium brand 1964. We expect this to be our largest revenue growth driver in 2024. In the Canadian cannabis landscape, we see significant opportunity on the horizon with escalating market competition and mounting tax collection pressures. The industry is right for transformation. The potential for regulatory and tax regime reform appears more promising than ever before, especially considering the recommendations put forth by the government itself. Given our cash position and strong brand reputation, we are well positioned to realize forward expansion opportunities from a position of strength. Looking more specifically at some of our non-financial accomplishments in 2023, we achieved 2.1% market share in flower and pre roll and 6.9% of the premium flower and pre roll category. We also achieved 14% market share on national premium edibles for the 3 months ended December 31, 2023 despite launching only in Q2, 2023. As a result of our continued growth and due to our being constrained by capacity of our Delta facility, we initiated our first contract grow relationships with our own genetics to expand our biomass available. We also secured quality contract manufacturing partnerships in order to develop and launch new products under our existing brands taking advantage of other company's assets in place to grow our business. From a governance and leadership perspective, we added 5 new independent directors with expertise and experience in brand building, manufacturing, government relations, strategy and government. And as of February, I have also been honored to step into the CEO role with Janis Risbin stepping into the CFO position. The strength of our premium brands has given us a platform to expand our product lines and in 2023, we launched new products under each of our flagship brands with some examples as follows. For Simply Bare Organic, a super-premium cannabis brand targeting the cannabis connoisseur, we launched new and novel genetics such as our BC Organic White Rainbow and BC Organic Bridesmaids and added new product innovations to our portfolio such as New School Hash and live rosin infused pre roll. Under 1964, in Q2 2023, we launched our first foray into edibles with 1964 live rosin single strain gummy which quickly moved up the charts ranking as the number 3 premium edibles in Canada by the end of the year. We also launched 1964 infused rosin pre rolls most notably under our hero strain Comatose. Our flagship wellness brand Wildflower gained dominance in the topical category ending the year with almost 27% market share. We also launched extra strength and one-to-one CBD to THC release sticks and expanded edibles crafted with live rosin and minor cannabinoids including CBD, CBN and CBG in Q4, targeting the daily wellness consumer looking for higher CBN for sleep and higher CBG for wellness. New genetic launches are vital for leadership in the premium cannabis industry and are important for consumers in leading premium cannabis brands to address emerging market trends. Our strategy is to launch new and unique offerings and you can see here some of our 23 launches and those plans for 24. This genetic strategy is similar to other premium leaders in the U.S. such as Cookies and Alien Labs and in our view is essential to maintaining our premium brand portfolio positioning. As you just heard, 2023 was a transformational year for our business and the industry recognized the strength and consumer love of our portfolio of premium brands. We are proud to learn that in a third party Brightfield, Budtender survey across Canada, Simply Bare Organic in 1964 were voted 2 of the top 3 most recommended brands by Budtenders. At the KIND Summer Fair, Budtenders identified our products as their favorite sample. And to top it all off, in December at the KIND Awards, the Oscars of Canadian Cannabis, Rubicon Organics one Company of the Year. More important, we were voted on by the Budtenders to be the people's choice for best weed. We will continue to leverage this premium brand leadership by launching new and exciting products and entering segments that showcase our leading quality. In 2023, Rubicon had 4 operating priorities. Firstly, to optimize yield and cultivation of the Delta facility. As a flower first business, we prioritize excellent insider quality and we maintain an unwavering and endless commitment to continuous quality improvement and yield. In order to grow our yield, we installed tables in 50% of the Delta facility that we did not yet have them and that was completed in Q4 2023. We expect these tables will improve plant quality and increase capacity by up to 10% in 2024. Secondly, we sought to maximize the Canadian premium opportunity by leveraging the strength of our premium brands launching into new products such as edibles with minimum impact on the Delta facility. Thirdly, we work to drive efficiency and processes and systems to ready for growth and are currently underway with our ERP system implementation. Lastly, we aim to create a proud and engaged team who deliver outstanding results as we place strong emphasis on team member engagement and pride to ensure the delivery of a premium product, while seeking to minimize costs related to team member turnover. We kept our commitment to accountability in 2023 and released our third environmental, social and governance report in October, which is available on our website. I will now pass the call on to Janis, who will share some specifics about our financials.
Janis Risbin: Thank you, Margaret, and good morning, everyone. Looking at our results for the most recent quarter, the company earned $10 million of net revenue, roughly in line with our third quarter, albeit a 9% decrease versus the same quarter prior year. The continuing recessionary environment in Canada impacting a wide range of consumer industries and the significant price pressure in the cannabis industry specifically made for a challenging second half of 2023. Whilst our consumers continue to value our premium brands, our top-line has been impacted as we have seen an increased focus on larger format and lower priced products. Despite the challenging second half, we are pleased to have delivered 13% revenue growth in 2023. Turning to the gross profit line, we achieved gross profit before fair value adjustment of $3.2 million in the quarter, with 32% gross margin, again roughly in line with the third quarter. Gross margin in the second half is reflective of the increased pricing pressure, adverse product mix and launches of third-party products into lower margin categories. Despite the challenging top-line performance in the second half, we are pleased that we continue to deliver consistent positive adjusted EBITDA, marking the 7th consecutive quarter we have achieved this milestone. For the full year, this was an increase of $2.5 million or 130% versus 2022. Looking to our balance sheet, we have grown our cash balance by $1.5 million or 18% over the year. With the cash generated from operating activities driven by the efficient conversion of revenue to cash. Our working capital position is now reflecting our long-term debt due December 31, 2024 moving to current. This facility bears interest at a very compelling rate of 7.5% compared to Canadian Prime at 7.2%. We are in active discussions for refinancing at similar rates and expect to have this in place in half two 2024. With increasing noise in the industry, we also want to take this opportunity to confirm that we are current with our excise tax obligations. As we look at the rolling 12-month run rate, we see the impact of strong first half being subdued by the challenging second half. Overall, for 2023, we increased revenue by 13% and gross margin before fair value adjustments by 15%, delivering a margin expansion of 70 basis points. With increased quality competition, price pressure and consumers feeling the pinch, our Simply Bare brand particularly felt the pressure in 2023. However, with new genetic and product format launches in Q4 2023, Simply Bare delivered its biggest quarter of the year. 1964 continues to be the primary driver of the company's top-line growth. The success of the brand and reputation it has built can be attributed to the strong performance of legacy strains, including Comatose, Gelato #41 and Death Bubba. Leveraging the strength of the 1964 brand and its reputation for quality, Rubicon successfully introduced its inaugural line of edibles in Q2 2023, swiftly securing the position of the third highest premium edible by market share. The introduction of 1964 live rosin edibles epitomizes our strategy of collaborating with top tier third-party partners to enhance the diversity of our premium brands. Wildflower continues to lead the topical category at nearly 27% market share, with new formats launched in 2023 contributing to continued net revenue growth. We have leveraged the strength of this brand by focusing on the daily wellness consumer and launching live rosin and minor cannabinoid infused edibles in the fourth quarter. The established reputation of Rubicon and the strongest premium portfolio of brands in cannabis, representing in flower, edibles and wellness, serves as a solid foundation for future expansion and sees us well positioned for future growth as the economy recovers. Looking at our performance over the last 3 years, we see the gains of increasing revenues over a well-controlled cost base, now consistently delivering positive operating cash flow and adjusted EBITDA. In 2023, we see operating cash flow in line with adjusted EBITDA as we have moved from startup investments to more targeted maintenance levels of capital expenditure. Our 2023 results continue to bolster our confidence in our business plans for 2024 and set the foundation for another year of strong results for Rubicon. I would now like to turn the meeting back to Margaret to share more about the sector and our future plans.
Margaret Brodie: Thank you, Janis. In 2023, the Canadian cannabis industry faced financial distress, especially in the second half due to price compression and widespread non-payment of excise taxes by many LPs. The situation worsened as CRA intensified efforts to collect outstanding excise funds directly garnishing from provincial distributors and withdrawing funds from LP bank accounts. Failure to settle arrears resulted in the CRA revoking excise licenses, preventing LPs from selling products to provincial customers and contributing to rising bankruptcies sector. Despite the distress in many parts of the Canadian industry, there are foundational pieces of good news. The legal market continues to grow coming off record legal sales totaling over $5 billion in '23. We saw annualized growth to February '24 of almost 16%, and a large opportunity remains from conversion of the illicit market where we estimate 40% to 50% of consumers are still purchasing, in particular in flower. Trends and data indicate that over the next 3 years, premium cannabis market will grow by over $300 million and demographically, cannabis use is highest among 20 to 24-year olds with 50% having consumed in the last 12 months, pointed to expected organic category growth to continue over time. I will speak to our targeting of this demographic in a moment. In the coming quarters, we anticipate ongoing pressure on companies to settle excise payments. Some may navigate through receivership and reemerge, while others may cease operations permanently. We've already observed a decline in the number of LPs in the market over the last 6 months. As this competition falls away in '24, opportunity increases for companies such as ours where our product consistency, superior quality and more unique full body flavors are expected to drive market success for our brands. We intend to grow our business in '24 and beyond. First of all, we have a solid footing from which to grow. We have a strong balance sheet enviable in the cannabis sector, excellent people, strong brand reputation and great relationship with our customers. Secondly, we have organic growth, continuously maximizing yield and quality from Delta. As I mentioned, we expect to boost yield of up to 10% from our 23 tables installed. We prioritize selling our most profitable products to optimize returns on fixed assets. With the premium flower segment continuing to grow, we anticipate increased opportunities to sell our highest priced Simply Bare organic flower currently accounting for only about a third of our sales. Finally, we leverage the power of our premium brands to grow our revenue and EBITDA. In order to do this, we are adding external capacity to our business through co-manufacturing relationships such as our recently launched Simply Bare capsules and wildflower edibles and through targeted and trusted contract grow relationships using our own genetics to build the demand for our brands where appropriate. Our goal is to procure around 1,000 kilos of high quality biomass from contract growers in 2024 and expand beyond that in the following years. We are taking advantage of a notable shift in Canadian LPs who are looking to grow great wheat and stay away from the complexity of brand building. And our next growth opportunity sits with our planned Q2 '23 based launch which I will speak to shortly. Lastly, we will be opportunistic as and when the right options arise for our business to grow as we see a growing market and assets getting cheaper by the day. I'm pleased to formally announce Rubicon's launch into the vape category with our plans to launch 1964 full spectrum extract resin vapes in Q2 of 2024. We are entering the vape category which as of 2023 was an $800 million market. Rubicon plans to debut with our best selling and consumer loans, Cultivars, Comatose and Blue Dream and we are leveraging our premium brand strength and quality reputation to seize our fair share of the significant category. We believe that our quality of flower inputs for the full spectrum extract resin will be notably better than those vapes it will be priced against. This mirrors our successful '23 strategy of expanding premium offerings under our leading brands and we plan to see similar success in the vapes category as we did with our edibles launch. We expect to launch initially in Ontario, BC and Alberta in Q2 2024 and plan to have over 4, 5, 10 base products in this line expansion by the end of the year. We estimate that in 2025 this could generate growth of over 20% on our '23 net revenue. The vape category is large and it is growing. Between '21 and '22 it grew 29% and on that base, it grew another 18% in 2023. The vape market is particularly popular with Gen Z and Millennials who make up 2.8% of all U.S. Cannabis sales and 71% of all vape sales in 2022. In Canada, the cannabis flower, pre roll and vape are the 3 dominant categories which collectively make up 85% of total 23 sales. Vapes is the third largest category at 16%, but that was the strongest growth. We are excited that entering this market with a high quality full spectrum extract resin product will demonstrate to consumers the power of a full-bodied experience at the right price point. Our growth plans are based on the current regulatory and excise tax regime, but we are optimistic that the most meaningful valuation catalyst for the industry since legalization could occur in the spring federal budget set to be released on April 16th. The Federal Government Ministry of Finance has received several government organizations recommending excise reform including in December '23 when the federal budget was being prepared, the Federal Finance Ministry was briefed on the financial distress across the industry and need for excise reform. Then in February, the House of Commons Committee on Finance recommended shifting from the current excise system to a 10% ad valorem tax. Minister Freeland's recent relief on excise tax increases for the alcohol industry underscores the industry's disproportionate tax burden compared to alcohol. Notably, it has been revealed through MJBizDaily reporting that the cannabis industry is paying more excise tax annually than the alcohol industry. Then last Thursday, the Cannabis Expert Panel proposed its recommendation, including adjusting excise taxes, reducing regulatory burnings and cracking down on the illicit market. I should take a moment to note that Rubicon Organics applauds the panel's recommendation for symbols that would convey useful information to consumer on the packaging such as organic certification. Back to the possibility of reform. The timing of these recommendations approaching the spring budget suggest the potential for excise tax changes are on the horizon and if not then in the next 12 to 18 months. Such changes could significantly impact industry economics with Rubicon poised to thrive regardless. While change may be coming, we expect it is too late for many to survive within the industry and we anticipate further consolidation as well as bankruptcies and CCAA filings across the sector, reducing excuse me, resulting in a reduction to the number of LPs. We have many strategic projects underway in 2024 and in the near-term, we are looking to deliver firstly, the launch of our full spectrum extract resin date line under 1964 that we expect will demonstrate the power of our brand positioning and quality. Secondly, our ERP implementation to ready Rubicon for future growth. And lastly, refinancing our debenture due December 31 for long-term financing around the same interest rate as the existing terms. With our premium brand positioning, solid balance sheet and positive trajectory, we expect to deliver continued growth in net revenue accompanied by adjusted EBITDA for the full year 2024 as well as positive operating cash flow. Rubicon remains focused on our business strategy and to deliver positive results ultimately drive value for our shareholders. Despite the Canadian cannabis industry being hampered by various challenges, we look forward to continuing strong profitable performance from our premium branded portfolio. If there is a change to the excise tax framework, it could be the most meaningful catalyst to the Canadian cannabis industry since legalization. We would now like to open the line for analyst questions. Operator, please open the line.
Operator: [Operator Instructions] Your first question is from Neal Gilmer with Haywood Securities.
Neal Gilmer: Margaret, I wonder if you could sort of comment on sort of what you're sort of seeing with the consumer sentiment now. I know you talked about some of the pressures you saw in the second half of last year as we enter into 2024 here and almost at the end of Q1. Have you seen any change in that dynamic? I know Q1 is typically a seasonally softer quarter, but just sort of wondering if you sort of can characterize what you've seen so far in 2024.
Margaret Brodie: It's interesting. We're starting to see that how much our consumer, in particular in premium cannabis is price sensitive because of how much money they have in their genes. We definitely saw from the cost of living crisis in the second half of the last year quite a notable turn. And what we're finding is that our products seem to be following consumer sentiment indexes very well. In January, we were quite optimistic, and we've definitely seen the shift in the west of Canada, where I think consumer sentiment is higher than in Ontario, and we believe we're starting to see that come back. I think there's some interesting dynamics happening in the market where brands are moving around, they're moving around with price, but consistency and consistency of product and quality of product is critical and people holding out if they're going to shell out $45 for an 8 that they know that they're getting a quality product. It's absolutely critical that we can deliver on.
Neal Gilmer: Congrats on the vape launch in May. I'm wondering if you can sort of characterize if there will be any potential impact to the gross margin line as you move towards more of that thousand kilos of contract grow this year. And I think obviously some of that is going to be used for the vapes. Is that a little bit lower margin product? And should there be any sort of dip in margins as we progress through the year? Should this sort of 32% to 34% range be achievable for the year?
Margaret Brodie: That's a great question. And I'm going to start by, I'll start out and then I'll pass it to Janis. I think the date definitely is, as we outsource it, initially, lower margin. I expect, pending the success of that, we'll look at how we can grab back more margin on it. But I would say probably the notable thing is in launch of new products, just the working capital that we need for that. It's certainly under $1 million, but wanting to make sure we always are watching our pennies around here, given where the industry is. And Janis, do you want to add anything to that?
Janis Risbin: As you mentioned in the second half, we did see our margins dip a bit because of some of the product information, the product mix we were seeing in the price pressure. We do expect those half two margins to be more indicative of what we expect in 2024. Obviously, always looking for opportunities to drive our more premium side, but being more realistic right now that our half two is a good indication.
Neal Gilmer: Maybe one more from me. Just there was a bit of a dip in operating expenses in Q4 relative to the prior quarter. Is that sort of excluding obviously, I know you've got some ERP costs at the first half of this year, but excluding that, is this sort of the more typical sort of run rate that we should expect through the course of the year?
Margaret Brodie: Well, the real answer, which our people don't love, is that actually we, through the first half, we're on track for our bonus. You could see that in the trajectory. And then we felt the price compression and pressure in the second half, and that's what came down in the last quarter. Really, we're looking at being consistent on our cost and our cost base, only bringing in talent when we have need and it's the right thing to do, just given the overall environment. So we're always watching our pennies. Internally, one of our focuses this year is cost discipline and watching our pennies, making sure we're making the right decisions. There go sort of the uncertainty in the environment we certainly saw in the second half of last year. We were feeling cautiously optimistic about the economy overall in terms of what we've seen. And I guess, sitting in BC, it's slightly different than Ontario. But it'd be nice to see the Ontario economic side come back, and then we can that line will be probably more in line with the first half on those costs, because we'll put the bonus back in there if we deliver.
Operator: Your next question comes from Andrew Semple with Echelon Capital Markets.
Andrew Semple: First off, just on the cannabis pricing expectations for 2024, you spoke to some significant pressures on some third-party LPs, especially on the CRA crackdown. In the past, we tend to see some pricing pressure around CCAA filings as companies liquidate their inventory. Would you be expecting similar pricing pressure, if we do see some LPs exiting the market this year? So obviously, that might come with some longer term benefits. What's your expectation on how that plays out?
Margaret Brodie: I'll start out with that one and then if Janis wants to jump in. Look, where we're seeing pricing pressure is really in the ounce product in particular, the 28 grams, and where there's just people popping as much weed as they can into those bags and dropping price and dropping price. I would say there's a view what is at the end of this year or the beginning of 2024 or 2025, excuse me, where we start to see pricing come back a bit as a lot of this stuff flows through the system. What we really are noticing is, in the market right now, there's a number of companies who are who know they've got too much debt. They're taking cash out of the business, in any way they can. They're going to let it go under and then buy it out of either CCAA or some sort of mechanism and then probably relaunch. I don't know if relaunching, many of them are not looking to relaunch the brand, probably to relaunch as more of the traditional legacy market way where there were growers, brokers and then stores. And I think that companies like ours potentially could be a broker into our brand for premium products. Janis, did anything you wanted to add?
Janis Risbin: Yes. I think there is watching the CCAAs. I think we did see the price, on ounces in particular. We also saw consumers down trading, note by going from the 3.5 gram products into the bigger bags as well, and whilst they stay within our brand. So I think the pressure will continue, if people are trying to shift that volume, but we just keep trying to hold our own and make sure that the quality we're putting out warrants the price that we're charging, and making sure we're competitive.
Margaret Brodie: Yes. And consistent and I think that's one of the things that we've seen why brand hasn't stuck in cannabis is that people have moved the quality that's in their products all over the place. And it's about if you're spending the money knowing every time what quality you're going to get.
Andrew Semple: Maybe turning gears to the capital budget for 2024, believe in the prepared remarks you'd indicated that that would be more at maintenance levels and partly because you're using third parties for growth. What do you view as your maintenance CapEx level going forward? And longer term, are there still areas of the business that you would like to put additional capital into?
Margaret Brodie: Yes. We generally we have a monthly CapEx committee where, boring old accountants sitting here. And even if a budget is approved for the year, it has to go back to CapEx before it moves forward. We view things that are either improvements of quality, impacts on safety or efficiency or if it has a return on investment. So if there's a machine for production, it's going to be because it's going to pay back with reduced labor cost over the less than a year. So there's some work like that that's happening because we tend to be a fairly labor intense operation. That's where we're looking for some benefits this year and some costs. And we're also doing a few moves around the facility that just makes sense as we grow and use the facility in New York. Right now, our budget is under $2 million and a lot of that is, again, these efficiency driven type projects.
Andrew Semple: And maybe a final one, if I may. Just on the debt refinancing process you commented on. Are you, is the objective there simply to refinance and extend the existing $10 million of debt or would you use this refinancing process to potentially raise incremental capital? And what sort of magnitude are you looking for with this debt refinancing?
Margaret Brodie: My expectation is we're refinancing somewhere between CAD7 and CAD10 at rates or potentially, if all goes well and being the optimist here below the 7.5% interest we're paying now with a good lender. We have a couple of options. We're running down right now and looking to see which one is the best one that we should take for the business. Having a little bit more, keeping a little bit more powder dry is always nice, especially in an environment in which we operate. We don't intend to be using all of that cash. As you can see from our history, we're dipping into it a little bit, but we think it's about keeping the business and the balance sheet as strong as we can. So given that we've returned 2 years now of adjusted EBITDA and operating cash flow, we're in a much better position in terms of being able to drive forward and talk with lenders.
Operator: [Operator Instructions] [Indiscernible] turn to Margaret for closing remarks.
Margaret Brodie: Thank you. Well, I just want to thank everybody for joining us today and say that we remain optimistic about the potential changes in the Canadian cannabis industry and we're poised to adapt accordingly. Watch for our vape launch in store this quarter. We'll be reporting back to you after the second quarter, so unfortunately, we won't have news in the first quarter, just given the timing. And I want to remind you that we are committed to driving Rubicon Organics forward as a leader in premium and organic cannabis in Canada. Thank you very much for your time today.
Operator: Ladies and gentlemen, this concludes your conference for today. We thank you for participating and ask that you please disconnect your lines.
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