Rubicon Organics : Q1 2024 FS

Rubicon Organics Inc.

Condensed Consolidated Interim Financial Statements (Unaudited)

For the three months ended March 31, 2024 and 2023

Expressed in Canadian dollars

RUBICON ORGANICS INC.

NOTICE TO READER

The accompanying unaudited condensed consolidated interim financial statements of the Company have been prepared by and are the responsibility of the Company's management. The Company's independent auditor has not performed a review of these financial statements in accordance with the standards established by the Canadian Institute of Professional Chartered Accountants for a review of interim financial statements by an entity's auditor.

1

RUBICON ORGANICS INC.

CONDENSED CONSOLIDATED INTERIM STATEMENTS OF FINANCIAL POSITION (UNAUDITED) Expressed in Canadian Dollars

		March 31,	December 31,
	Notes	2024	2023
ASSETS
Current		8,121,134
Cash and cash equivalents	18	9,784,190
Accounts receivable	5	3,902,424	3,336,328
Prepaid expenses, deposits, & other	6	1,979,706	2,253,669
Inventories	7	9,800,825	9,644,445
Cannabis plants	8	1,805,902	1,634,566
Derivatives	14	667,159	386,642
		26,277,150	27,039,840
Non-Current		24,705,370
Property, plant and equipment	9	25,314,148
Right-of-use assets	11	137,423	155,305
Intangible assets	10	2,381,749	2,381,749
Total assets
	53,501,692	54,891,042
LIABILITIES AND SHAREHOLDERS' EQUITY
Current
Accounts payable and accrued liabilities	12	6,002,001	6,208,924
Interest payable		-	385,800
Current portion of lease liabilities	11	56,148	53,465
Current portion of loans and borrowings	13	10,664,636	10,259,562
		16,722,785	16,907,751
Non-Current		74,085
Lease liabilities		88,973
Total liabilities
	16,796,870	16,996,724
Shareholders' equity		107,793,260
Share capital	15	107,793,260
Reserves	16	22,327,012	21,624,166
Deficit		(93,415,450)	(91,523,108)
Total shareholders' equity		36,704,822	37,894,318
Total liabilities and shareholders' equity		53,501,692	54,891,042

Approved on behalf of the Board:	(Signed) "David Donnan"		(Signed) "Margaret Brodie"
	Director		Director and CEO

The accompanying Notes form an integral part of these condensed consolidated interim financial statements.

2

RUBICON ORGANICS INC.

CONDENSED CONSOLIDATED INTERIM STATEMENTS OF LOSS AND COMPREHENSIVE LOSS (UNAUDITED)

Expressed in Canadian Dollars, except for share information

Revenue

Product sales

Excise taxes

Net revenue

Cost of sales

Production costs

Inventory expensed to cost of sales

Inventory written off or provided for

Gross profit before fair value adjustments

Fair value adjustments to cannabis plants, inventory sold, and other charges

	For the three months ended
Notes	March 31, 2024	March 31, 2023
	11,364,324	11,633,694
	(2,473,907)	(2,833,754)
	8,890,417	8,799,940
9	2,692,692	2,678,604
9	3,737,334	2,934,894
	266,039	157,424
	2,194,352	3,029,018
8	164,252	139,463

Gross profit		2,358,604	3,168,481
Operating expenses		1,898,468
Consulting, salaries and wages		2,058,978
General and administrative		982,161	847,739
Share-based compensation	16	702,846	(132,158)
Sales and marketing		453,493	610,369
Depreciation and amortization	9	60,122	88,050
Loss from operations		4,097,090	3,472,978
	(1,738,486)	(304,497)
Interest on loans	13	279,084	269,580
Foreign exchange (gain)		155,289	(18,921)
Fair value (gain) loss on derivatives	14	(280,517)	19,891
Net loss for the period		(1,892,342)	(575,047)
Loss per share, basic		(0.03)	(0.01)
Loss per share, diluted		(0.03)	(0.01)
Weighted average number of shares outstanding, basic		56,662,430	56,424,994
Weighted average number of shares outstanding, diluted		57,709,649	56,858,327

The accompanying Notes form an integral part of these condensed consolidated interim financial statements.

3

RUBICON ORGANICS INC.

CONDENSED CONSOLIDATED INTERIM STATEMENTS OF CHANGES IN EQUITY (UNAUDITED)

Expressed in Canadian Dollars, except for share information

				Share-				Total
		Number of		Based	Warrant			Shareholders'
	Notes	Shares	Share Capital	Reserves	Reserve	Reserves	Deficit	Equity
Balance, January 1, 2023		56,124,994	107,610,759	12,692,956	7,728,952	20,421,908	(89,699,572)	38,333,095
Share-based compensation	16	-	-	(132,158)	-	(132,158)	-	(132,158)
Net loss for the period		-	-	-	-	-	(575,047)	(575,047)
Balance, March 31, 2023		56,124,994	107,610,759	12,560,798	7,728,952	20,289,750	(90,274,619)	37,625,890
Balance, January 1, 2024		56,191,661	107,793,260	13,895,214	7,728,952	21,624,166	(91,523,108)	37,894,318
Share-based compensation	16	-	-	702,846	-	702,846	-	702,846
Net loss for the period		-	-	-	-	-	(1,892,342)	(1,892,342)
Balance, March 31, 2024		56,191,661	107,793,260	14,598,060	7,728,952	22,327,012	(93,415,450)	36,704,822

The accompanying Notes form an integral part of these condensed consolidated interim financial statements.

4

RUBICON ORGANICS INC.

CONDENSED CONSOLIDATED INTERIM STATEMENTS OF CASH FLOWS (UNAUDITED) Expressed in Canadian Dollars

		For the three months ended
	Notes	March 31, 2024	March 31, 2023
OPERATING ACTIVITIES
Net loss from continuing operations		(1,892,342)	(575,047)
Adjustments to reconcile net loss to cash used in operating
activities
Fair value adjustments to cannabis plants, inventory	8	(164,252)	(139,464)
sold, and other charges
Depreciation and amortization	9	776,680	744,783
Share-based compensation	15	702,846	(132,158)
Interest on loans	12	279,084	269,580
Foreign exchange loss		142,689	(4,069)
Fair value gain on derivatives	13	(280,517)	19,891
Changes in non-cash working capital items	17	(423,346)	9,007
Cash from / (used) in operating activities		(859,158)	192,523
INVESTING ACTIVITIES		(384,004)
Purchase of property, plant and equipment	9	(486,332)
Cash (used) in investing activities		(384,004)	(486,332)
FINANCING ACTIVITIES		(385,800)
Interest paid	17	(352,765)
Repayment of lease liabilities		(17,395)	(43,013)
Cash (used) by financing activities		(403,195)	(395,778)
Effect of exchange rate changes on cash		(16,699)	(4,054)
Net decrease in cash during the period		(1,663,056)	(693,640)
Cash and cash equivalents, beginning of period		9,784,190	8,294,117
Cash and cash equivalents, end of period		8,121,134	7,600,477

The accompanying Notes form an integral part of these condensed consolidated interim financial statements.

5

RUBICON ORGANICS INC.

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS (UNAUDITED)

Expressed in Canadian dollars

1. NATURE OF OPERATIONS
   Rubicon Organics Inc. (the "Company", "Rubicon", or "ROI") is a British Columbia registered company incorporated on May 15, 2015.
   The Company's principal business is the production and sale of cannabis in Canada. The Company produces and processes organic cannabis at its wholly owned, federally licensed 125,000 square foot facility in Delta, British Columbia (the "Delta Facility") which it sells under its wholly owned and other licensed brands.
   The Company's common shares trade on the TSX Venture Exchange (the "TSXV") under the trading symbol "ROMJ" and on the OTCQX Best Market under the symbol "ROMJF".
   The address of the Company's registered office and records is 1200 Waterfront Centre, 200 Burrard Street, PO Box 48600 Vancouver, British Columbia V7X 1T2. The Company's head office is unit 505, 744 West Hastings Street, Vancouver, British Columbia V6C 1A5.
2. BASIS OF PREPARATION
   These condensed consolidated interim financial statements, including comparatives, have been prepared in accordance with International Accounting Standards ("IAS") 34, Interim Financial Reporting. Certain information and note disclosures normally included in the audited annual consolidated financial statements prepared in accordance with International Financial Reporting Standards ("IFRS") as issued by the International Accounting Standards Board ("IASB") and interpretations of the International Financial Reporting Standards Interpretation Committee ("IFRIC") have been omitted or condensed. As a result, these condensed consolidated interim financial statements should be read in conjunction with the audited consolidated financial statements of the Company for the year ended December 31, 2023 ("Annual Financial Statements").
   These condensed consolidated interim financial statements have been prepared on a going concern basis which assumes that the Company will be able to realize its assets and discharge its liabilities in the normal course of business for the foreseeable future.
   These financial statements were authorized for issuance by the Board of Directors of the Company on May 15, 2024.

3. MATERIAL ACCOUNTING POLICIES

The accounting policies used in the preparation of these condensed consolidated interim financial statements are consistent with those followed in the preparation in the Company's Annual Financial Statements, except for the adoption of the following accounting policy amendment:

In October 2020, the IASB published amendments to IAS 1 - Presentation of Financial Statements - Classification of debt with covenants as current or non-current. Under existing IAS 1 requirements, companies classify a liability as current when they do not have an unconditional right to defer settlement of the liability for at least twelve months after the end of the reporting period. As part of its amendments, the IASB has removed the requirement for a right to be unconditional and instead, now requires that a right to defer settlement must have substance and exist at the end of the reporting period. A company classifies a liability as non-current if it has a right to defer settlement for at least 12- months after the reporting period. This new requirement may change how companies classify their debt. The amendments clarify how a company classifies a liability that includes a counterparty conversion option, which could be recognized as either equity or a liability separately from the liability component under IAS 32 - Financial Instruments: Presentation. Generally, if a liability has any conversion options that involve a transfer of the company's own equity instruments, these would affect its classification as current or non-current. The IASB has now clarified that when classifying liabilities as current or non-current, a company can ignore only those conversion options that are recognized as equity. Therefore, companies may need to reassess the classification of liabilities that can be settled by the transfer of the company's own equity instruments.

6

RUBICON ORGANICS INC.

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS (UNAUDITED) Expressed in Canadian dollars

The amendment was adopted on January 1, 2024, and the implementation of this amendment did not have a material impact on the condensed consolidated interim financial statements.

1. CRITICAL ACCOUNTING ESTIMATES AND JUDGMENTS
   The critical estimates and judgements made in the preparation of these condensed consolidated interim financial statements are the same as those used in preparing the Company's Annual Financial Statements.
2. ACCOUNTS RECEIVABLE

	March 31, 2024	December 31, 2023
	$	$
Trade receivables	3,670,099	3,318,681
Sales taxes recoverable	232,325	17,647
Total accounts receivable	3,902,424	3,336,328

Trade receivables arise from sales of cannabis to distributors and retailers in Canada. As at March 31, 2024, 98% of trade receivables were with provincial government cannabis distributors (December 31, 2023: 99%). Trade receivables are net of a $493,652 provision for returns (December 31, 2023: $655,116).

For the three months ended March 31, 2024, the Company had four customers (March 31, 2023: four customers) that

individually represented more than 10% and together constituted 98% (March 31, 2023: 99%), of the Company's net revenue. Direct sales to provincial government cannabis distributors accounted for 99% of revenue (March 31, 2023: 99%).

6. PREPAID EXPENSES, DEPOSITS, & OTHER
		March 31, 2024	December 31, 2023
		$	$
	Prepaid expenses	333,120	801,352
	Deposits	1,413,686	1,123,149
	Deferred excise tax expense	232,900	329,168
	Total prepaid expenses and deposits	1,979,706	2,253,669

As at March 31, 2024, $56,941 of the deposits balance was related to property, plant and equipment (December 31, 2023: $97,953).

7. INVENTORIES

Inventory as at March 31, 2024 and December 31, 2023 consisted of consumable inventory used in the propagation and transformation of the Company's cannabis plants, work-in-process ("WIP") inventory and finished goods.

	March 31, 2024	December 31, 2023
	$	$
Consumable inventory	2,095,824	1,973,774
WIP inventory	6,684,565	6,569,448
Finished goods	1,020,436	1,101,223
Total inventories	9,800,825	9,644,445

At March 31, 2024, WIP inventory and finished goods include $5,116,064 of non-cash fair value of cannabis plants transferred upon harvest (December 31, 2023: $5,123,148).

7

RUBICON ORGANICS INC.

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS (UNAUDITED) Expressed in Canadian dollars

At March 31, 2024, $994,421 of consumable inventory is expected to be utilized more than twelve months after the reporting period (December 31, 2023: $977,493).

8. CANNABIS PLANTS

The changes in the carrying value of cannabis plants was as follows:

	$
Balance, December 31, 2023	1,634,566
Change in fair value of cannabis plants	2,594,738
Transferred to WIP inventory upon harvest	(2,423,402)
Balance, March 31, 2024	1,805,902

The fair value of cannabis plants was determined using a valuation model that estimates the expected average yield per plant and applies this to the estimated fair value less costs to sell per gram of dried cannabis flower. These fair value measurements have been categorized as Level 3 of the fair value hierarchy because there is currently no actively traded commodity market in Canada for cannabis plants.

The significant assumptions applied in determining the fair value are as follows:

• expected average yield of approximately 50.1 grams per plant (December 31, 2023: 51.8 grams per plant); and
• comparable selling price of wholesale dried cannabis flower ranging from $0.98 to $1.51 per gram (December 31, 2023: $0.87 to $1.59 per gram).

The comparable selling price used in the valuation is based on recently quoted prices of wholesale dried cannabis flower from licensed Canadian wholesalers and varies based on THC content. Expected average yields for cannabis plants are subject to a variety of factors, such as strains being grown, length of growing cycle, and space allocated for growing. Estimates of future yields are based on the historical weighted average of actual yields.

The Company periodically reassesses the significant assumptions applied in determining the fair value of cannabis plants based on historical information as well as the Company's planned production schedules. When there is a material change in any of the significant assumptions, the fair value of cannabis plants is adjusted.

For the period ended March 31, 2024, the Company determined the weighted average fair value less costs to sell was approximately $1.40 per dried gram (December 31, 2023: $1.45 per dried gram).

The Company has quantified the sensitivity of the significant unobservable inputs used to calculate the fair value recorded. A decrease in the comparable selling price per gram of 10% would result in a decrease in the value of cannabis plants of $242,289. A decrease in the expected average yield per plant of 10% would result in a decrease in the value of cannabis plants of $180,540.

The number of weeks in the growth cycle is twelve to fourteen weeks from propagation to harvest. As at March 31, 2024, the cannabis plants were estimated to be, on average, 41% complete (December 31, 2023: 41% complete).

The fair value adjustment to cannabis plants, inventory sold, and other charges for the three months ended March 31,

2024 and 2023 is comprised of the following:

8

RUBICON ORGANICS INC.

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS (UNAUDITED)

Expressed in Canadian dollars

	For the three months ended
	March 31, 2024	March 31, 2023
	$	$
Unrealized gain on changes in fair value of cannabis plants	2,594,738	3,083,913
Realized fair value of inventory sold	(2,096,229)	(2,869,485)
Adjustment to net realizable value of inventory on hand at period end	(334,257)	(74,965)
	164,252	139,463

9. PROPERTY, PLANT AND EQUIPMENT

	Buildings and
	leasehold	Equipment		Construction in
Cost	improvements	and vehicles	Land	progress	Total
	$	$	$	$	$
At December 31, 2023	18,557,095	15,213,816	2,040,722	533,862	36,345,495
Additions	-	27,161	-	140,200	167,361
At March 31, 2024	18,557,095	15,240,977	2,040,722	674,062	36,512,856
Accumulated depreciation
At December 31, 2023	3,327,300	7,704,047	-	-	11,031,347
Depreciation	243,158	532,981	-	-	776,139
At March 31, 2024	3,570,458	8,237,028	-	-	11,807,486
Net book value
At March 31, 2024	14,986,637	7,003,949	2,040,722	674,062	24,705,370
	Buildings and	Equipment		Construction in
Cost	leasehold	Land	Total
and vehicles	progress
	improvements
	$	$	$	$	$
At December 31, 2022	17,408,688	13,772,313	2,040,722	723,993	33,945,716
Additions	10,451	503,037	-	1,886,291	2,399,779
Commissioned during the	1,137,956	938,466		(2,076,422)	-
period
At December 31, 2023	18,557,095	15,213,816	2,040,722	533,862	36,345,495
Accumulated depreciation
At December 31, 2022	2,392,598	5,597,354	-	-	7,989,952
Depreciation	934,702	2,106,693	-	-	3,041,395
At December 31, 2023	3,327,300	7,704,047	-	-	11,031,347
Net book value
At December 31, 2023	15,229,795	7,509,769	2,040,722	533,862	25,314,148

For the three months ended March 31, 2024, depreciation of $529,542 was included in production costs (March 31, 2023: $478,891 and $112,030 was capitalized to inventory (March 31, 2023: $189,088).

During the three months ended March 31, 2024, the total amount of depreciation recognized in cost of sales was $186,574 (March 31, 2023: $175,289).

9