A Quick Speculation: Rubicon Organics

by JDH on August 10, 2019

Last week I did a deep dive on gold, and nothing has changed on that topic, so I will give you another quick speculation:

ROMJ.CA – Rubicon Organics Inc.  here’s the chart:

But wait, you say, that’s a horrible looking chart! It peaked at $3.40 in mid-June, and then crashed to $2.60 on Friday.

What happened?

On August 7 Rubicon announced an overnight marketed public offering of units.  They planned to raise $7 million, with each Unit comprised of one common share  and one Common Share purchase warrant with a unit price of $2.70, and an exercise price of the Warrant of $3.50.

What’s an overnight offering?

They are quite common: a company wants to raise a bunch of money, so they go to the broker community (in this case  a syndicate of agents led by Desjardins Capital Markets and including Canaccord Genuity Corp., PI Financial Corp. and Mackie Research Capital Corporation) and say “we want to raise $8.5 million, how much will you take?” and each broker says “I’ll take $2 million” or whatever.  It’s an overnight offering because on the evening of August 7 the brokers are notified, and they then contact their clients and say “how much do you want?” and each client says “I’ll take $50,000” or whatever.  The book closes before the market opens in the morning.

Obviously this is somewhat risky for the broker; if they agree to take $2 million, and their clients only want $1 million, the broker is stuck with a bunch of stock.

(And yes, I am over-simplifying this.  This was not a “bought deal” where the brokers committed to X dollars, but the concept is similar).

Why would a brokerage house take this risk?  Because, as the chart shows, the day before the deal was announced Rubicon was trading at $3.10, and the beginning of March Rubicon has traded in the range of $2.80 to $3.30 (with a one day spike to $3.50), so $2.70 is a safe bet.  Also, for added upside, the units come with a warrant exerciseable at $3.50, so if the stock exceeds it’s six month high there is more profit to be made.

So why did the stock tank on Thursday and Friday?

Because everyone who already owned the stock and got the phone call from their broker to buy in this overnight offering said to themselves “I’ll buy the units at $2.70, and then sell what I already own at $2.70, and I’ll be left with a $3.50 warrant for free!”  The warrant is good for 30 months, so it is, in effect, a 30 month call option at no cost.

A bunch of investors sold their original shares, and the price dropped.

But, here’s the thing: Rubicon will now have an extra 7 or 8 million bucks in the bank, at $2.70 per share, so there was minimal dilution.  According to the press release:

The Corporation intends to use the proceeds from the Offering for the continued optimization of its Delta BC facility and general corporate and working capital purposes.

In other words, they are using it to increase the profitability of the company, which should bring the share price back above $2.70 in short order.

Longer term, Rubicon is likely a take over candidate, perhaps at $5 per share.  Why?  Because, according to the company’s website:


Rubicon Organics Inc. is a Licensed Producer focused on building certified organic, super-premium cannabis brands at its flagship 125,000 sq. ft. state-of-the-art hybrid greenhouse located on a 20-acre property in Delta, BC, Canada. Management has unparalleled cannabis and organic farming expertise as well as prior successful commercialization of cannabis with Whistler Medical Marijuana Company, which was purchased by Aurora Cannabis in January 2019 for $175 million.

The Corporation is currently ramping up to produce approximately 11,000 kg of certified organic, super-premium and environmentally sustainable cannabis in 2020 and on creating super-premium brands in Canada. In the United States, the Corporation owns a 40,000 square-foot, high-tech hybrid greenhouse in Washington state which is leased to a state-licensed operator applying Rubicon Organics’ proprietary organic cultivation methods. The Corporation also owns two award-winning U.S. cannabis brands: 1964 Supply Co.TM and Doctor & Crook Co.TM; and has exclusive licensing rights in Washington for iconic lifestyle and cannabis brand, Cookies.

So here’s the play:

If you already owned Rubicon and bought more in the overnight offering, sell your shares at $2.70 or above and ride the warrant.

If you don’t own any, put in a buy order at $2.50 before the open on Monday morning, or $2.40 if you are feeling lucky, and see if you get filled.  If you don’t, no worries.

If you do, place a sell order at $2.70, or $2.80, or ride it back to $3 and sell then.

Makes sense to me.

Check in next week and see if it worked.