Q3 2019 Earnings Call
Ladies and gentlemen, does he see all breeder today's conference is scheduled to begin shortly please continue didn't sound bite. Thank you for your patience.
Welcome to the Acadia Bio Sciences third quarter 2018 earnings conference call.
Today's presenters will be met Plavin, president and CEO .
They are writer Chief commercial officer, and Pam Healy, yes, though.
This call is being webcast and you can't afford to the company's press release and flights at Acadia Bio Dot com.
Before we sorry, if you refer to slide Q, we would like to remind you that ikea by scientists.
Well be making forward looking statements on this call base and current expectations. In currently available information however seem to be the statements obese in factories that involve risks and uncertainties. The company's actual performance and results may differ materially from those described or implied today.
He can be viewed the company's safe Harbor language in their most recent slab sandesh pain and again on slide <unk> of this presentation.
With that I know technical nobody can that Plevin, president and CEO .
Thank you Mark lean and thanks to everyone who is joining us on the call. We're pleased to report Arcadia achieved important progress during the third quarter in both product commercialization and our research and development programs and each of our three strategic crop categories hemp wheat, and Soi I'll spend just a few minutes covering the highlights.
And then we'll segue to Brooks provide our investors better visibility into the channels. We are developing to scale new revenues in 2020 and 2021.
In terms of our Hep research progress during the quarter, we established a third research facility. This one in Imperial Valley, California, and tripled our acreage in Hawaii during the quarter to a total of 30 acres recently, we also partnered with an Oregon breeder to conduct field research in that T have territory right with research.
Our operations now in three distinct geographies, we are well equipped to test varieties and advance our breeding activities under multiple climate conditions with improved access to more germplasm with that our R&D team achieved key milestones in technology demonstration during the quarter, having produce our first unique variety.
Executed a number of arrival crosses to generate new performance characteristics and identify valuable attributes. We also added new personnel to bolster our genomics capabilities and further accelerated the throughput of our trait development engine commercially we secured a global distribution arrangement with arc Arista cereal.
Technologies, and Baystate milling for our high fiber good wheat bread wheat and had a blockbuster reception of both our high fiber and reduce gluten good we'd varieties at the Western Hemisphere is most comprehensive baking event. The 2019 international banking industry Expo in Las Vegas, and importantly, two we receive U.S.
FDA approval of our age before soybean opening another sales territory for our unique drought and herbicide tolerant stacked soybean trait.
As for our financial performance year to date revenues from our prior business model, we continue to wind down as we had guided in advance of the onset of our new revenues.
And setting aside the noncash fair market Remeasurement of our common stock warrant liability is 7.8 million.
And a few nonrecurring costs that totaled about 700000, which Pam will get into a little bit later, our total operating expenses year to date are up about 14%, reflecting our investment in commercial assets and new half research.
In addition to our progress during the quarter the Hep industry got some long awaited good news last week. The U.S.G.I. issued for public comment there interim final rule for have production. This guidance further codified as the content of the 2018 farm Bill and is the next step forward for legal have cultivation in the United States in 2020 as more states.
Submit and obtain approval for their have programs as is expected in Hawaii for example.
We are prepared to expand our acreage as the pilot phase restrictions are lifted on all is a positive quarter for Acadia and they have industry.
Looking forward as I indicated in my letter to you in our inaugural Arcadia Messenger newsletter last month I have one goal to lead our care Arcadia to prosperity by unleashing the full commercial potential and impact of our hemp wheat and soy assets to that end, we're well positioned with cash resources the proof.
Even scientific expertise and commercial assets to achieve this goal.
Also as we committed for our last call we have expanded the channels through which we communicate to investors the frequency of our communique and have increased the news flow through those channels, which is a key element of our value creation strategy.
Our expanded outreach has begun to accomplish our primary communications objective to broaden the awareness of the Arcadia story by reaching more investors and expanding our investor base to improve the liquidity and demand in our stock.
Now with this greater visibility has come greater interest and inquiry from the investment community and the desire for greater insight as to how management intends to achieve its goals in the coming months on this call we intend to do just that.
Let me start by sharing why we have comp high confidence and and confidence that we'll achieve our growth targets. It resides in four fundamental elements shown on slide three one we've developed and begun executing on several high new value revenue sources in the have space and we'll capture first.
Sales before the end of this year, including quality Hep C and CBD extracts too we expect to complete the construction and secure delivery of our mobile have extraction unit to Hawaii by year's end, which will not only serve our processing needs, but will be made available for extraction services to other Hawaiian have far.
Immerse representing another source of revenue.
Three with full clarity on the rights to our high fiber good wheat, our new customer negotiations and product testing and evaluation activities are progressing unimpeded through the sales cycle and for we've established our hbfour soybeans as a meaningful market share contender for the soybean acres in Argentina for.
Bill and now in the U.S. and with the recent you SD approval of our soybean the excitement in the market from potential see distributor distribution partners as well as farmers wanting to grow our drought tolerant and herbicide resistant crop is palpable.
Thus it is the compounding effect of having multiple sources of new revenue and each one having high volume sales and margin potential that gives us solid confidence in our ability to achieve our growth targets.
You will remember in August we gave guidance to the street for significant revenue generation over the next two calendar years also shown on slide three.
We predict revenues will exceed 10 million in 2020, and 30 million in 2021 based upon our margin expectations for these new revenue streams. We believe this revenue trajectory puts us in line to generate net cash from operating activities by mid to late 2021 with sustained profitability thereafter during the same period will contain.
I need to build on our high value trait and Germplasm library, which we think will contribute meaningfully to the enterprise value of our company.
Now, let me turn to slide four for a closer look at how we believe these revenues might flow within a given year as a general guideline, we expect to production cycles and flow of revenues from our product. So look something like this clearly there are some products where production and sales are seasonal and purchased.
Commitments occur prior to the recognition of the associated revenues like we see with the we'd seeds, others will not be seasonal and can therefore generate revenue throughout the year.
As you can see the breadth of our product suite provides us plenty of opportunities to generate revenue in each quarter of the year.
Now I'd like to turn the call over to Sarah to provide more insight into our crop growing cycles harvesting and sales cycle timelines. In addition to her commercial operations update Sarah.
Thanks, Matt and thanks to those of you listening in for your time I'm going to provide a peek into our recent commercial activities and our expectations.
Matt talked to you few minutes ago about the progress we've made since the formation of Arcadia specialty genomics in February this year, highlighting the three operational locations, California, Hawaii in Oregon, where we now research and produce hand or help seed.
In order to move as quickly as we can in this evolving market, where we are now dual purpose thing our hemp sites for both research and production.
I'm going to focus on the near term commercial implications of the progress we've seen an impressive work our team of scientists and breeders has done in stabilizing the crop, but first I want to remind those of you joining us here today, why we see him such an exciting opportunity half is experiencing explosive growth with even broader expansion expected now that the U.S.
Hey has issued its preliminary rule in line with the 2018 farm Bill those rules and the downstream rules of the state will be enacted in the first half of 2020.
If you refer to slide five entitled Hemp market expansion, you'll see that the industry has seen significant growth and the number of planted acres of half in recent years.
We anticipate this growth will continue in 2020 and beyond.
We see many drivers creating upside momentum on the number of how Baker.
States will be enacting their local roles for him production. Our analysis indicates that for most states. This means have production will be unable in many states farmers will likely gift comping at at least on small acres driven by agronomic curiosity or by relatively low prices on some of their other crops I.
If you can see on slide six demand for have derived oil has not lessons and the recent announcement announcements by some major food and beverage companies that there will be making CBD infused product has enhanced enthusiasm.
Now back to what we're doing in this space first we're working to secure purchase commitments for Hep C is right now in fourth quarter 2019, and in first quarter 2020 with farmers taking delivery of these orders in second quarter 2020.
The Hep C sale cycle is slightly different than that of other crops in part because this is still in emerging crop was constrained seed supply and in part because the acreage is expanding rapidly with without a lot large amount of fore sight for seed producers like us.
Like other spring slanted crops that helped farmer make feed purchase decisions in fourth quarter, but.
But unlike other crops in many cases that have farmer makes a purchase commitment and pays in advance for Steve.
Seeds are delivered close to planting time, which ensures their stored in conditions that optimize their viability.
Since February Arcadia has been building a portfolio of Hep C to assets, both through reliable high quality partners and as output from our own R&D activities and I'm excited to announce today that our initial have variety catalog will issue before year end and our Kt will offer seven varieties of hemp season close all special.
We selected for their consistent performance.
Well, we'll be able to announce the purchase commitments for hemp seed as orders are received this quarter and first quarter of 2020 revenues for these purchases will predominantly be recognized in second quarter of 2020 once seed our ships.
On another front, we're working closely with our joint venture partners at Archipelago ventures to bring our first Hawaiian Sun grown happened CBD products to market. We look forward to announcing initial product deliveries in the first half of 2020.
And Thats, an emerging crop brings a lot of challenges for the unprepared and a lot of opportunity for those positions lead through that change something we're well equipped and stand ready to do.
You asked the right regulations will present hurdles for many hemp growers and processors when they come online in early 2020.
And future FDA regulations may impact quality and safety parameters in the markets accessible to specific cannabinoid chemistry support to help essential oils.
As a company experienced with working and regulated markets. We welcome Federal and continued state regulation and we'll monitor closely the actions the regulators to ensure we remain well positioned to comply.
On the wheat fronts.
First is nearing completion with more than 2300 acres of good wheat varieties harvested. This fall overall, we produced good wheat varieties on more than 10 times more acres in 2019 than in the previous year, we are well situated to deliver on our good retails target in 2020, both in terms of seed and grain supply.
Last earnings call I mentioned, we were in commercial negotiations, but at that time I was unable to disclose our partner.
In August we announced agreement with Baystate milling, and Arista, which secures a U.S. route to market for our good wheat bread wheat with high analyst resistant starch. Our technology will now entered the North American market as part of base State health sense flower.
We secured initial purchase commitment for bread wheat to be delivered to baystate knowing in the first half of 2020 I.
I encourage you to learn much more about health centsfive flour and about Baystate, knowing they have an exciting story to tell about fiber from the farm and we're thrilled to have our resistant starch attribute in their stable of innovative we'd products.
We continue to add to the list of global food companies evaluating the goodwill portfolio of improved week.
As of September Investor Conference, Matt indicated, we're working with additional food and restaurant companies I'd like to take a minute to provide a bit of background regarding the sales cycle for novel ingredients in consumer food products.
Potential customers evaluate new ingredients in their own recipes first it pilot scale and then using full scale manufacturing equipment, then they conduct market testing before committing to buying and using a new ingredients.
For some companies this cycle can extend out two to three years.
We're deep into this cycle with a number of companies and we expect to announce several consumer food and food service companies carrying good we in 2020, well within the timeframe required to meet our revenue expectations for the year.
Finally, I'd like to provide a view into the pop into progress with H. before drought and herbicide tolerant soybeans, which will come to market through our joint venture Vertica.
As we've disclosed previously Hbfour soybeans are approved by the three largest soybean producing nations the U.S., Argentina and Brazil.
Fullscale launch in Argentina will occur once Chinese regulators grant their approval expected in late 2020.
In the meantime, where in negotiation with several commercial partners in the North American market and we will begin working closely with U.S. soybean producer organizations in 2020 to prepare the market for this new trade.
We're bullish about the global potential for each before and Vertica in general for several reasons first our partner in the joint venture is bio series crop solution co-operative of Argentina, leading farmers with unique market reach in that important so I producing country second h. before is the only soybean trait designed for drought.
Okay and herbicide tolerant.
We're all keenly aware the challenges presented by variable climate in production area.
And finally H. before also delivers herbicide tolerance important forgiving farmers options for controlling resistance.
With that I'd like to hand things over to Pan our CFO for an update on financial results in the third quarter.
Thank you Sarah I'm pleased to be speaking with you today as CFO of Arcadia. After having served in the controller role here from them.
I'm grateful for the opportunity to advance within the company and look forward to working with the team to deliver on our revenue and profitability targets.
Getting to the financials on slide seven.
As Matt indicated revenues from our legacy R&D business model continued its wind down and our expectations for initial sales of our wheat and hemp products in the fourth quarter remain on track.
As we continue to invest in the added resources and expertise necessary to support a commercial company. Our total operating expenses increased by $2.1 million and a third quarter of 2019 compared to the third quarter of 2018 and by $2.6 million for the nine month ended September 2019, when compared to the same period in 2018.
It's important to note that included in the year over year increases is the onetime noncash stock compensation expense of $662000 recognized for the modification of our former CEO stock option in connection with his separation as well as the accelerated vesting of a consultant performance warrants.
Total R&D expense was $597000 higher for the quarter as compared to the same quarter in 2018.
And $863000 higher year to date.
The increase was primarily driven by additional soybean pre commercial activities higher employee related expenses with the expansion of our research team and additional external hemp related costs.
Total SGN expense was $1.5 million more in the third quarter of 2019, and third quarter of 2018 and $1.9 million more eager to date.
Accounting for a sizable portion of this increase is the onetime noncash stock compensation expense I. Just mentioned in addition to higher employee expenses additional consulting fees and increased public relations and marketing activities.
These increases were partially offset by lower legal fees incurred in 2019 versus 2018.
Net loss for the third quarter of 2019 was $14.2 million compared to the 4.5 million of income recognized in the third quarter of 2018 and not loss for the nine month ended September 2019 was $22.6 million compared to 12.8 million net loss for the same period in 2018. These.
Differences for chiefly the result of a noncash fair value remeasurement of the common stock warrant liabilities associated with the financings completed during both years.
Please refer to footnote nine in our 10-Q for a detailed description of the accounting for these transactions.
With regard to our liquidity capital resources cash on hand, cash equivalents and short term investments totaled $30.9 million at the end of the third quarter.
We brought in gross proceeds of $10 million, but the registered direct offering in September along with $5.3 million from the exercise of common stock warrants issued with the June 2019 offering.
Our net cash used in operating activities for the quarter was $3.8 million $200000 less than the 4 million views and operating activities during the third quarter of 2018.
For additional insight into financial performance during the quarter. Please refer to the 10-Q that we'll be filing today.
And now I'll turn the call back to Matt for a wrap up Matt.
Thanks, Pam in closing we are energized by the progress we achieved this quarter and how well positioned we are to achieve our growth and profit goals in 2020 in 2021.
We hope we've provided improved visibility into our execution plans and increased your confidence that we're on track to deliver results. Ultimately we know that it is results not plans and good intentions to create true and lasting value.
With that I'll turn the call over to the operator for your questions.
Thank you soon as a reminder to ask a question you will need to press star one on your telephone.
Jerry question.
Keith.
Please standby, while we compile the to any roster.
Your first question comes from the line of Ram Selvaraju H.C. Wainwright. Your line is open.
Hi, This is bill Baldwin and for Rob. Thanks for taking my question for the first of on how do you see Arcadia as exposure to multiple don't assume elements of the flavor on bread supply chains evolving over time should we think about high fiber broad suite.
Solely in terms of acreage or that'd be additional metrics, taking precedence in the future.
So let me make sure I understand your question, you're asking when we talk about this our we'd business in the future will we be talking.
We'll be using metrics such as acreage or we'll be talking about pounds of flowers that your question Yep.
Well I think I think we'll want to share both I think we're going to sell we're certainly going to keep you apprised of the acreage in the growth in our acreage as we expand the the we'd business, but there are a number of executions.
That we see being able to sell our good wheat.
Some will be flowers, some will be grain.
And it really it just kind of depends on the partner we're working through.
But will endeavor to find those metrics and report them out as we grow but certainly it will include.
Acreage.
And likely.
Bushels, if its grain.
So those will likely be the captures for reporting out on our growth and of course.
You know the revenue.
Yeah. Thank you next one what does the significance of the auto flow running temporoparietal on how challenging is that if you ever on growth cycles without such Righto.
HM.
Well.
The auto flowering for those who.
May not know what that is it's a it's a variety of have.
That is able to grow and mature.
To harvest.
Independent of the amount of late in a given day it gets.
If you don't have an auto flowering varietals.
Then you want to be growing in areas to optimize the yield of the have you want to be growing in areas where there's.
An equal amount of light and dark over the over given day. So it it stands to reason that without auto flowering varieties, you want to be closer to the equator for optimal growing.
So if you're not and you want to grow hand auto flowering is an important attribute to have.
Okay just following.
Yeah, I was just going out there if she would add anything to that I was just going to add actually that.
Yield is.
Impacted by a number of.
Characteristics and effect auto flowering day length is one of them, but we are actively pursuing several others, which include increasing the percentage of the desired essential oil.
It could include the architecture of the plant. So that you have more plant per acre and mechanical harvesting for example, and you could even be thinking about short stature or shortened season. So that you can.
Dominate more plantings in a given.
Here. So there are a lot of shots on goal auto flowering is obviously one of them that we're pursuing and we'll have auto flowering varieties in our catalog.
But we will also have other varieties that.
Our destined to to show impressive yield gain for other reasons.
Okay. Thank you all following up with the order flow ring he's out of learning also applicable in the cannabis space.
Is it.
Im sorry, I Didnt catch the question can you say it again.
It's although flavoring also applicable in the cannot be space Oh.
I believe so.
We're focused pretty heavily on hemp right now, but I would say that since it's the same plant.
The cannabis plant I would say that well, there's marijuana ramp that it would be beneficial.
Okay and the last one what is actually below those hot crop incidence currently on how could it theoretically be reduced to a negligible.
Well, we haven't disclosed that specifically.
I think we've just been we have shared that weve fared better than most when it comes to.
The harvest that we've had in Hawaii, and that's I think.
Attributable to how closely we've watched and how much we've learned over the past the probably the doesn't varieties that we planted.
The the the best way to knock out this problem is to bring forth a.
No THC variety of.
Pam and certainly by combining good agronomic.
And making sure that you're starting with good seeds.
You are going to improve your chances of mitigating the potential for going hot.
And certainly all of those things were focused on.
Okay. That's it from me thanks, Thank you.
Your next question comes from the line of Ben claim from National Securities. Your line is open.
Alright, Thanks for taking my questions first I have a couple on cannabis front on.
Sir you talked about your existing acreage being kind of dual purpose for R&D in production purposes, and I guess I've a couple of questions here.
As you look out over the next year I mean, do you have kind of a rough target for R&D acreage.
Where do you think do you think are you pretty comfortable with where you stand right now.
Thanks, Ben and.
My sense is that we're positioned really well right now in.
We are very different.
Last Q3, very different climate down and three very different.
Degree days they links.
But geography.
So we feel like.
We have really good coverage that would enable us to have to develop varieties that kind of addressed most of the major producing areas of the world whether you're talking about.
South Africa, or Zimbabwe, we can emulate that very easily whether you're talking about Europe and the United States.
We have really good coverage there so basically we have kind of.
Civic Northwest sound, we haven't desert down and we have.
Tropical or hot hotter temperatures on it gives us a really broad.
Ability to design solutions for both our for all three environments.
If we see an opportunity obviously to expand our capabilities through another location will pursue it aggressively.
Got it okay and it also with regards to acreage if it is there a way to kind of.
Quantify on a percentage basis or overall acreage basis. The land that you have dedicated purely to R&D purely to production or.
Combination of the Jill.
I would I would say that.
Any meaningful expansion from here forward is going to be for the production.
CBD huh.
I think thats the plan at this point.
Scott.
Perfect and then on the.
In the market overall as.
Have you seen.
I have commoditization of kind of become become the variable that seed prices have held up.
They were a few months ago or have you seen seed prices kind of began to soften a little bit over the last over the last quarter Joe.
We actually have not seen seed prices soften which.
Honestly with a little surprising.
This past year growers held permits for about 530000 acres only about 230000 of those acres actually got planted for a variety of reasons, but one of the reason being seeds fly.
And of that 230000 acres people are estimating maybe 100000 got harvested so there's.
Obviously huge potential in 2020 for that.
Intended acreage or that actual planted acreage to go up substantially.
So we don't see that price falling dramatically.
We still see very strong prices on both the seed and that clone or start.
Environment and.
We're pricing appropriately and right now as we're heading out into the market.
Got it perfect.
On the on the we'd side.
The first congratulations on your on on the progress on the resistant starch starts with that you noted on the last couple of days.
I guess when you look out into next year do you have kind of either a rough kind of target for acreage and then also have you.
Can you share any progress that you have contracted acreage.
In advance of.
Any planting next year.
Not sure I can say much beyond every one of the growers that we had this year will be a grower again next year.
We will expand acreage with every one of them.
We have.
Gosh not that much I can say about it at the moment.
I would say that we.
Have a number of food and food service announcements that we're anticipating and as soon as we can announce some will well we'll do so.
Got it okay perfect. Thank you and.
One other one on we'd on on the on the gluten variety.
Excluding the Luton variety.
On.
Can you kind of update us on kind of the expected commercialization there is that does that.
Potentially coming into play later next year.
Or is it beyond that and then.
What's still needs to be done on that front in advance of commercialization in terms of securing farmers.
For contracted acreage partners within the supply chain for processing or.
On the or partners for the eventual commercialization what went on these do occur before.
Before you can actually commercialized.
So the reduced Clinton product is.
Actually very close to market and we're excited.
That we expect to have position, maybe even before the end of the year.
And we are actively.
Bulking seeds for actually.
In the process of bookings seeds now we grew it last year will grow it next year.
We are.
Without a specific milling partner in that space right now.
But we have a number of.
And foodservice.
Partners that are evaluating the technology so.
It's.
It's really interesting Ben it took us a long time to get the first.
Good wheat variety.
As I was talking about it's a two to three year cycle.
The RG is.
Coming along a little faster, probably because we already have some of those relationships in place.
Got you that's.
Congratulations on on on that speed.
I guess last question for me to just kind of big picture for whoever wants it here.
You're sitting on 30 million in cash you have visibility of revenue ramping.
How can we looked at the kind of the model will say between now and bright and your estimate of breakeven in mid 2021.
In terms of R&D spend in Capex skin can we use this quarter as a reasonable benchmark.
Or word.
Are you going to be investing more heavily on on those line items are on the M&A front here over the next few quarters.
You know we look at this past quarter and when we take out what are the what we'd say nonrecurring or unusual charges. You know, we'd probably say, it's around 5 million a quarter right now that's a $20 million run rate.
And over the next two years, we were talking about this earlier you know between five and 10% is probably what operating expenses will grow at.
And it will be in R&D and commercialization assets those are really the two areas that we're investing but when you look at the trajectory of revenue you know its operating expenses are going to remain you know on you and they're not going to change a lot by comparison, but certainly they will.
It will increase.
As we're executing but we don't we see a lot of leverage.
In our in our overall operating infrastructure to bring in pretty substantial revenue increases.
Got a perfect.
I think that does it for me. Thank you all for the time congratulations on all the progress and I'll jump back in queue Alright. Thank you Ben appreciate it.
Your next question comes from the line of Ryan.
Zacks investment your line is open.
Oh, hi, everybody and not congrats on the all the progress.
Just thinking just kind of cure yeah. Thanks, guys.
Just curious as to the U.S.T.A. interim final rule relative to.
Hello cultivation and was that something that that the growers wanted to see the issuance of that before they could get too excited about.
So potentially.
Being customers or was that already anticipated and it was more of Oh. It was it was just more of a symbolic thing.
In that context.
So the rules come out.
As mandated by Congress is 2018, Farmville and we've all been anticipating them.
The reason that it's important they came out is that it enables the states that didn't already have a 2014 farm Bill pilot program running to now stand up the rules under which they will operate in a post 2018.
Era, so under the 2014 farm Bill States, where enabled some states we're unable to build pilot programs in hand and.
Each year.
More did so theres now I think what 34 states that that operate pilot programs.
The 2018 farm Bill actually legalized nationally and requires each of the states to make rules. They can make a rule that said, we're not going to grow him or they're going to make a rule that says this is how our growers are gonna grow him and so it's important because it now creates a national clarity I'm a process by which all the states.
And.
You their own role and it will sometime over the 2020 season retire or the pilot programs. So we think for example in our case in Hawaii, where the pilot program.
Limits the numbers of acres that you can participate on we think that acreage limitation will will offer retire so.
It's exciting for a number of reasons for anybody who's participating as a farmer, it's exciting for us a seed and trait.
Great and attribute.
Growers also exciting for us as CBD processors and Extractors.
Because there's going to be in many more farmers and many more acres for us to access.
Okay, great and and one more just related to that.
Gather that that the states how the state's specifically regulate the us.
As is not a big.
It's not a big.
Question, Mark I guess for their growers.
Particularly in the states that you already in.
But just for clarity if he can.
Address that weather.
It is or is it I'm what I'm getting at is are the growers waiting for the the state's rule to come out before they do what do you think.
In some places they are obviously you can't if you're if your state doesn't have rules and you're not in position to grow. This crop. So a really good example is the state of Louisiana, whose governor said as soon as you Sta makes its role we anticipate 80000 acres of hand, we'll be calm and available.
To to us that because they didn't want to get out in front of the U.S. Da's rule. So they held off issuing state rules until you Sta issued there's you're going to see a lot of state who've been holding off.
Issue their rules in the first quarter of 2020, which is super exciting for us.
You already have a number of states, who have growers and as I said to ban and there was half a million acres.
Permanent last year so.
The rule that the state's issue can't be different than the roles that the U.S. deviation.
So they can have minor nuances, but they can't abandoned the pattern that the U.S. de has set which does require you still have a permit so they know who is growing.
And does require you not to grow marijuana. So I'd have to stay under 0.3% THC and it has testing requirements as a number of different rules and elements that the state's must also include in their rule. So it's not different for those of US who have been working in the pilot space. It feels very very familiar.
But I think it does provide a lot of clarity for folks who had had wondered how to go into this space farmers can now apply for crop insurance for example for this crop.
There in the U.S. day, we'll be able to stand up programs to and EPA for that matter can stand up programs. So that we can use registered pesticides and this crop. There's a lot of things that are enabled once this becomes a federal crop and that's basically what happens when these rules come in effect.
Okay, great great. Thanks, a lot appreciate it.
Yeah, Hey, just lastly, the primary purpose of the state programs are state rules will be to demonstrate to the feds how the program in their state is going to comply with the federal requirements. That's the main thing. They want to know is if you're going to go ahead and allow have to be growing legally.
That you demonstrate how those who are growing at are going to maintain compliance with those federal guidelines.
So it should be pretty easy for states to turn their programs.
Yes, 60 days to approve one submitted so we hope its.
We hope to states moved quickly to get their plans submitted an approved.
Okay, great. Thanks, Thanks, a lot.
I'm showing no further questions at this time I would now like to turn the conference back to Matt <unk>.
Thank you everyone for joining the call and your continued interest and support we work hard everyday to bring consumers, new and improved healthy food options.
While maintaining that single minded focus profitable growth, we look forward to reporting our key milestone achievements in the lab in the field and in commercial markets as we progress towards accomplishing. These goals. Thank you very much for listening in.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.