Q2 2020 Arcadia Biosciences Inc Earnings Call
<unk>, Chief Technology Officer, and Pam Haley CFO of Arcadia.
This call is being webcast and you can refer to the company's press release.
Media bio dotcom before we start we would like to remind you that Arcadia Biosciences, we'll be making forward looking statements on this call based on current expectations and currently available information. However, since these statements are based on factors that involve risks and uncertainties the companys actual performance.
Results may differ materially from those described or implied today, you can view the company's safe Harbor language in there. Most recently filed 10-K and again on page four of today's press release with that I'll now turn the call overtime, Matt Plavin President and CEO.
Thank you everyone for joining us and welcome to our second quarter Conference call since our last call I'm pleased to report that Arcadia achieved a number of key milestones amidst a one of the most challenging economic periods in our company's history first we are substantially expanding our good Hep C portfolio through the acquisition.
Of industrial seed innovation, and they're very popular I'm quite an ROE camp varieties second as part of our global scale up efforts for our drought tolerant herbicide resistant age before soybean we successfully harvested enough foundation seed supply 90000 acres of soybean production and.
Third perhaps most importantly, we announced several key good we'd distribution arrangements in both b to B and B to C channels through which we expect to drive a strong revenue finish for 2020 and to scale nicely into 2021 and beyond.
Now despite the very real impact the cobot 19 pandemic has had on the global economy.
We believe the overall impact of the pandemic on our good we'd business will be a net positive. The reason is that this.
Pandemic has accelerated a new direct to consumer channel for our good we'd to serve a robust global demand for home delivery of quality healthy foods. We believe this new channel will meaningfully augment our existing b to b channels like our recently announced good Mills agreement. Although it is true that we are 30 to 90 days.
Behind in our original target dates for completion of definitive agreements with these partners due to the general delays in business productivity brought about by the pandemic because the terms of our arrangements are sufficiently established for the agreements. We've signed were actively preparing for in advancing into these channels in parallel with the final.
Nation of our definitive agreements in order to begin generating revenues as soon as possible.
So let me begin with our recent agreement with corner food distribution channel in partnership with Tastemade and team all in China.
Think of Tastemade as a lifestyle food and travel network broadcast via the Internet in China. Good we'd products will be highlighted in a series of live streaming shows where tastemakers demonstrate meal preparation and highlight product attributes well driving viewers to the team all E store, where ingredients are sold are good weed.
The potential reach with the team all platform is a compelling one with 8 million viewers per month.
The initial pilot test run that we did revealed very positive results and it was very well received and we believe the potential for a good we'd high fiber and reduced gluten ingredients formulated in up to a dozen executions, including pasta flour and a quick bread mix have very significant volume potential.
Interestingly in China to post cobot trends are converging, which drive our enthusiasm for our go to market approach with good we'd foods first consumers have a deep and focus on the helpful. Snacking since covered 19, according to consumer research or carry consumers actively seek healthy foods and products.
With transparent information on ingredients.
Our first product launches in China flower and pastas will deliver in this regard the product labels will emphasize increased fiber and reduce calories and gluten with clean ingredient labels with only good wheat flour and water as components.
Second consumers are increasingly relying on grocery delivery for it's convenient.
As well as the perception of higher quality and safety and Chinese consumers are increasingly cooking at home with Nielsen reporting their recent surveys finding 86% of mainland consumers said they would eat at home more often than before the outbreak we expect to convergence of these trends indicate a meaningful opportunity for a good products via.
Taste me.
We've begun the groundwork and expect our good we'd mark introductions through our corner foods partner to expand two additional countries in Asia in the coming months, including Israel as we noted in our press release.
We've also just announced a U.S. focus partnership with three farm daughters, North Dakota based majority female own food company targeting moms, who care about wholesome nutrition. This is also an exciting new direct to consumer channel via this partnership are good wheat ingredients will be introduced in a number of food form.
Beginning with the introduction of high fiber reduced calorie reduce glued and 100% wheat flour. This fall. We're proud of this close collaboration because it will bring our good wheat ingredients direct to reach our consumers in the U.S. and is built upon a commitment we share with the daughters, a commitment to wheat as a helpful.
18, rich ingredient that shared commitment evolved when we first came to know the daughters as farmers have our good weed.
Together, we are developing a line of food products and snacks that will offer delicious improve nutritional benefits rather than the empty calories offered by many we'd we'd pace foods.
As I mentioned, a silver lining to the covert pandemic is that the sales of baking staple such as flower baking powder baking soda in east had been at all time highs with Nielsen reporting consumers spending, 126% more and flower in March and 100% hundred 5% more in April that in those same months in 2019.
Lastly, with regard to good we it is with great into anticipation that we recently announced our memorandum of understanding with good Mills, who is currently developing the market in Europe for our good we'd product sales good mills as Europe, the leading Miller and it provides products through their channels to more than 200 million people.
Today.
They are a major branded household flowers seller through direct consumer channels in seven countries in Europe with well known legacy brands. They are an important industrial ingredients provider to food companies and bakeries goods. Good mills innovations in line with the company's motto unlocks the power of Green delivers new.
Products with added value in terms of health naturalness and functionality.
Okay perfect partner for our good we'd ingredients.
One last point that I wished to make about good we did I don't think we've ever really touched on.
And that is the way that it tastes, we talked mostly about the nutritional value of a time allows to reduce gluten and low allergenicity profile, but what's more is the way it tastes, it's truly delicious and exceptionally flavorful, especially in pastas, where the high envelopes results in an all dente presentation I was personally taking it back by this.
Just a few days ago, when I was testing one of the free farm three foreign daughter Rep recipes.
I started thinking while I was eating at that I was eating this to be healthy.
But by the time I was done I was going in for seconds, because it's just it really is delicious.
And that's when it occurred to me that whether it's the feedback we're getting.
During testing by.
The good we by our partners like good mills or through foreign daughters are literally anyone who has tried it it is a uniquely flavorful taste in baking performance of good we.
That makes the greatest impression on people and so for those are you interested and try and for yourselves. Please check out the three foreign daughters website.
For details on availability.
Shifting now to good have like most companies, we too have been affected.
By the declining productivity in the private and public sectors due to the pro long business dinner disruption from coven 19 in the pandemic.
Which really extended the already delayed implementation is a much needed happened CBD regulatory guidelines at both the state and federal levels. This is certainly impeded meaningful sales of our hemp seeds and Hawaiian premium CBD in Q2, as our team struggled with travel and logistics to and within Hawaii.
As well as a regulatory environment changed by the realities of covert 19, So let me take a moment to describe the unfolding hemp dynamics there expected near term implications on our outlook and our strategies for success. So without a doubt overall have seed sales in the U.S. have not kept pace with abroad expectations that were established at the time.
Im of the 2018 farm Bill nor as recently as the beginning of this year.
And these estimates as many of you know were based upon specific sequence of events beginning with the passage of the farm Bill in December 2018 in that Bill do you Sta legalize Tam and gave regulatory oversight to the FDA for use of hand extracts, namely CBD in foods, however, concurrent with old.
Legalization of him, but in advance of and established FDA regulatory framework market analysts publish their estimates for the CBD market, which range between 16 to 22 billion by 2022. So clearly the expectations were very significantly as we've all seen that created in agriculture.
True and retail products gold rush of sorts and 2019 to grow him and extract CBD to exploit that retail opportunity that everyone expected for a wide range of consumer offerings, including Topicals wellness products food and beverage infused products two fundamental dynamics are now at work.
Hampering the explosive growth CBD. There was expected during 2021st is the absence of regulatory guidance from the FDA. The CBD market has become sort of a wild west as a result, unrestrained dozens of companies made clinically unsubstantiated claims regarding the health benefits of their CBD formulations.
As well as egregious mislabeling of the composition of their CBD products in response to the FDA has issued warning letters to remove these products from the market and gave general public warnings that they have not yet to term CBD is safe for human consumption.
This is despite the availability of significant clinical data, suggesting the relative safety of CBD at reasonable doses from the World Health organization and National Center for Biotechnology information and others. This stance by the FDA alone has resulted in virtually all cpgs withholding the release of their CBD food and beverage.
Products and sell regulatory clarity is achieved as a result, although the U.S. CBD retail market has become a very large market in of itself, which is estimated to be over $1 billion. In 2019. It is primarily from Topicals and tinctures, where commerce has been allowed or largely unaffected by the FDA.
Prudently and we believe it's just a fraction of what was estimated and and logically would have been if the regulatory framework.
Was in place and there was clarity.
So these headwinds at a retail level have had revpor contains all throughout the supply chain, which we've felt most significantly in the past 60 days.
As we have canvas the Pacific northwest and West where over 1800 growers have received temp licenses. We've discovered there is a significant amount of biomass grown and harvested in 2019 that has yet to be converted to CBD. In 2020. This is due to either poor quality of the underlying genetics.
Low levels of CBD content or simply excess biomass due to speculative grows we're no offtake agreements were secured.
And in some cases offtake contracts were actually abandoned by purchasers due to significant declines in pricing for CBD since the beginning of 2020.
In fact, when we launched good have in December 2019, the demand for our varieties was overwhelming at the time given that demand expectations for CBD ingredient sought by Cpgs was still very high we had verbal commitments for more than 10000 acres of seed.
And as we enter January and February we had minimum contract.
Commitments of 3.7 million proceed with strong indications of doubling that demand over the next 60 to 90 days. However, as you may recall from our first quarter earnings conference call. In May we reported there were far fewer additional commitments to our hemp, good and backlog, which we believe to be a temporary chilling effect of the pandemic because.
As we indicated in the call at that time growers are beginning to come back out and into the markets to evaluate our seat for purchase and in the late spring and summer plantings.
As a result, we expect to see a resurgence of seats sale activity of course. This was provided that the economic implications of the pandemic continued toward a reopening of the economy.
And as I indicated at the beginning of my comments to the contrary economic headwinds from the pandemic have indeed, not diminished and the FDA has not yet issued a regulatory framework for CBD.
Furthermore, the excess biomass in the northwest and Western US has emerged as much more of a significant issue than we are others in the industry previously understood. As a result to date seat sales in the west and the Pacific Northwest have not materialized as we predicted so that raises two very important questions. One what are we doing and response.
Wants to these disruptions and to what is our updated outlook for good HAMP seed sales and our Hawaiian CBD, starting with what we've done we have significantly enhance our internal sales and marketing resources and are targeting states that represent new territory for him seed sales, which are stage with recently you Sta approved state.
Plans, including Florida, Arizona, Minnesota in Texas led by Mark Russell, a season sales executive and agricultural inputs. We've established a team of multi generational farmers growers and amp crop specialists to cover the full territory. The U.S. augmenting our existing distributors grow west and button Wello, which.
Represent a combined 100 plus sales specialists. We also continue to build out our good Hep C offerings, expanding our catalog with high quality high CBD to THC ratio varieties targeting performance for newly legalize geography is in the US we're closing on the ISI acquisition and then.
We're very popular encore and ROADM seed varieties will be a major extension of our reach into established temp growers in the Pacific northwest as well as the great Lakes and the northeast in the near term, we see three broad buckets of target temperatures first there are those who have grown have successfully in 2019 and sold all of their heart.
Adjusted biomass given legitimate concerns over remaining excess biomass in the Pacific northwest and the West. Many of these growers are continuing to delay purchase decisions until they have better visibility into the increase in demand for CBD following the FDA guidelines.
Our team will remain close to these elite growers to service their seed orders as they returned to the market for him seat.
Second is those who have grown.
Hemp in 2019 and retain unsold biomass from those harvest. These growers are mostly in the west and the Pacific Northwest. Most of these growers will not by additional seed until they have disposed of their existing biomass in some instances, we are able to assist growers and aligning for offtake agreements. Many of these growers intend to grow.
So in 2021, especially if there is greater regulatory clarity.
Third our those first time have growers. These are mostly growers and geographies that have just legalized town like Florida, Texas, Louisiana just mentioned since these geographies, our wimp where have has not been grown we're not.
We are we actually trialing varieties with growers in order to align for optimal performance. Therefore, we're working with growers to run small plots over the next 90 days to demonstrate performance with the expectation of securing a share of their plan temperate acreage thereafter.
So in short we believe we've effectively adapted our go to market approach and augmented our organizational structure to sell our high quality sees during the balance of the year as new geographies are coming online and first time hemp growers are looking for quality genetics and a trusted partner to support them as they endeavor to make him an essential part of their operations for the foreseeable few.
Sure. Moreover, it is clear to us that the establishment by the FDA of a regulatory framework will cause an immediate and catalytic ramp in hemp seat sales in the us as growers gain better visibility into offtake of their crops on that note on July 22nd the FDA sent to the White House offices.
Management and budget all MB for their review draft guidance can Avondale enforcement and policies when its call.
We think thats, an indicator of regulatory progress and one that the industry is closely monitoring.
Most importantly, I would say our enthusiasm for the opportunity that have represents for Acadia is undiminished as a seed seller or CBD producer.
And has only enhanced our belief in the need for quality genetics to establish the full potential the crop.
As our commercial activities are maturing and becoming more execution oriented we are proactively adapting and realigning our organization to best serve our go forward execution requirements. Importantly, we've established a project management office or PMO led by GSK Fazio, who is a certified project management professional which is greatly.
City to manage our multiple work streams and debt and adapt to changing priorities. We've also realigned our organization. According to Matt major product categories, utilizing general managers and business leads reporting directly to the CEO with full responsibility for strategy development and business execution.
Specifically good wheat is led by general manager, Kevin Hodges prior to two joining Arcadia, Kevin was with bear crop science.
Prior to that Monsanto and prior to that good mills Im sorry, General Mills, and you've got over 20 years of experience and that we'd industry. He has been a primary driver behind our we partner initiatives he and his team or overseeing the new direct to consumer channels currently through our chase made distribution entry farmers joint ventures.
He is also leading our efforts to establish a direct to consumer channel in North America equally important for Kevin and his team are the completion of the good mills distribution agreement for Continental Europe, and continuing to grow the Baystate milling channel in North America are good Hep C businesses now led by the director of commercial development, Steve Stearns, Steve has been an instrument.
It'll in establishing our good HAMP seed catalog expanding our variety selections and collaborating with our recently deployed good him seat sales team nationwide.
To that to the community of growers archipelago ventures, that's our joint ventures produce premium Hawaiian CBD, that's headed up by General manager Scott Cravens, Scott is in charge of our.
Agronomic operations as well as expanding our hemp acreage and beginning the extraction process for our CBD in accordance with the forthcoming regulatory framework as for our drought tolerant herbicide resist nature before soybean there's a very important time in the lifecycle of our vertical venture with bio series.
We're increasing our investment in breeding and new market development activities to access incremental geographies, including Brazil and to us as well as preparing for the eventual approval in China. Those of you follow soybeans know that China booked a large.
Large soybean orders both in July and again last week with some analysts reading this as a move to art food price inflation in China, which has been experiencing more than 10% price increases year over year. Following the pandemic, it's clear chinas demand for soybeans is not diminished and we're looking forward to having approval for h. before.
Gains from Latin America for their use.
These increased activities require increase leadership dedication and oversight as a result, liveengage Roger solemn a who's the CEO gn, our consulting to lead our internal efforts to step up our day to day involvement with Vertica.
Concurrent with these organizational changes I have eliminated the chief commercial officer position from the company.
This change achieves a flatter and more focused organization structure and will provide me with a direct line of sight into each of these critical business units. Sarah Rider has served Arcadia well in this position for the last two and a half years and we thank her for her many contributions having worked closely with Sarah and developing and launching the good HAMP sicad.
Log and securing the freedom to operate with are good we traits VR settlement agreement with our risks and Baystate milling, our general managers of both good hams and good we are well equipped and ideally position for the aggressive execution of our sales plan.
It's also worth mentioning that we continue progressive discussions with companies in the CBD processing and brand segments regarding potential synergies and enhance value creation through verticalization opportunities.
Before I turn the call over to Randy for an update on our R&D teams progress during the first half of the year I'd like to provide our view.
On potential revenues for the balance of 2020.
And the expected strength of our business entering 2021.
The continued uncertainty surrounding the intensity in duration of the pandemic, which has persisted far longer than we expected and the lack of clarity on the timing of the regulatory framework forthcoming from the FDA. We don't believe it's prudent to continue guiding our investors to a specific revenue number for 2020, but notwithstanding these uncertainty.
He's with both our b to B and BDC channels for good we'd now opening up in earnest as I said earlier, we do expect to generate meaningful good wheat revenues in the balance of the year. Furthermore, we continue working daily with our distributors grow west and button Willow to begin converting our $3.7 million and contractual Hep C backlog.
The revenue.
And should have regulatory framework for the C. Four CBD as an ingredient be confirmed and the Hawaiian CBD.
Rules be implemented in the near term, we do except expect to see both our seed and CBD sales scale in the second half of this year. Moreover, we believe the probability that these headwinds will largely dissipate by 2021, it's a reasonably positive outlook.
And that case are good we could have Hawaiian CBD and our age before soybean businesses on restrained portend for a very positive financial performance in 2021, and the prospect of reaching quarterly profitability by the end of 2021 remains realistic.
With that I'll now turn the call over to Randy Randy.
Thank you, Matt and greetings to everyone on the call as Matt alluded to these event challenging but also extremely exciting times for Arcadia on the R&D front. The team has shown tremendous dedication and teamwork through this pandemic, ensuring that essential deliverables are Matt and keeping the momentum going to develop and deploy our foundational technology platform architecture.
Which combined data science genome editing tilling and predictive breeding to rapidly prototype and advance our product concepts.
Starting with have been the second quarter, our R&D program advanced six new high CBD hemp varieties design for the wellness market to late stage Precommercial trials.
Due to the proprietary nature of these varieties, we deemed a critical to maintain control of seed production and were able to successfully produced over 5 million high quality from and I see that our woodland, California facility. This was important because enabled it enabled us to evaluate variety performance and key growing regions across the us this summer through our multistate.
Regional Trialing network and to get these exciting new varieties in the hands. The early adopter farmers are this year to gather the data that we generate from these trials will enable our will enable our commercial team to effectively place each variety across geographical regions going forward.
We also established eight new discovery stage have projects that address key challenges spanning the threed dominant market segments wellness grain and industrial fiber at this juncture I anticipate that at least two of these discovery project will advance a pre commercial and 2021, highlighting the disruptive nature of our targets.
Platform and reducing the time it takes to drive novel product concepts to commercialization.
As Matt mentioned, we are in the process of completing acquisition of ISI.
Breeding and sees the seed sales company located in the Pacific Northwest. This acquisition will not only expand our germplasm assets in the wellness and Smokeable have space with the two leading commercial variety as Matt mentioned, but also brings a rich pipeline a pre commercial varieties, including some pretty unique inbred population that will accelerate our hybrid have breeding program.
In conjunction with this acquisition I'm pleased to announce that we have established our R&D hemp breeding hub for the Pacific Northwest region in the Willamette Valley Regional Oregon.
And successfully completed planting of our early pipeline selection field in June of this year.
On the we'd front, we continue to make progress advancing newly built and combinations of deals to support development of what will be the next generation of good we attribute and growth both bread and Durham executions.
Across all of our crop platforms, we continue to focus on innovation and expansion of our intellectual property portfolio I'm pleased to announce that in the second quarter alone we were granted or allow seven additional patents and we continue to file aggressively to expand our foundational patent estate and ensure a robust protection of our product portfolio.
I'd like to take a moment to provide a little more color on two of these recently granted patents, which established foundational protection for one of our newest trades non GMO herbicide tolerant wheat in the us and Australia, which are both key we'd growing regions. We also have patents pending and other key geographies. This exciting new innovation, while still early in development.
It has rapidly garnered licensing interest from numerous top we breeding companies and key geographies around the world, which highlights the potential for this type of non GMO technology innovation to transform the 200 million plus Hector global we industry.
In summary, we've had a really strong start to 2020. Despite this does the disruptive challenges associated with Coke Cobot 19, I'm excited about architect platform and the capabilities that it gives us to rapidly develop in advance of robust pipeline of new impactful products that deliver value to both growers and consumers with that I'd like to turn.
On the call over to Pam Haley.
Pam.
Thank you Randy.
Revenue increased in second quarter 2020 from second quarter 2019 by 38% to $281000 an increased second quarter 2020 year to date from second quarter 2019 year to date by 63% to 590000.
Hi, guys initial good wheat grain sales and royalty revenue during 2020, along with increased Sealy products sales.
Total operating expenses for the second quarter of 2020 was 7.2 compared to 7.2 million compared to 5.2 million and the second quarter of 2019 for an increase of 2 million.
Second quarter 2020 year to date operating expenses totaled 13.3 million versus 9.69 for second quarter 2019 year to date for increase of 3.7 million.
Cost of product revenues was the primary driver of the operating expense increase was 1.5 million recognized in the second quarter of 20 to 20 compared to 89002nd quarter of 2019, and 1.6 million second quarter 2020 year to date versus 148002nd quarter 2019 year to date.
Second quarter 2020 included a write off in the amount of $1.4 million due to him seeds produced by a contracted grower that did not meet our quality specifications.
The write off included the forfeit of nonrefundable amount paid in advance that enable to grow it can make facility upgrades necessary to start production.
R&D expense was consistent quarter over quarter, and $781000 higher second quarter year to date with 4.2 million recognized during the six month period. It's my 20 compared to 3.5 million during the six month period of 2019.
The 2020 year to date increase was primarily due to higher employee expenses and hemp related costs.
As seen expenses 3.7 million in second quarter, 2020, and 3.1 million in second quarter 2019 for an increase of 600000.
Second quarter year to date totaled 7.4 million during 2020, and 6 million during 2019 for an increase of one point Fourmillion increase in both periods and largely due to higher consulting expense and noncash stock compensation expense for consultant along with higher employee expenses associated with the expansion of the commercial team.
Net loss attributable to common stockholders for the second quarter of 2000 29.7 million compared to net income of 4.2 million in the second quarter 2019 for a decrease of 13.9 million.
A noncash loss of 3.1 million was recognized for the fair value Remeasurement of common stock warrant liabilities in the second quarter 2020, well noncash gain of 9.5 million was recognized during the same period in 2019.
The fluctuation in our stock price at each of the quarter and re measurement points is the primary driver of the quarter on liability value and thus the change that flows through to the results of operations statement.
Net loss attributable to common stockholders for second quarter 2020 year to date with 7.2 million compared to a net loss of eight point Fourmillion recognized in second quarter 2019 year to date for a decrease of $1.2 million.
The common stock warrant liabilities are associated with the registered direct offering transactions in 2018 and 2019. Please refer to footnote nine in our 10-Q for a detailed description of accounting for these.
Cash on hand cash equivalents in short term investments totaled $15.6 million at the end of the second quarter with an additional 2 million in restricted cash.
Our net cash used in operating activities for the first six months of 2020 with 16.5 billion, but a considerable portion of that spent on inventory build.
We've continued to invest inventories across all product line, but the majority of the about the majority of the balance at June Thirtyth is in good we'd love positioning us to generate revenues, resulting from the distribution relationships that Matt discussed earlier on the call.
We continue to find the right balance between cash conservation and adequate investment to support revenue generating initiative.
Proceeds from the exercise of common stock warrant by investors and May grow $6.8 million with an additional 2.5 million generated in July.
Steve 1.1 million and proceeds from a paycheck protection program in April and 2 million proceeds from the cash secured revolving line of credit and Jim.
And that wraps up our financial highlights for the second quarter and second quarter year to date 20 fine. Thank you for your time horizon today, and said I'd like to turn the call back over to Matt for a wrap up Matt.
Thanks, Pam and closing the fundamentals of our business remains strong across each of the crop product areas, we focus on including our hemp wheat and soy initiatives.
Swiftly and with agility, we've realigned our organization and adapted our go to market approach to Steve to seize the silver linings of the cobot 19 pandemic as well as to mitigate the forward impact of the challenges that it has brought.
The markets, we are targeting for our innovations remain robust prospects and we're confident we're on the right path to significant value creation to the execution of our plan and that there remains meaningful revenue potential in the balance of this year and strong prospects for high growth into 2021, we look forward to keeping you abreast of our continued advances.
Thank you very much and I'll turn it over to our operator for questions.
Thank you as a reminder to ask a question you will need to press star one on your telephone to withdraw your question press the pound.
Please standby wildly compiled the culinary roster.
First question will come from Ram Selvaraju with H.C. Wainwright. Please go ahead.
Hi, Thanks, very much for taking my question.
Firstly with respect to good mills can you comment on how much of the European milling market. Good no Albert on whether your relationship with them as exclusive or not.
Actually they are the largest miller in Europe.
And exactly how much they mill I off the top them my head I don't know, but I can tell you the largest miller.
Our relationship with them, we haven't released the details at this moment.
But suffice it to say with with their footprint, we would expect them to be a dominant.
Distributor for us in Europe.
Overall, our your relationships with the entities that youre working with on the week front, particularly the milling and consumer products companies being consummated on terms qualitatively speaking that you would consider to be in keeping with your previously stated strategy. In other words are these relationships, providing economics that allow you to capture more up the value.
Now the supply chain.
They are.
But I would have to tell you that as you might imagine the direct to consumer opportunities will likely be more favorable margins for us.
And so I think we're going to keep a close eye on what the right balances in terms of taking this product to the market.
As an aside to that do you anticipate there being a possibility of youre effectively.
Forward integrating or partially forward integrating down the E commerce distribution channel.
That is certainly something we're evaluating.
Okay, and then on the patent front I just wanted to better understand what the term of the patents are that pertain to the non GMO herbicide tolerant week.
When do they.
Okay.
Altogether. The exact date these are newly applied for newly granted they have very long term life left probably said 15 17 years if yes.
Okay.
Can you comment on what you expect the relative contribution of the Hempstead week businesses to be on a percentage basis for the revenue mix for the balance of 2020, and then is there anything you can disclosed about the financial terms of the industrial feed innovations asset acquisition. Thank you.
Yes.
Hi.
Im reluctant to with as I said with what's going on in the markets to be more specifics on that I have been on the revenue guidance, but when you look at what I did say.
I'd be disappointed if we didnt convert all of the.
Backlog that we have for him seed.
But I would also be disappointed if we werent successful in.
A significant good.
Strong start on selling our good weed through these fees, especially these direct to consumer channels I think.
The partnership through good mills.
That testing process takes a little bit longer, but the advent of the direct to consumer and the demand that's there and the existing inventory that we have I feel very good about.
It being.
A good competition between the two to sue drives the most revenue.
Is it reasonable to expect that because you have to work through this $3.7 million backlog.
Most likely the had business is going to be a proportionately larger contributors that or is that a fair statement.
The second after 2020.
No I'm not ready to say that.
It.
Yes.
Let's see how it goes.
Okay. Thank you thanks Ron.
Thank you. Our next question will come from Ben Klieve with National Securities. Please go ahead.
All right. Thanks for taking my questions everybody. So a few here from me first of all kind of building off some of the conversation just had on the we'd side.
These distribution agreements.
Three separate agreements.
I'm sure the structure is different for all three on can you just kind of comment on and I know that it's not I know that these aren't officially signed yet you're still working on the terms but.
I mean are each of these distribution agreements that you believe are going to.
Have initial revenue say in within the next 12 months or are there kind of along.
Evaluation processes, what these that your that you're expecting so there's maybe kind of longer term.
Maybe more longer term in nature.
The direct to consumer should be up and running nicely by year end generating revenue by year end.
And the CPG.
The b to B relationships.
I would expect to be up and running no later than early early 21.
Got it and then the.
So the the good mills and the corner foods agreements are those both are those both selling the commodity flour.
The product or are either of those going to be selling.
Selling CPG products.
And then whatever form on in whatever form they have.
Both both will be premium.
And they will be hi, fiber, there will be reduced gluten.
And the formulations will depend upon.
You know what market, they're selling into but we imagine that it will be pastas baking mixes.
And.
Pancake mixes and things of that nature.
The testing that we did in China.
You know pastas.
Flour and baking mixes.
All of them marketed as.
Premium good we products and that will be the same through through good mills.
Got it.
Got it got it okay.
Moving over to have been there's a lot unpack that.
Thank you both explained in your prepared remarks, yes.
I know, there's an incredible amount of uncertainty it sounds like but but.
What from a regulatory perspective, I mean, there is there a is there an event as there is that bill you referred to.
The coming from the FDA last month is there something from a regulatory front that you think is coming down the pike here in the relatively near term that's going to turn.
Let's turn the this market on relatively quickly and if so what are the specific.
The specific things that we can look for from that perspective.
Well, what we've seen is.
Two potential pathways, the one that I just mentioned.
Which is with the the office management in budget.
Which we don't know anything about the content of that one in particular, but it is some sort of a regulatory framework in the other is.
There have been to attempt to too.
Through the coded relief stimulus packages.
To regulate CBD in particular as a.
Dietary supplement.
Which people interpret that to mean.
Fairly.
You know.
Loose regulation.
Just needing to be determined that it generally say, but but nothing like a pharmaceutical which is.
Fear that some has it CBD could be regulated as a as a drug because it has been regulated as a drug.
And.
With GW farmers product, but as Scott godly indicated former FDA.
Mr. Before he left when a lot of the questions refer circulating about CVD. He made a very clear that the FDA has regulated at particular compound in the past as a drove as well as.
As a dietary supplement it just depends upon the concentration.
In the formulation. So those two paths that we've seen that have been an attempt to get CBD approved and establish a regulatory framework up so everybody is.
Anticipating that one of those two pathways will break free we hope. It's this year, we hope it's relatively soon but we really don't know anymore than that at the moment.
Yes.
Okay.
And then last question for me and I'll get back in queue. So on the home front.
To to what degree are ordered growers that were in your backlog.
Once agree our they are they.
Are they planting.
Planting varieties for for industrial user for grain use.
In.
Rather than the CBD variety that you may be providing on.
Is that a dynamic to consider or are they just are they simply waiting for.
For approval. So they can plant the CBD varieties are they planning some other crops move one of these farmers doing.
Rather than planting your variety.
Well I think it's a little of both we are starting to see growers look to other outputs for their hemp grows.
CBD is still dominant.
Most of the growers that we talked to and from the beginning of 2020 or even late 2019.
Scaled back.
As as a as a cautionary measure but are not giving up on are abandoning.
The prospect to grow hemp, but we are seeing and hearing more about.
Curiosity to use HAMP for fiber gross.
But I would say and we want to promote that we think the potential for hemp is well beyond CBD and there's probably actually other can avenue winds that will come to market CVG and others up so we want to encourage many more applications for for him, but I would say right now it's still predominantly CBD.
That is driving growers to to plant plant hemp and as I said in my prepared comments.
You know.
It all to growers, we talk to who have grown previously.
Even if they decided to scale back or Didnt growing 19, it is fully their intention to grow in 2021.
Got it.
All right on.
Thats a good place to stop that thanks for taking my questions and I'll get back you great. Thanks, Ben appreciate it.
Thank you. Our next question will come from Stephen Ralston with sacks. Please go ahead.
Good afternoon.
Oh, Hey, Steven.
Hi.
Is the collaboration with a good mills affected at all by your relationship with the Arista cereal technologies.
No.
How so since I believe the Arista has exclusive rights to the IP.
Well they it there are different kinds of good wheat.
And they're different rights to those different kinds of good wheat, and so theres no overlap between the two.
He is the end product different between the two.
Sure. It can be so you can use the hi, Amolillo suite, you can use to reduce gluten.
And you can do different formulations and so we've been very careful to make sure that we're not.
Giving rights, we cannot give okay. So the IP rights that are just a serial has are not involved with the products that are going through good mills innovation correct and there's there's a hexaplexers tetra Floyd and so thats. The one is a pasta durum wheat and others have read wheat. So the rights to those are separate as well.
And so.
You know.
We're we're making sure that there is no conflict there that's a very important there is no overlap yes, absolutely.
Okay, and given that you're waiting approval for the H. before in China are there any approvals regulatory that are required for good week going into China in the direct to consumer product effort.
Now.
Uh huh.
Yeah.
Is there a reason why is it.
Well, it's not GML.
I think thats the place I would start okay, just which is where you tend to have.
You know regulatory barriers, but maybe that's the simplest way to put it so non GMO beat its just its wheat.
And last question is considering this inventory write off.
In the good HAMP area.
You said it was not the quality standards.
Well just have beginning to do with the THC content or was it mold or.
Let me let me.
Yes.
You just let me just clarify it was it was him. So it was it was our good have.
Sourcing.
When.
In 2019 as I'd mentioned, we had orders for over 10000 acres, which has a lot of seed and so we were sourcing from a number of.
Suppliers and in order to ramp up and meet what we expected to be a high demand in a short period of time.
In some instances we had to advance.
Funds in order to provide sufficient buildout for some of the internal facilities that we were leveraging to grow seed and so.
One of those suppliers did not meet.
Our quality requirements for the seed that we grow.
And.
So when we rejected that seed.
And determined not to continue working with that supplier that that funding that advance we could no longer take advantage of so we had to write it off as part of the rejection of that.
And well how does the comment about the they didnt different equipment.
Well, they just they needed to expand their facilities.
Two but you said, you're not doing business with them anymore correct.
So that advance would have been amortized over a period of time as they produced more seed, but because we determined that they were not the provider for us we had to we had to take to the write off okay.
And is that 1.4 million related in any way to the 3.7 backlog is any inference involved.
No Sir no.
So clearly independent yep. Thank you very much you bet. Thanks, Steve.
Thank you I'm showing no further questions in the queue. At this time I would now like to turn the call back over to Mr., Matt Plevin for any further remarks.
Well, thank you everyone for joining us this.
This afternoon.
We look forward to keeping you apprised of our progress moving forward have a great afternoon. Thank you.
Ladies and gentlemen, this concludes today's conference call. Thank you for your participation you may now disconnect.
[music].