Good afternoon, and welcome to Arcadia Biosciences Second Quarter 2020 Earnings Conference Call. Today's presenters will be Matt Plavan, President and CEO; Randy Shultz, Chief Technology Officer; and Pam Haley, CFO of Arcadia. This call is being webcast, and you can refer to the company's press release at arcadiabio.com.

Before we start, we would like to remind you that Arcadia Biosciences will 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 company's actual performance and results may differ materially from those described or implied today. You can review the company's safe harbor language in their most recently filed 10-K and again on Page 4 of today's press release.

With that, I'll now turn the call over to Matt Plavan, 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 one of the most challenging economic periods in our company's history.

First we are substantially expanding our GoodHemp seeds portfolio through the acquisition of industrial seed innovations and their very popular Umpqua and Rogue hemp varieties.

Second as part of our global scale of efforts for our drought-tolerant herbicide resistant HB4 soybean we successfully harvested enough foundation seed to supply 90,000 acres of soybean production.

And third, perhaps most importantly we announced several key good weed distribution arrangements in both B2B and B2C 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 COVID-19 pandemic has had on the global economy we believe the overall impact of the pandemic on our GoodWheat business will be a net positive.

The reason is that this pandemic has accelerated a new direct to consumer channel for our GoodWheat to serve a robust global demand for home delivery of quality healthy foods. We believe this new channel will meaningfully augment our existing B2B channels like our recently announced GoodMills 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 we're actively preparing for and advancing into these channels in parallel with the finalization of our definitive agreements in order to begin generating revenues as soon as possible.

So let me begin with our recent agreement with Corner foods; a distribution channel in partnership with Tastemade and TMall in China. Think of Tastemade as a lifestyle food and travel network broadcast via the internet in China.

GoodWheat products will be highlighted in a series of live streaming shows where taste makers demonstrate meal preparation and highlight product attributes while driving viewers to the TMall e-store where ingredients are sold our GoodWheat. The potential reach with the TMall platform is a compelling one with 8 million viewers per month.

An initial pilot test run that we did revealed very positive results and it was very well received and we believe the potential for our GoodWheat 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 two post-COVID trends are converging which drive our enthusiasm for our go to market approach with GoodWheat foods. First consumers have a deepened focus on the healthful snacking since COVID-19. According to consumer researcher Kerry consumers actively seek healthy foods and products with transparent information on ingredients.

Our first product launches in China flour and pastas will deliver in this regard. The product labels will emphasize increased fiber and reduced calories and gluten with clean ingredient labels with only GoodWheat flour and water as components.

Second consumers are increasingly relying on grocery delivery for its 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 the convergence of these trends indicate a meaningful opportunity for a GoodWheat products via Tastemade. We've begun the groundwork and expect our GoodWheat market introductions through our Corner foods partner to expand to 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. focused partnership with Three Farm Daughters a North Dakota-based majority female-owned food company targeting moms who care about wholesome nutrition. This is also an exciting new direct-to-consumer channel.

Via this partnership our GoodWheat ingredients will be introduced in a number of food forms beginning with the introduction of high fiber, reduced calorie, reduced gluten, 100 wheat flour this fall. We're proud of this collaboration because it will bring our GoodWheat ingredients direct to retail consumers in the U.S.

and is built upon a commitment we share with the daughters; a commitment to wheat as a healthful protein-rich ingredient. That shared commitment evolved when we first came to know the daughters as farmers of our GoodWheat.

Together we are developing a line of food products and snacks that will offer delicious improved nutritional benefits rather than the empty calories offered by many wheat based foods.

As I mentioned a silver lining to the COVID pandemic is that the sales of baking staples such as flour, baking powder, baking soda and yeast have been at all-time highs with Nielsen reporting consumers spending 126% more on flour in March and 105% more in April than in those same months in 2019.

Lastly with regard to GoodWheat, it is with great anticipation that we recently announced our memorandum of understanding with GoodMills who is currently developing the market in Europe for our GoodWheat product sales. GoodMills is Europe's leading miller and it provides products through their channels to more than 200 million people a day.

They are a major branded household flour 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.

GoodMills innovations in line with the company's motto unlocks the power of grains, delivers new products with added value in terms of health, naturalness and functionality; a perfect partner for our GoodWheat ingredients.

One last point that I wish to make about GoodWheat that I don't think we've ever really touched on and that is the way that it tastes. We talk mostly about the nutritional value of its high amylose 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 amylose results in an al dente presentation. I was personally taken aback by this just a few days ago when I was testing one of the Three Farm Daughter recipes.

I started thinking while I was eating it 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 tasting of the GoodWheat by our partners like GoodMills or Three Farm Daughters or literally anyone who has tried it, it is the uniquely flavorful taste and baking performance of GoodWheat that makes the greatest impression on people.

And so for those of you interested in trying for yourselves please check out the Three Farm Daughter's website for details on availability.

Shifting now to GoodHemp, like most companies we too have been affected by the declining productivity in the private and public sectors due to the prolonged business disruption from COVID-19 and the pandemic, which really extended the already delayed implementation of the much needed hemp and CBD regulatory guidelines at both the state and federal levels.

This has 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 COVID-19.

So let me take a moment to describe the unfolding hemp dynamics, their expected near-term implications on our outlook and our strategies for success. So without a doubt overall hemp seed sales in the U.S.

have not kept pace with the broad expectations that were established at the time 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 the USDA legalized hemp and gave regulatory oversight to the FDA for use of hemp’s extracts namely CBD and foods. However, concurrent with the legalization of hemp but in advance of an established FDA regulatory framework market analysts published their estimates for the CBD market which range between 16 billion to 22 billion by 2022.

So clearly the expectations were very significant. As we've all seen that created an agricultural and retail products gold rush of sorts in 2019 to grow hemp 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 of CBD that was expected during 2020. First 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 the FDA has issued warning letters to remove these products from the market and gave general public warnings that they have not yet termed 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 the 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 until regulatory clarity is achieved. As a result although the U.S.

CBD retail market has become a very large market in and of itself which is estimated to be over a billion dollars in 2019 it is primarily from topicals and tinctures where commerce has been allowed or largely unaffected by the FDA scrutiny and we believe it's just a fraction of what was estimated 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 repercussions all throughout the supply chain which we've felt most significantly in the past 60 days.

As we have canvassed the Pacific northwest and the west where over 1,800 growers have received hemp 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 growth where no off take agreements were secured. And in some cases off-take contracts were actually abandoned by purchasers due to significant declines in pricing for CBD since the beginning of 2020.

In fact, when we launched GoodHemp in December of 2019 the demand for our varieties was overwhelming.

At the time given that demand expectations for CBD ingredients sought by CPGs was still very high, we had verbal commitments for more than 10,000 acres of seed and as we enter January and February we had minimum contract commitment to 3.7 million for seed 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 GoodHemp backlog which we believe to be a temporary chilling effect of the pandemic because as we indicated in the call at that time growers were beginning to come back out and into the markets to evaluate our seed for purchase and in the late spring and summer plantings.

As a result we expected to see a resurgence of seed 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, the 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 U.S.

has emerged as much more of a significant issue than we or others in the industry previously understood. As a result to-date seed 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 in response to these disruptions and two, what is our updated outlook for GoodHemp seed sales in our Hawaiian CBD? Starting with what we've done.

We have significantly enhanced our internal sales and marketing resources and are targeting states that represent new territory for hemp seed sales which are states with recently USDA approved state hemp plants including Florida, Arizona, Minnesota and Texas led by Mark Russell a seasoned sales executive in agricultural inputs, we've established a team of multi-generational farmers, growers and hemp crop specialists to cover the full territory of the U.S.

augmenting our existing distributors Grow West and Buttonwillow which represent a combined 100 plus sales specialists. We also continue to build out our GoodHemp seed offering expanding our catalog with high quality, high CBD to THC ratio varieties targeting performance for newly legalized geographies in the U.S.

We're closing on the ISI acquisition and their very popular Umpqua and Rogue hemp seed varieties will be a major extension of our reach into established hemp 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 hemp growers.

First there are those who have grown hemp successfully in 2019 and sold all of their harvested biomass.

Given the 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 return to the market for hemp seed. Second is those who have grown hemp in 2019 and retain unsold biomass from those harvests. These growers are mostly in the west and the Pacific northwest.

Most of these growers will not buy additional seed until they have disposed of their existing biomass. In some instances we are able to assist growers in aligning for off-take agreements. Many of these growers intend to grow in 2021 especially if there is greater regulatory clarity. Third are those first-time hemp growers.

These are mostly growers in geographies that have just legalized hemp like Florida, Texas, Louisiana just mentioned. Since these geographies are where hemp has not been grown 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 planned hemp 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 seeds 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 hemp an essential part of their operations for the foreseeable future.

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 seed sales in the U.S. as growers gain better visibility into offtake of their crops. On that note on July 22 the FDA sent to the White House office of management and budget OMB for their review draft guidance.

Cannabidiol enforcement and policy is what it's called. We think that's an indicator of regulatory progress and one that the industry is closely monitoring.

Most importantly I would say our enthusiasm for the opportunity that hemp represents for Arcadia 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 of 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 [indiscernible] who is a certified project management professional which is greatly enhancing our ability to manage our multiple work streams and adapt to changing priorities.

We've also realigned our organization according to major product categories utilizing general managers and business leads reporting directly to the CEO with full responsibility for strategy development and business execution. Specifically, GoodWheat is led by general manager Kevin Hodges.

Prior to joining Arcadia, Kevin was with Bare Crop Science, prior to that Monsanto and prior to that General Mills and he's got over 20 years of experience in the wheat industry. He has been a primary driver behind our wheat partner initiatives.

He and his team are overseeing the new direct-to-consumer channels currently through our Tastemade distribution and Three Farmers joint ventures. He is also leading our efforts to establish a direct consumer channel in North America.

Equally important for Kevin and his team are the completion of the GoodMills distribution agreement for continental Europe and continuing to grow the bay state milling channel in North America. Our GoodHemp seed business is now led by the director of commercial development Steve Stearns.

Steve has been an instrumental in establishing our GoodHemp seed catalog expanding our variety selections and collaborating with our recently deployed GoodHemp sales team nationwide to the community of growers.

Archipelago ventures that's our joint venture to 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 resistant HH4 soybean this is a very important time in the life cycle of our Verdeca venture with Bioseries. We're increasing our investment in breeding and new market development activities to access incremental geographies including Brazil and the U.S. as well as preparing for the eventual approval in China.

Those of you who follow soybeans know that China booked large soybean orders both in July and again last week with some analysts reading this as a move to thwart food price inflation in China which has been experiencing more than 10% price increases year-over-year following the pandemic.

It's clear China's demand for soybeans is not diminished and we're looking forward to having approval for HB4 beans from Latin America for their use. These increased activities require increased leadership dedication and oversight.

As a result I've engaged [Roger Salameh] who's the CEO of GNR consulting to lead our internal efforts to step up our day-to-day involvement with Verdeca. 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 Reiter 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 in developing and launching the GoodHemp seed catalog and securing the freedom to operate with our GoodWheat traits via our settlement agreement with Arista and Bay State Milling our general managers of both GoodHemp and GoodWheat are well equipped and ideally positioned 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 enhanced value creation through verticalization opportunities.

Before I turn the call over to Randy for an update on our R&D team's 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 and 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 uncertainties with both our B2B and B2C channels for GoodWheat now opening up in earnest.

As I said earlier we do expect to generate meaningful GoodWheat revenues in the balance of the year.

Furthermore we continue working daily with our distributors Grow West and Buttonwillow to begin converting our 3.7 million in contractual hemp seed backlog to revenue and should a regulatory framework for the CBD as an ingredient be confirmed and the Hawaiian CBD rules be implemented in the near term we do 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 is a reasonably positive outlook.

In that case, our GoodWheat, GoodHemp, Hawaiian CBD and our HB4 soybean business is unrestrained pertain 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 will now turn the call over to Randy.

Randy?.

Thank you Matt, and greetings to everyone on the call. As Matt alluded to these have been 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 met and keeping the momentum going to develop and deploy our foundational technology platform architect which combines data science, genome editing, tilling and predictive breeding to rapidly prototype and advance our product concepts.

Starting with hemp in the second quarter our R&D program advanced six new high CBD hemp varieties designed for the wellness market to late stage pre-commercial trials.

Due to the proprietary nature of these varieties we deemed it critical to maintain control of seed production and were able to successfully produce over 5 million high quality feminized seeds at our Woodland California facility. This was important because it enabled us to evaluate variety performance in key growing regions across the U.S.

this summer through our multi-state regional trial network and to get these exciting new varieties in the hands of early adopter farmers this year. Together the data that we generate from these trials will enable our commercial team to effectively place each variety across geographical regions going forward.

We also established eight new discovery stage hemp projects that address key challenges spanning the three dominant hemp market segments; wellness, grain and industrial fiber.

At this juncture I anticipate that at least two of these discovery projects will advance to pre-commercial in 2021 highlighting the disruptive nature of our architect platform and reducing the time it takes to drive novel product concepts to commercialization.

As Matt mentioned we are in the process of completing the acquisition of ISI, a hemp breeding and seed sales company located in the Pacific northwest.

This acquisition will not only expand our germ plasma assets in the wellness and smokeable hemp space with the two leading commercial varieties as Matt mentioned but also brings a rich pipeline of pre-commercial varieties including some pretty unique inbred populations that will accelerate our hybrid hemp 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 region of Oregon and successfully completed planting of our early pipeline selection field in June of this year..

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 allowed seven additional patents and we continue to file aggressively to expand our foundational patent estate and ensure 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 traits non-GMO herbicide tolerant wheat in the U.S. and Australia which are both key wheat growing regions. We also have patent pending in other key geographies.

This exciting new innovation while still early in development has rapidly garnered licensing interests from numerous top wheat 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 hectare global wheat industry.

In summary, we've had a really strong start to 2020 despite the disruptive challenges associated with COVID-19. I'm excited about our architect platform and the capabilities that it gives us to rapidly develop and advance a robust pipeline of new impactful products that deliver value to both growers and consumers.

With that I'd like to turn the call over to Pamela Haley.

Pam?.

Thank you Randy. Revenue increased in second quarter 2020 from second quarter 2019 by 38% to $281,000 and increased second quarter 2020 year-to-date from second quarter 2019 year-to-date by 63% to $590,000. We recognized initial GoodWheat grain sales and royalty revenue during 2020 along with increased GLA product sales.

Total operating expenses for the second quarter of 2020 was $7.2 million compared to $5.2 million in the second quarter of 2019 for an increase of $2 million. Second quarter 2020 year-to-date operating expenses totaled $13.3 million versus $9.6 million for second quarter 2019 year-to-date for an increase of $3.7 million.

Cost of product revenues was the primary driver of the operating expense increase with $1.5 million recognized in the second quarter of 2020 compared to 89,000 in the second quarter of 2019 and $1.6 million second quarter 2020 year-to-date versus 148,000 second quarter 2019 year-to-date.

Second quarter 2020 included a write-off in the amount of $1.4 million due to hemp seeds produced by a contracted grower that did not meet our quality specifications. The write-off included the forfeit of non-refundable amounts paid in advance that enabled the grower to make facility upgrades necessary to start production.

R&D expense was consistent quarter-over-quarter and $781,000 higher second quarter year-to-date with $4.2 million recognized during the six month period of 2020 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.

SG&A expense was $3.7 million in second quarter 2020 and $3.1 million in second quarter 2019 for an increase of 600,000. Second quarter year-to-date totaled $7.4 million during 2020 and $$6 million during 2019 for an increase of $1.4 million.

The increase in both periods was largely due to higher consulting expense and non-cash stock compensation expense for consultants along with higher employee expenses associated with the expansion of the commercial team.

Net loss attributable to common stockholders for the second quarter of 2020 was $9.7 million compared to net income of $4.2 million in the second quarter of 2019 for a decrease of $13.9 million.

A non-cash loss of $3.1 million was recognized for the fair value re-measurement of common stock warrant liabilities in the second quarter of 2020 while a non-cash gain of $9.5 million was recognized during the same period in 2019.

The fluctuation in our stock price at each of the quarter end re-measurement points is the primary driver of the quarter-end liability value and thus the change that flows through to the results of operation statement.

Net loss attributable to common stockholders for second quarter 2020 year-to-date was $7.2 million compared to a net loss of $8.4 million 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 9 in our 10-Q for a detailed description of the accounting for these. Cash on hand, cash equivalents and 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 was $16.5 million with a considerable portion of that spent on inventory build.

We've continued to invest inventories across all product lines but the majority of the balance at June 30 is in GoodWheat, while 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 initiatives. Proceeds from the exercise of common stock warrants by investors in May gross $6.8 million with an additional $2.5 million generated in July.

We received $1.1 million in proceeds from a paycheck protection program loan in April and $2 million in proceeds from the cash secured revolving line of credit in June. And that wraps up our financial highlights for the second quarter and second quarter year-to-date of 2020. Thank you for your time, attention today.

And with that I'd like to turn the call back over to Matt for a wrap-up.

Matt?.

Thanks Pam. In closing, the fundamentals of our business remain strong across each of the crop product areas we focus on including our hemp, wheat and soya initiatives.

Swiftly and with agility we've realigned our organization and adapted our go-to-market approach to seize the silver linings of the COVID-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 are on the right path to significant value creation to the execution of our plan and that there remains meaningful revenue potential on 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. [Operator Instructions] Our first question will come from Raghuram Selvaraju with H.C. Wainwright. Please go ahead..

Hi thanks very much for taking my questions.

Firstly, with respect to GoodMill, can you comment on how much of the European milling market GoodMill covers and whether your relationship with them is exclusive or not?.

Actually they are the largest miller in Europe and exactly how much they mill at the top of my head I don't know but I can tell you the largest miller. Our relationship with them we haven't released the detail at this moment but suffice it to say with their footprint we would expect them to be a dominant distributor for us in Europe..

Overall, your relationships with the entities that you are working with on the wheat 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 of the value down the supply chain?.

They are but I 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 balance is in terms of taking this product to the market..

As an aside to that do you anticipate there being a possibility of your 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 wheat? When do they expire?.

Okay. I'll to give you the exact date. These are newly applied for newly granted. They have a very long term life left. Probably 17 years..

Okay. Can you comment on what you expect the relative contribution of the hemp and wheat businesses to be on a percentage basis to the revenue mix for the balance of 2020 and then is there anything you can disclose around the financial terms of the industrial feed innovations asset acquisition? Thank you..

Yes.

I'm reluctant to as I said with what's going on in the markets to be more specific than I have been on the revenue guidance but when you look at what I did say, I would be disappointed if we didn't convert all of the backlog that we have for hemp seed but I would also be disappointed if we weren't successful in a significant good strong start on selling our GoodWheat through these -- especially these direct-to-consumer channels.

I think the partnership through GoodMills that 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 see who drives the most revenue..

Is it reasonable to expect that because you have to work through this $3.7 million backlog, most likely the hemp business is going to be a proportionately larger contributor? Is that a fair statement for the second half of 2020?.

I'm not ready to say that. Yes. Let's just see how it goes..

Okay. Thank you..

Thanks Ram..

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 hear from me. First of all kind of building of some of the conversation just had on the wheat side, on these distribution agreements, I mean three separate agreements, I'm sure the structure is different for all three.

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 long evaluation processes with these that you're expecting so these may be kind of longer term maybe more longer term in nature?.

The direct to consumers should be up and running nicely by year end, generating revenue by year end and the CPG B2B relationships, I would expect to be up and running no later than early ‘21..

Got it and then, so the GoodMills and the Corner Foods agreements are those both selling the commodity flour product or are either of those going to be selling CPG products in whatever form you may have?.

Both will be premium and they will be high fiber. They will be reduced gluten and the formulations will depend upon 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 was pastas, flour and bake mixes.

All of them marketed as premium GoodWheat products and that will be the same through GoodMills..

Got it. Okay. Pivoting over to hemp, I mean there is a lot to unpack that you both explain in your prepared remarks.

I guess, I know there's an incredible amount of uncertainty it sounds like but what from a regulatory perspective, I mean is there an event, is there is that bill you referred to 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 this market on relatively quickly and if so what are the specific things that we can look for from that perspective?.

What we've seen is two potential pathways.

The one that I just mentioned which is with the office of management budget which we don't know anything about the content of that one in particular but it is some sort of a regulatory framework and the other is there have been two attempts to through the COVID relief stimulus packages to regulate CBD in particular as a dietary supplement.

Which people interpret that to mean fairly lose regulation just needing to be determined that it's generally safe but nothing like a pharmaceutical which is a fear that some have that CBD could be regulated as a drug because it has been regulated as a drug in GW farmers product but as Scott [indiscernible] indicated former FDA commissioner before he left when a lot of the questions were first circulating about CBD he made it very clear that the FDA has regulated a particular compound in the past as a drug as well as a dietary supplement.

It just depends upon the concentration in the formulation. So there is two paths that we've seen that that have been an attempt to get CBD approved and establish a regulatory framework. 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 any more than that at the moment..

Yes. Okay. And then last question for me and I'll get back in queue, still on the hemp front.

To what degree are the hemp growers that were in your backlog to what degree are they planting varieties for industrial use or for grain use and rather than a CBD variety that you may be providing? Is that a dynamic to consider or are they just simply waiting for approval so they can plant the CBD varieties? Are they planting some other crops? I mean what are these farmers doing rather than planting your varieties?.

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 the growers that that we talked to and from the beginning of 2020 or even late 2019 scaled back as a cautionary measure but are not giving up on or abandoning the prospect to grow hemp but we are seeing and hearing more about curiosity to use hemp for fiber grows 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 cannabinoids that will come to market CPG and others.

So we want to encourage many more applications for hemp but I would say right now it's still predominantly CBD that is driving growers to plant hemp and as I said in my prepared comments all the growers we talked to who have grown previously even if they decided to scale back or didn't grow in ‘19 it is fully their intention to grow in 2021..

Got it. All right. I think that's a good place to stop. Thanks for taking my questions and I'll get back in queue..

Great. Thanks Ben. Appreciate it..

Thank you. Our next question will come from Steven Ralston with Zachs. Please go ahead. .

Good afternoon..

Hey Steven..

Hi.

Is the collaboration with GoodMills affected at all by a relationship with Arista Cereal Technologies?.

No..

How so, since I believe Arista has exclusive rights to the IP?.

Well, there are different kinds of GoodWheat and there are different rights to those different kinds of GoodWheat and so there is no overlap between the two..

Is the end product different between the two?.

Sure. It can be. So you can use the high Almelo sweet. You can use the reduced 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 Arista Cereal has are not involved with the products that are going through GoodMills innovation?.

Correct and there is a hexaploid and a tetraploid and so that's the one is a pasta durum wheat, another is a bread wheat. So the rights to those are separate as well and so we're making sure that there is no conflict there. It's a very important..

There is no overlap?.

Yes. Absolutely..

Okay.

And given that you're awaiting approval for the HB4 in China, are there any approvals regulatory that are required for GoodWheat going into China in the direct to consumer product effort?.

No. .

Is there a reason why?.

It's well it's not GMO. I think that's the place I would start which is where you tend to have regulatory barriers but maybe that's the simplest way to put it. It's a non-GMO wheat..

And last question is concerning this inventory write-off in the GoodHemp area. You said it wasn't up to quality standards.

Was this having anything to do with the THC content or was it mold or?.

Let me just clarify. It was hemp. So it was our GoodHemp sourcing.

In 2019 as I mentioned we had orders for over 10,000 acres which is 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 build out 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 funding, that advance, we could no longer take advantage of.

So we had to write it off as part of the rejection of that seed..

And how does that a comment about they needed different equipment?.

Well, they just they needed to expand their facilities too..

But you said you're not doing business with them anymore?.

Correct. So that 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 take the right off..

Okay and is that 1.4 million related in any way to the 3.7 backlog? Is any inference involved?.

No sir. No. fully independent..

Excellent..

Yes..

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 Plavan for any further remarks..

Well thank you everyone for joining us 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..