Good afternoon, and welcome to Arcadia Biosciences Third Quarter 2020 Earnings Conference Call. Today's presenters will be Matthew Plavan, President and CEO; Kevin Hodges, Vice President of Commercial Operations; 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 6 of today's press release.

With that, I'll now turn the call over to Matt Plavan, President and CEO.

Sir?.

Thank you everyone for joining us, and welcome to our third quarter conference call.

Since our last call, I'm pleased to report Arcadia achieved a number of fundamental milestones, resulting in a more focused execution strategy, and a tangibly strengthened financial ability to achieve our number one goal to drive near-term shareholder value by unlocking the full potential of our commercial ready products today.

Allow me to highlight these important achievements.

First, as we announced this morning, we have consolidated the forward commercialization of our HB4 soybean, soybean business with our business partner Bioseries, in exchange for cash and just under 1.9 million shares in Bioseries, providing Arcadia with both additional liquidity for its other business initiatives, as well as a meaningful stake in Arcadia, thereby preserving our share of an upside and the performance of the HB4 soybean.

Also, as part of this transaction Bioseries acquired the license rights to our GoodWheat product portfolio which will extend our global reach into South and Central America and important wheat growing region. Second, we completed the acquisition of Industrial Seed Innovations or ISI.

And we've successfully integrated breeding activities and their Northwestern production operations with our operations in Central California that are now laying the groundwork for sales in 2021, leveraging their installed base and strong reputation for quality genetics and grower support.

And third, just this week, we formally launched our direct-to-consumer GoodWheat products with our partner three farm daughters into both regional grocers in the U.S.

and an online e-commerce cart made possible only by the hard work over the past 90 days by our employees and our partners, putting into place from scratch so to speak, the milling, co-packing, an e-commerce logistics infrastructure required to serve our global markets.

The more experience we get in the commercialization of the products of GoodWheat, the higher is our confidence that our GoodWheat trades will be a blockbuster success.

Unequivocally, the feedback from our B2B partners like Bay State Milling, Arden, Teva, GoodMill innovation, as well as our supply chain partners who work with us to formulate our wheat into food products is that good wheat is remarkably unique, because of what we like to think of as the innovation trifecta, which is one, its nutritional content is superior, with unparalleled levels of intrinsic fiber; two, its food formulation, performance is exceptional; and three, it tastes delicious, which we know through direct consumer feedback that's pouring in since our launch.

The challenge for any food innovator is to improve the nutritional content of a food staple, while maintaining formulation, performance and taste. This is why I quote one of our large milling partners when they said to us, good wheat is the most important wheat innovation in the past 75 years.

That's because no one else has been able to achieve this trisect to the degree we feel we have. That's why we increasingly believe the global potential for our good wheat trade is truly vast, which Kevin will discuss a bit later in the call. Okay. I'd like to begin our commercial update with our Bioseries collaboration.

As many of you know, we have a long and successful history of co-development with Bioseries. We've spent the past six years through our joint venture partnership, Verdeca, developing testing, trialling and deregulating the world's first drought tolerant, herbicide resistance, soybean trade the HB4 for soybeans.

We are proud of this joint development success and consider Bioseries not only a trusted development partner, but a very capable commercial company for execution.

Therefore, now that the development space is complete and we are squarely in the commercialization phase, the management committee of Verdeca assemble to determine the optimal forward path for the HB4 soy commercialization, as well as other opportunities for commercial collaboration between our two companies.

Rather quickly, two opportunities became very obvious. The first was with regard to the HB4 soybean business. We concluded that for the highest commercial success of our HB4 soybean from this point forward, it would be best to consolidate the launch and commercialization authority under one roof.

And in this case, it was clear -- clearly to be with Bioseries.

The reasons being, A, Bioseries is well-established in South American agriculture, having their headquarters and primary operations in Argentina, one of the largest markets globally for biotech crops and having built a strong reputation as an innovator and operator now marketing agricultural inputs to more than 31 countries.

And B, Bioseries has built an integrated product platform called eco seed, where in several proprietary technologies, including germplasm, the HB4 trait, fungicides, insecticides, polymers, and other biologicals are all embedded in they single pellet.

Eco soy, a component of the eco seed platform is a specific vehicle through which our HB4 technology will be marketed and sold. Thus Bioseries has defacto become the primary operational, commercial lead while Arcadia's value contribution has been most recently and certainly would be from this point forward, principally financial.

And second, for all the same reasons, Bioseries is the ideal commercial agent for the HB4 soybean. We agree, it also makes perfect sense that Bioseries acquire the rights to our good weed portfolio of products in South and Central America.

In combination, this transaction is highly beneficial for Arcadia and its shareholders because in exchange for the sale of its membership interest in Verdeca and for the rights to our good weed technologies in South and Central America, Arcadia gets in return; one. a significant non-dilutive infusion of cash.

Following the close, Arcadia received $6 million in cash with $2 million in contingent cash to be paid following approval of China regulatory approval or the scale up of HB4 acreage. Arcadia also received that close 1.875 million shares of Bioseries stock.

Two, through its acquired stake in Bioseries and the follow on trait royalties that will total up to $10 million on HB4 seed sales, Arcadia retains a significant share in the upside potential of the HB4 soybean over time.

Three, and very importantly, Arcadia will no longer be responsible for its share of the annual Verdeca capital contributions, which are becoming significantly greater entering the commercialization scale of the program.

In fact, we estimate our share for 2021 that would have been as much as $9 million is the capital we would have to have secured which will, likely would have been through external sources.

Added to that, we will be able to reduce the dedicated costs related to ongoing management of the Germplasm Development Program as well as the elimination of up to $2 million per year in direct R&D support costs for the development of the HB4 trait that we've been incurring over the past several years.

And four Arcadia significantly expands its geographic reach into South and Central America for its GoodWheat portfolio of products. Between Argentina and Brazil alone, there are about 22 million acres of wheat grown annually or approximately 33 million metric tons of grain produced.

We expect our GoodWheat products will sell at a premium to conventional wheat. If we were to try and size the market opportunity today, we think a 15% premium over conventional wheat prices is very reasonable, which equates to approximately $27 per tonne as conventional wheat today sells at about $180 per tonne.

Our royalty percentage is 25% of the premium derived by Bioseries or in this case, it would be $6.75 per tonne. And therefore using these estimates, if we assume just a 5% penetration rate into South and Central American markets, it will yield annual royalties to Arcadia of approximately $11 million.

So clearly, we will we will be working closely with Bioseries to bring this to market and if possible penetrate beyond 5%, but that just gives you some sense for the royalty opportunity for Arcadia, through the Bioseries license relationship.

So in the aggregate, we believe the Bioseries transaction enhances our near-term value creation potential, by providing an immediate infusion of cash, eliminating a significant joint venture capital call that was coming due within less than six months, and would be recurring for the next few years, which significantly derisks our continued participation in the upside of HB4.

And lastly, this transaction activates an important new geography for a GoodWheat portfolio of products. So I'd like to turn the call over now to Kevin, for an update on our GoodWheat programs.

Kevin?.

Thanks, Matt. Welcome, everyone. I'm excited to update all of you on the progress the team at Arcadia has made these last three months on the front of launching our direct-to-consumer business model, both in the U.S. and internationally. Understanding that, this type of product launches and brand introduction takes time.

The progress that we have made in the third quarter of 2020 excites us, even more. Especially as we set up for success in 2021. In addition, we are thrilled to now be partnered with Bioseries on our wheat technology platforms, as they are a leader in the agricultural input segment of Argentina.

And they are able to bring access and availability of the GoodWheat platform of enhanced value attributes to the food industry and eventually consumers, in South America and Latin America. This announcement further enables our B2B market approaches that we have been updating you on in the last 12 months.

As we're all very aware of the continued health pandemic of the COVID-19 virus, history suggests and as do studies published by McKinsey & Company, that companies who invest in innovation, through a crisis outperform others during such recovery period, by as much as 30%.

That is why we believe, our investment in building a direct-to-consumer GoodWheat brand will lead to very positive near-term revenue opportunities, especially as the nation and world continue to cope with the quarantine restrictions of this ongoing pandemic.

As you will hear us talk about today, as a company, we've partnered and positioned Arcadia by investing in 2021 to enable both near term revenue and sustained long term growth.

The factors that are leading to continue our investment are powered by the inventions at Arcadia that are enabling the good wheat brand family of enhanced nutritional attributes to come to the market. The GoodWheat products are enabling an effort to fill a fiber and nutrition gap in consumers’ diets globally.

Studies have found a population wide deficiency in fiber with only 5% of people in the U.S. meeting the Institute of Medicine's recommended daily target of 25 grams for women and 38 grams for men. This is a staggering deficiency that makes for a tremendous market opportunity for our GoodWheat.

As we have tracked through McKinsey data research, there are five fundamental shifts occurring today to the consumers’ behavior of purchases in our market, stemming from the current health pandemic. And this will, very likely, lead to possibly permanent changes in purchase patterns well into the future.

Two of the most revealing trends that are; one is that over 70% of the consumers have opted for a different purchase store, for example, online and e-commerce.

And second is that, it is forecasted that between the range of 20 to 40% net increase of spend will incur for online purchases, and this will sustain even after the current situation of the COVID-19 resides. This leads us to why.

When we last updated you in August, we entered into a joint business partnership with Three Farm Daughters, a majority female owned company, marketing to families and consumers by providing food products that are wholesome in nutrition.

We talked on the last call and we are continuing to see this sustained trend of sales of baking stables such as flour, baking powder, baking soda and ease through online direct to consumer and even retail grocery stores throughout the U.S. being at an all time high.

Shelf stable panfry categories are still experiencing a plus 19% growth compared to 2019. As we also announced in our press release on Tuesday of this week, the Three Farm Daughters has first launched three different shapes of high fiber, excellent taste and texture, healthy artisanal pasta noodles in time for the holiday purchase season.

This has been accomplished in the direct-to-consumer channel through their e-commerce website powered by Shopify, where families can purchase to match their at-home volume customized needs, with a curbside delivery approach.

The specific pasta formulations chosen for this initial launch were based on customer's feedback we received from pre-launch studies conducted this past September.

That feedback was overwhelmingly positive, with high remarks on the overall taste, texture and al dente firmness of the pasta noodles that are powered from the GoodWheat of resistant starch durum wheat. These points of differentiation make GoodWheat a clear consumer choice and give us the potential to be the market leader in this category.

From a health and nutritional standpoint, all of the pasta noodles are manufactured from resistant starch durum wheat, semolina flour with no additives and have up to 9 grams more dietary fiber per serving and 30% fewer calories than a traditional pasta and is a very good source of protein.

In addition to the pasta offerings, we are also selling a very exciting at home baking flour product to consumers online, another nutrient dense health offering just in time for holiday baking for friends and families.

This hundred percent wheat flour product is available to consumers in a resalable plastic pouch, and is also packed with an impressive nutritional profile contains 30% fewer calories and higher fiber and 50% less gluten when compared to all -- when compared to other all purpose baking flours being sold in the market today.

According to a report in the American Journal of Lifestyle Medicine for buyers that consume a fiber rich diet like the hundred percent wheat flour sold by Three Farm Daughters, this associates to an improved GI health and a reduction in risk of health ailing symptoms.

In addition to the e-commerce launch here in November, we are also excited to talk about a regional launch with a North Dakota and Minnesota grocery retailer Hugo's Family Marketplace, a popular grocery chain that provides excellent and healthy choices to consumers across the Midwest.

This initial launch into the retail market will provide a secondary direct-to-consumer avenue to customers desiring great tasting, healthy and traditional food options. Our key learnings by first partnering with Hugo's will provide real time feedback and enable large retail pushes into additional U.S. markets.

As we talked about last quarter, the consumer buying trends in global markets during this health pandemic are very similar to the United States. Families internationally are continuously seeking healthy, clean label and alternate options that bring forward increased health attributes in their diets.

With our partner Corner Foods and through the e-commerce distribution channels of Tastemade and TMall, we're poised to create entry and introduction of Arcadia’s value-enhanced platforms to this part of the globe.

We continue to push and are forecasting the launch of Three Farm Daughters brand noodle -- brand pasta, noodles, powered by GoodWheat in addition a legacy product of the SONOVA GLA supplemental capsules into the China market through direct-to-consumer channel in this current fourth quarter.

As we look to scale production capacity in 2021 to meet the demands and trends in international markets like China, we're excited to provide consumers in these geography food products that fit the increased demand to cook and eat-at-home.

As reported in the second earning -- second quarter earnings are B2B in the international geography basis is gaining momentum.

While all food ingredient companies are facing challenges in the current environment of this health pandemic, our partner GoodMills Innovation, an affiliate of GoodMills Group in Europe, along with Arcadia are continuing to collaborate and pushing ahead with GoodWheat brand varieties for use in consumer products in multiple countries of Europe.

In Central America, and more specifically, Guatemala, Arcadia is continuing the marketing and promotion efforts through online website communication and social media engagement. We are aligning with ingredient and food processors in 2021 to push forward expansion of our GoodWheat B2B sales.

We invite you to join us on our social media platforms in this part of the globe at GoodWheat LatAm to continue to see the food Innovation and recipes that we are creating for consumers and how they are using it in their home cooking of food products that will contain GoodWheat ingredients.

To further support our continued B2B platform with the licensing terms reached with the Bioceres on GoodWheat, this only supports that consumers across the globe are seeking and demanding to implement healthier food options at the dinner table.

GoodWheat in the future years is being introduced and brought to you -- brought to the south -- brought to the market in South America by Bioceres, enabling the large reach that is occurring for our wheat technology of Arcadia.

In conclusion, with our direct-to-consumer and B2C push this past quarter, and through the fourth quarter and beyond, we are doubling down on our investment in world class direct-to-consumer retail and e-commerce channels. Home meal preparation and online food purchases have expanded significantly as a result of the ongoing pandemic.

And according to an online publication at grocerydive.com, expectations are that online groceries will account for 21.5% of the total grocery sales and will lead to a $250 billion market size in the next five years.

That is why we expect a very busy fourth quarter for GoodWheat and Arcadia, and look forward to keeping you all informed of our progress. With that, I'll turn the call back over to Matt..

Thanks, Kevin. To round out our commercial update, I'd like to give you a brief update on GoodHemp. To begin with an update on the status of our Archipelago ventures JV dedicated to cultivating Hawaiian hemp and the wholesale of premium CBD for the mainland markets.

During the quarter, we continue to successfully cultivate our hemp varieties and to prepare our extraction operations awaiting clarification of the regulatory framework to supersede the October 31st expiry of the Hawaiian industrial pilot program is what's -- which is what we've been operating under, since 2019, which governs -- which will govern the forward Hawaiian commercial hemp operations.

That is the new regulations that we were waiting on, although the passage of the bill 2018-2019 did lay out a path for the sale of CBD in Hawaii.

The DEA recently issued an interim rule that some believe represents an existential threat to the entire hemp industry because it could in theory, recriminalize processing hemp extract that was made legal through the 2018 Farm Bill.

Now this IFR has been met with vigorous industry opposition during the comment period as well as a number of asserted legal claims against the DEA.

And an abundance of caution while the DEA assesses this public backlash and the clear conflict of this IFR between the current USDA hemp rules and the rules of the IFR itself, Arcadia will temporarily cease operations of the Archipelago ventures at least as the JV is configured today.

And at the same time, we will assess with our joint venture partner legacy ventures, Hawaii, our best options to remain a first mover in the Hawaiian hemp market.

Amidst these evolving regulations from the FDA, DEA and Hawaiian departments of health and agriculture, we remain very optimistic that this will be resolved favorably to preserve the legality of hemp cultivation and processing for CBD as was originally envisioned by the USDA.

So I look forward to keeping you updated as we learn more about this matter in the next coming weeks. So for an update on our GoodHemp seed sales, clearly the most important to the GoodHemp seeds story during the quarter was the completion of our purchase of Oregon based industrial seed innovations.

With this acquisition, ISI’s portfolio strong performing, federally compliant hemp varieties have become part of Arcadia’s GoodHemp line of hemp seeds and transplants, specializing in organically grown high CBD feminized hemp seeds and seedlings.

ISI’s popular Umpqua, Rogue and hemp seed varieties each bring unique and highly desirable characteristics to further differentiate Arcadia’s GoodHemp catalog.

All three varieties have shown excellent yield and quality when grown in a low density, high intensity growing situation and Rogue and Umpqua are also suited for higher density, lower intensity planning, if that's a desire from a grower.

To better illustrate the importance of the ISI acquisition to Arcadia, I need to dive a lens back for a moment and look at the overall CBD hemp seed market for the first nine months of 2020. The Brightfield group reports that in 2020, the U.S. CBD market is projected to reach $4.7 billion in sales with 14% growth from the 2019 sales of $4.1 billion.

Now with Americans facing high unemployment levels resulting from the pandemic, 2020 retail sales are not expected to reach the levels anticipated previously. Economic pressures facing consumers, temporary store closures and inaction by the FDA is constraining growth of the U.S. CBD market. By 2025, the Brightfield group estimates, total U.S.

CBD market could reach $16.8 billion, despite these challenges, the base of the U.S. CBD consumers still growing strongly. Consumers adapt in Q2 2020 were 47% of CBD consumers purchasing online last quarter. However, the Brightfield group also notes that the pandemic has been a significant extinction event for hundreds of small brands in the U.S.

CBD market, because the market has seen both expansion and consolidation in 2020. The top 20 brands have technically lost market share, but still maintain the majority piece of a now larger pie. So the good news is that the retail CBD market that creates ultimately the pull-through demand for our seeds continues to expand remarkably in size.

However, the not so good news is the turmoil just described has created a temporary dysfunction in the processing and seat segments of the supply chain.

The lack of visibility for growers into the reliable offtake agreements, results in grower losses in early and mid 2020 from unsold biomass that was harvested in 2019, and in fewer acres being planted in 2020 as compared to 2019.

As a result to date, overall seed sales in 2020 have been well below market expectations as many growers have kind of taken a wait and see approach, or those who did plants in 2020 retreated to the safety of brands and varieties that they had experience with rather than trying new varieties, like GoodHemp varieties, despite the prospects of better genetics.

Now keep in mind, throughout this time, we did not have the ISI varieties that I just described.

So, as a result, we experienced a disappointing delay in the second, third quarters of the conversion to sales of our GoodHemp seed pre-order backlog of 3.7 million, which was established in January of this year by more than 50 very enthusiastic and sizable hemp growers before these dynamics emerged.

But, I am pleased to report that at this moment, industry projections for 2021 reflect a return to growth in seed acres planted over 2020.

And we are seeing tangible signs of interest in our ISI seeds for Q4 and the 2021 planting season, and not only from our installed base of growers, but a number of others who have performed their own diligence on successful grows around them of ISI seeds.

In addition to the ISI interest, there are several other important factors, underlying our optimism for successful GoodHemp seed sales. Unlike in 2020, we will enter 2021 with significant seed inventories available for shipment.

We expect to enter the year with over 10 million seeds available for shipment and to have between 20 and 30 million seeds available for sale during the 2021 season. The hemp association estimates for the U.S. hemp acres to be 130,000 in 2021.

In general, our market intelligence indicates growers are comfortable paying between $1,500 to $2,200 per acre for quality seeds with seed densities per acre ranging between 2,500 and 8,500 seeds for CBD production, depending upon the farmers growth strategy. To give you an order of magnitude, as to the revenue potential of our inventories of seed.

If we were to assume a high per acre seed density, let's say 5,500 seeds per acre, we could supply up to 6,000 of the 130,000 acres estimated to be planted, which is less than 5% of the projected acres, with a total value of more than 55 million, if our average seed price were at the low end of the range I quoted or $1,500 an acre.

Furthermore, it remains clear to us that the establishment by the FDA of a regulatory framework for CBD will cause an immediate and catalytic brand in CBD market applications including food ingredients and supplements, which will result in significant pull through in hemp seed sales in the U.S.

Therefore, our enthusiasm for the opportunity, hemp represents for Arcadia is undiminished, as either a seed seller or CBD producer. Now with the commercial update complete, I'd like to take a moment to reflect on our near term outlook before turning the call over to Pam for the financial highlights.

In aggregate, through the actions taken over last quarter, the reductions in span that I highlighted from the sale of Verdeca, we've effectively reduced our overhead and recurring operating run rate by 28% or $7 million of the approximate 25 million in trailing 12 months expense, most of which we expect to repurpose if you will, to properly fund the customer acquisition costs to drive high volume sales of our good retail products without increasing our overall operating expenses in 2021 and perhaps reducing them from our 2020 run rate.

With that, I'll now turn the call over to Pam..

Thank you, Matt. I'll touch quickly on the highlights for the third quarter and year-to-date. Our revenues were down 20% quarter-over-quarter but increased year-to-date by 20%. We recognize initial GoodWheat grain sales and royalty revenue during 2020 along with increased GLA product sales in the fast food market.

Total operating expenses for the third quarter of 2020 was $7.9 million compared to $6.6 million in the third quarter of 2019. Third quarter 2020 year to date, operating expenses totaled $21.2 million versus the $16.1 million, we recognize during third quarter year-to-date of 2019 for increased a $5 million.

Cost of product revenues was the primary driver of the significant operating expense increase with 1.8 million recognized in the third quarter – recognized in the third quarter compared to 177,000 in third quarter of 2019 and $3.5 million third quarter 2020 year-to-date, versus 324,000 third quarter 2019 year-to-date.

We recognized a couple of anomalies this year with a $1.3 million write-off of archipelago hemp inventory recorded this quarter due to the temporary prohibition to process CBD that Matt discussed earlier.

Second quarter of this year included an inventory write-off in the amount of $1.4 million due to seeds produced by contracted grower that did not meet our quality specifications. Cash on hand and cash equivalents total $10.2 million at the end of the third quarter, with an additional $2 million in restricted cash.

Our net cash used in operating activities in the cash flow statement for the first nine months of 2020 was $23.5 million, with the majority of the $11.3 million increase in the same period in 2019, resulting from the scale up in inventory.

We continue to invest in inventories across all product lines with a majority of the balance at quarter end in GoodWheat well positioning us to generate revenues from our GoodWheat direct-to-consumer products just launched this week, as Kevin discussed.

And as announced earlier today and noted by Matt at the onset of the call, our balance sheet got a boost from the 1.875 million shares of Bioceres stock acquired as part of the strategic transaction just executed, along with $5 million of cash received at closing an another $1 million coming shortly.

Additional amounts will be earned upon the achievement of strategic milestones by Bioceres and as royalties on sales, they generate using our licensed technology going forward. And now I'll turn it back over to Matt.

Matt?.

Thank you, Pam. Just the backdrop of continued COVID related economic delays, we remain in forward motion with successful executions, increasing our asset liquidity, building needed direct-to-consumer capabilities, and significantly repurposing our spend all destined to drive near term revenue opportunities.

At the same time, we refined our focus and further simplified our formula for value creation. We look forward to keeping you abreast of our continued progress. And with that, I'll turn the call over to our operator for questions..

Thank you, sir. [Operator Instructions] We have a question from the line of Ram Selvaraju. Your line is open. You may ask your question, sir..

This is Manthan [ph] for Ram. Thanks for taking my questions.

So we wanted to know what prompted the timing of the deal with Bioceres? And one of the reasons for taking substantial portion with internal stock why not all cash?.

Thank you for the question. That is an important one is as far as the timing, it really does have to do with as I described in my prepared comments that there is a fundamental transition away from a development joint venture to a commercialization activity. And Bioceres as I mentioned, really started to lead that already.

And we found that continuing to try and run this through a joint venture structure really was beginning to slow them down. And so it was time to turn this over to them completely.

I think that the reason that both cash and stock made sense for us is that it as I mentioned in my prepared remarks, it keeps us still able to benefit in the upside of the program, which we have high regard or high expectations for.

So we really liked the idea of kind of splitting it down the middle if you will and thereby giving us some immediate capital infusion as well as ability to share in the upside. And let's not forget that the trailing royalty is not insignificant either. So I think we're really pleased with the structure.

And that would be the reason that we did it now and the way we did it..

Okay. Thanks for the additional color there.

And I was wondering what factors would you say were most important in determining top line sequential revenue growth so that it can be sustainably changed?.

Yeah. I'm sorry that the audio is a little sketchy.

Could you please repeat the question?.

Sure.

I just wanted -- wondering if you could summarize what factors you would say are most important in determining when topline sequential revenue growth could be sustainably achieved?.

Okay. I think 2021 this -- in particular the ramp with our good weeds direct-to-consumer, what we really are excited about is it's one of those channels where you see direct results from your efforts. So, you will be seeing us begin to market to consumers directly through digital media platforms.

And as you get immediate feedback and I think the plan here is to develop momentum and through that channel, we expect to see increasing revenue quarter-by-quarter as a result of gaining new customers having an installed base and adding to that over time..

Okay, that's excellent. We were also wondering if the recent legalization of marijuana across Mainland U.S. has a near-term implications for Arcadia's business..

Boy, we surely believe it does and a rising tide lifts all boats and we can imagine that legalization will have marijuana will certainly enable or motivate. I think the further legalization of hemp and in particular hemp extraction, which I think is what was bottlenecking right now..

And then just the final one. We will learn about the invention write-offs, wondering if you could just provide some more color on why they occurred.

And what's the likelihood that there could be more in the future?.

Yeah, I think that I'll take a shot out and if Pamela has to add anything, it's great. But the majority of this was the result of us cultivating, producing, and preparing our hemp harvest in in Hawaii that ultimately what we weren't able to convert to CBD without potentially running afoul of this DEA IFR.

And I think that coupled with having this being really our first year of production, I would say that the cost to cultivate -- there's some learning costs in there. And so whether we were writing it off, or converting it CBD and selling it, it probably would have been very low margin.

But the reality is that it was the lack of regulatory clarity that resulted in that write-off, we do not expect to see that going forward at all. We think we're well-positioned to -- since we have ceased operations there until we have clarity, we don't see that as a recurring risk.

Pam, would you add anything to that?.

I would just add that as a public company, we're very mindful of staying within all the federal state rules and working within that framework. So, we're on a little bit of a more stringent framework and things and then maybe other -- most other CBD companies. So, we're extra careful in that in that regard..

Very, very helpful. Thanks for taking our questions..

Thanks for your questions. Appreciate it..

Thank you, sir. We do have another question from the line of a Steven Ralston. Your is line, you may ask your question..

Good evening. Thank you for taking my questions..

Sure..

First of all, these -- the write-off of the Archipelago inventory, that's in the cost of products revenue line?.

Correct..

Okay. And you mentioned that the -- you're going to initiate sales of Sunova GLA capsules to China in the fourth quarter.

Do you -- if you expect those revenues to be significant, you do the size of the market, et cetera?.

Thanks. Thanks for asking about Sunova.

Kevin, you want to take that?.

Yes, I think in fourth quarter, we'll still be entering the market and ramping up. But actually, the piqued interest in China for the GLA supplemental capsules is quite high through some initial market research analysis that we've conducted here in both the second quarter and third quarter.

So, I would -- beginning of 2021, either first quarter and second quarter, we should start to see scale and size. So, both good profitability and good topline revenues..

All right, can you put a magnitude of any sort on that?.

Through fiscal year 2021, we are projecting $1.8 million just into that China market..

Thank you. And can you give us a progress update on GoodMills? When I was doing my due diligence, I was impressed by the amount of grain, what 2.9 million tonnes annually that they process and that they have a very extensive footprint, basically, in Eastern Europe.

I know the announcement was only made last in August, but do you have anything to add?.

Yes, obviously, being partnered with GoodMills, as they come to the market, we have to be in lockstep in unison, meaning that they're still in their R&D development stages. But as we have seen, with our good weed products in the U.S., very high customer feedback, sensory panels and stuff like that they are experiencing the same thing in Europe.

Obviously, the current pandemic situation varies across the globe, and so that has slowed things down from just speed to market. But overall enthusiasm and desire by GoodMills to bring these products to the market is still very high, just probably slowed down.

But so same results we're seeing here with, high nutritional panels, and very good customer feedback, great tastes are the same thing. So we expect that to come on. The only thing is we can't manage right now is the current health situation. But GoodMills is very excited for the future..

Thank you. I probably have some questions on the Bioseries transaction. But first, I have to digest all that information. But on a lighter note, I monitor the Three Daughters account, I follow them on Twitter. And I just placed my first order. I've been monitoring their website and the shopping cart come up and I'm looking forward to receiving my order..

Excellent. So all your friends please. Thank you..

Thank you very much..

Thank you, Steven..

Thank you. [Operator Instructions] We do have another question from the line of Ben Klieve. Your line is open. You may ask your question..

All right. Thanks for taking my questions. And first of all, my phone cut off for a few minutes in the Q&A. So I apologize if I'm asking something that has already been addressed. So I have a few questions here both on hemp and wheat. I guess, we'll start with wheat.

Steve [ph], in your prepared remarks? Did I – did I hear you correctly say that you expect the wheat business to launch in China in the fourth quarter? Or was that just for the GLA product?.

No, both GLA and pasta, we have inventory produced and ready to launch. So yeah, through e-commerce channels is where we project the launch in fourth quarter..

Got it. And then kind of along the same lines of the previous question here.

Can you help us kind of understand kind of overall inventory levels or some kind of metric that would help us understand really the scale of the opportunity in the fourth quarter and then the 2021? And then also was this -- is this a private label or is this a Three Farm Daughter's product going into China or something else?.

So, Ben, I'll start with a question about the inventory and the trajectory in Q4. I would say that Q4 will really be kind of that testing ground, if you will of our new supply channel that we've opened up. We have significant wheat inventories. We're in the process of milling and turning into the products that Kevin just referred to.

And so if we were able to exit the year with a several hundred thousand dollars, we'd be pretty happy with that on the way to a significantly bigger number in Q1. But this is really an important time for us to make sure that the channel is appropriately built and that it is built for scale. That's on the Wheat side.

SONOVA, a little a little easier to fulfill those, requests if the demand ends up spiking. But when we look at 2021, we have a good, I don't know, £8 million of wheat available to supply into the chain. So we have no real concern about meeting the demand and significant demand at that.

So did I miss anything there, Kevin?.

No. Okay. All right..

Just really getting…..

Yeah, sorry.

Then I get my -- the second part of that question was what exactly is the product going to be in China, is this Three Farm Daughters, is this a private label and development, is it something else?.

So it is going to be the Three Farm Daughters brand to lead with to get the introduction of these healthy nutritional value products. And then obviously, as we get through 2021, and we get our key learnings, we possibly can expand into white label.

But right now, it would be Three Farm Daughters brand on the pastas, and then the SONOVA brand on the GLA capsules..

Got it. Got it. Perfect. All right, so turning over to hemp. A lot going on here.

Can you update us on the backlog number that 3.7 million backlog that you've had for the past few quarters? Have you have you written that off in any way, given the -- given what's happening in Hawaii or is that still standing firm?.

I think it's a matter of fulfilling it later in time. I think that the reality is that, as I mentioned in my prepared comments, when we looked at the new states coming online, this last quarter, our expectation was that there would be opportunities for seed sales in those states.

As part of the conversion of that backlog, reality is very little hampers planted in -- for many different -- several different reasons, certainly the regulatory confusion as well as the pandemic.

But I would say that we are – we’re looking at continuing to try to -- well, frankly for the ISI customers who are -- have made up their mind that they're going to grow in 2021. Some of them could make early purchases to secure seed because we may not have enough for all the demand in 2021.

But that's probably that, you know, what we're looking at in terms of orders in Q4. It would be pre pre-order fulfillment for plantings in February, March. So we're not emphasizing the 3.7 as much as we would have three months ago in terms of being able to convert that to revenue in the fourth quarter..

Got it.

And, and along these lines here with ISI, did they face the same problems that you have throughout 2020 regarding the kind of uncertainty in the hemp industry or before the acquisition were they able to deliver any kind of material revenue before they were acquired?.

Yeah, they were and it speaks to the point that I wanted to make, which was in this market where there's a lot of uncertainty to minimize risk; growers tend to stick to the varieties that they knew and trusted.

Even if we were in front of them with new genetics that had performance marks maybe better than what they were growing with all the other risks in the market right now, they tended to stick to what they know.

So for all of the ISI folks; growers, they repeat what they generally they planted fewer acres and in ’20 than they did in ’19, but when they did, they did, they did buy from ISI. So they had reasonable meaning -- reasonable sales in 2020, did see a slight decline from ’19 as everyone else did.

But we are entering 2021 with an install base whereas we did not have that in 2019. .

Got it. And then last question from me and I'll get back in queue regarding HB4. First of all congratulations on the transaction and I'm curious how the resources that were previously allocated to this JV. I think you alluded to roughly $7 million a year.

Now how really that's going to get reallocated to the way line and that's a significant amount dedicated to wheat to the commercialization.

What exactly are you going to be doing? What that -- what these resources now that they're available?.

Yeah. Thanks for teasing that out. I'll speak to the reduction and alternatively Kevin talk about what we're going to be spending.

But the $7 million in reductions is a combination of what we don't have to spend in R&D on HB4, as well as a bit of a retuning in architect and deferring some of the spend that we have been allocating to the development of multiple hemp traits.

So we've really reduced or focused more specifically on a THC knockout and a couple of what we hope to be blockbuster traits in the architect platform. But that allowed us by narrowing and focusing more, we were able to really redirect 3 million-ish of former R&D to the new customer acquisition activities that I'll let Kevin describe..

Yes. And so, as Matt was talking about, obviously, we're coming into the market with a new brand and a new product that consumers have not had access to before. So, there's a traditional approach of going through grocery retail, which takes time. You have to be aligned and a lot of entry cost there.

And so again, what we're approaching this through, partially because of the current health pandemic, and just in general, a large shift over the last 24 months, even prior to the health pandemic of how consumers buy. And so, what you're doing is you're placing that, as Matt talked about as customer acquisition costs, typically digital media.

So Facebook, Instagram, Google, paid ads, to lead consumers to purchasing through either our online card that we kicked off this week through Shopify, or/and eventually we're looking to obviously enabled through Amazon.

So, what it allows you to do is at the very beginning of your activities, which we're going to align to right after the holiday season gets over and consumers get back into more of a traditional food category purchasing pattern we will scale up. But it gives us a chance to react. So if things work really well, we can go faster.

If we have key learnings that things aren't working well, we can try different approaches. And so, as you go through 2021, first quarter, both revenue from GoodWheat and spend will be moderate. But then, as we figure out the ways to communicate to our purchase -- our customers and get them in, then we will scale that up.

And -- but you'll see that followed by a scale up of revenue. So that's the spend that you teased out is really there and customer acquisition costs with digital media..

Got it. That's very helpful. Thanks for the caller. And I think I'm in good shape. I'll get back in queue. Thanks for taking my questions..

Thank you..

Thank you, sir. There are no further questions at this time. I will now turn the call back to Mr. Matthew Plavan for closing remarks.

Sir?.

Thank you, everyone for joining the call and your patience. We know it was a bit of a long call, but there was a lot to discuss and digest.

So we look forward to continuing our real time reporting on our key milestone achievements in the lab, in the field, in the commercial markets and we wish you all a safe and good health and look forward to speaking soon..

Ladies and gentlemen, this concludes today's conference call. You may now disconnect. Thank you for joining us..