Good afternoon, and welcome to Arcadia Biosciences Year-End 2020 Earnings Conference Call. Today's presenters will be Matt Plavan -- Plavan, I'm sorry, President and CEO; Randy Shultz, Chief Technical -- 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 for 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 7 of today's press release.

With that, I'd now like to turn the call over to Matt Plavan, President and CEO. You may begin..

one, the development of our powered by GoodWheat brand positioning; two, the development of the Three Farm Daughters consumer brand positioning; three, the design of our backend e-commerce website functionality, as well as lining up co-manufacturing supply chain and consumer packaged designs.

At the end of Q4, we initiated a small regional launch with a local grocery retailer; we're now in 38 regional grocers throughout North Dakota and Minnesota. We also defined and identified a sales channel partner to develop a strategy for optimizing distribution and building retail sales throughout the U.S. in 2021.

So we enter 2021 with a functioning website and an SEO and digital media marketing plan to begin the designed test improved cycles needed to confirm our e-commerce scale-up strategy. We began that effort in mid-February of this year.

Our initial results were very favorable and driving traffic to our site, but initially, we experienced sub-par sales conversions. We've since made modifications to our SEO formulas and are now seeing much better conversion rates.

Next, will be to begin increasing our ad spend and optimization in April and May to continue to drive increased sales volumes; and we look forward to revisiting and reviewing these results with you in our Q1 call in May. So now, I'd like to turn the call over to Randy for an update on our breeding research and hemp production operations..

first is to establish GoodHemp seeds as the leader in quality genetics and to gain significant market share in the hemp CBD and wellness space; second, build an intellectual property estate that not only protects our current business but provides the potential to enable partners through out-licensing; and third, to ensure solid foundation of genetics and agronomic production knowledge to ensure the success of our premium Hawaiian hemp CBD business.

I'm pleased to report significant progress over the past year across all three of these objectives.

In August of 2020, we completed the purchase of Industrial Seed Innovations, ISI, as Matt mentioned, which not only brought two new commercial varieties; Rogue and Umpqua into our portfolio but also accelerated our own internal breeding program by two to three years by bringing in-breed germplasm assets into our program.

Importantly, one of the reasons we were attracted to ISI is that their breeding strategy was fully aligned with our own, both of which are focused on commercializing true F1 hybrids rather than varietals; this not only enabled a seamless integration of the two programs but hybrid breeding is the key to rapidly improving yield and uniformity, much like the path modern corn breeding programs have followed.

Since the ISI acquisition, we have launched a new commercial variety, Santiam, and we'll be trialing multiple new pre-commercial varieties this summer for potential commercial release in 2022.

As a testament to the quality and uniformity of our hemp genetics portfolio, we had four varieties reviewed and approved by the National Association of Seed Certifying Agencies or ASCA in February of 2021.

This approval not only provided an independent validation of our genetics and an insurance to farmers that they can rely on their performance, but importantly, ASCA approval in the production of certified seed is a key requirement to sell seed into Canada through our distribution partner, Tritium 3H.

Our partners at Tritium tell us that even with the backdrop of a turbulent market they are seeing strong interest for our genetics in the Canadian marketplace, and have reiterated confidence in achieving our targets. Indeed, in preparation for early season sales and Health Canada approval, we have already begun shipping seeds to our Canadian partner.

In the U.S., we are seeing some headwinds in the GoodHemp business driven primarily by an overall contraction in hemp acreage in the U.S., particularly acreage dedicated for CBD extract.

Many growers have found it difficult to secure off-take contracts in a market that is -- that is still experiencing an oversupply of biomass and CBD, and the industry is really unlikely to experience explosive growth until the FDA provides a regulatory framework to enable large CPG players to enter the industry.

On the bright side, we've noticed a new source of demand for our seeds coming from an emerging global smokeable CBD hemp market, there has been significant investment in this infrastructure in the U.S. over the past year, and we expect GoodHemp seed sales to service this emerging industry in 2021 and beyond.

We've also begun to get some early traction in the marketplace, resulting in modest sales as we enter the prime Q2 selling season. Additionally, we've expanded our access to markets by listing our seeds on partner websites, including the International Hemp Exchange and Hemp Seed Florida, both well-established seed dealers.

On the intellectual property front, we've made significant strides in 2020 including filing four foundational utility patent, four plant patents, and five new applications for plant variety protection rights or PVP rights.

Although we will continue to be aggressive in building our intellectual property in the hemp industry, we feel pretty good about our current position in protecting our portfolio of products. Next, I'd like to transition to an update on our Hawaii operations through our JV with Legacy Ventures.

In our Q3 earnings call, we reported that regulatory developments that forced us to temporarily pause operations in Hawaii; as Matt mentioned, I'm pleased to update you all today that the team along with legal counsel has chartered a compliant path to resume operations, and we are currently in the midst of planting our first 40-acre season as we speak.

We expect to have extraction from the first season completed in the third quarter of 2021, and have been developing both B2B and B2C sales channels to begin meaningful sales on that same timeline.

With successful execution, we believe we will be the only legal supply of Hawaii-grown hemp and extracted CBD in the world and expect to maintain that exclusive position for 12 to 18 months.

We're also excited because some initial consumer testing we completed came back with strong support that consumers recognized the unique value proposition of CBD extracted from premium Hawaiian grown hemp. With that, I will now turn the call over to Pam.

Pam?.

Thank you, Randy. I'd like to take a few moments now to share the financial highlights for the year with you.

As Matt mentioned at the onset of the call, we were very pleased to execute the series of transactions with Bioceres, our former joint venture partner in November generating GoodWheat license revenues in the amount of $6.7 million and bringing in cash and stock to the balance sheet.

Total revenues recognized for the year were $8 million compared to $1.2 million during 2019, with a majority of the increase driven by the revenue generated from the GoodWheat licenses to Bioceres. GLA product revenue increased as well.

Total operating expenses of $20.8 million in 2020 was very close to the $20.6 million recognized in 2019, although the composition deferred.

Cost of product revenues of $5.2 million in 2020 was significantly greater than the $885,000 recognized during 2019 as it recorded several inventory write-downs during 2020 resulting from net realizable value and quality adjustments to wheat and hemp seeds.

Changes in the regulatory framework in the hemp industry triggered a write-down of our Archipelago hemp inventory earlier in the year as well.

Research and development expenses were $8 million in 2020 as compared to $7.1 million in 2019, the increase was driven primarily by higher employee-related expenses as we expanded our research teams earlier in the year to accommodate the acceleration of hemp-related discovery work.

We recognized a gain in the amount of $8.8 million on the sale of our portion of Verdeca to Bioceres this past quarter which serves as a credit against total operating expenses.

There was no such gain recorded in 2019, although we did recognize the credit in the amount of $1 million in 2019 for the change in the fair value of contingent consideration relating to an acquisition in the early years of the company.

Selling, general and administrative expenses totaled $16.5 million in 2020 at $2.9 million increase from the $13.6 million in 2019. Increased consulting activity, cash fees and stock compensation expense for the primary drivers, along with higher employee-related expenses, including severance associated with November's reduction in force.

We also engaged in additional marketing and public relations activities and saw increases in rent and insurance premiums.

The net loss attributable to common stockholders for the year was $4.7 million compared to $28.8 million in 2019, a significant contributor to this $24.1 million favorability was the $6.6 million non-cash gain resulting from the change in the fair value of common stock warrant liabilities in 2020 while 2019 included a non-cash loss of $9.2 million.

The number of warrants outstanding that are associated with these liabilities has been reduced following the May and July exercises in 2020 and the fluctuation in our stock price at the end of the year; re-measurement points contributed significantly to the year-end liability values, and thus the change that flowed through to the results of operations.

The balance of cash and cash equivalents totaled $60 million at the end of 2020 and this balance was significantly strengthened by the net proceeds of $23.3 million generated from the private equity placement transaction in January of 2021.

Short-term investments at the end of the year of $11.6 million is comprised of the 1.875 million shares of Bioceres common stock that were acquired in November, valued at it's stock price as of December 31. This concludes our financial highlights for 2020. Thank you very much for your attention today, and I'll turn the call back over to Matt.

Matt?.

Thanks, Pam. In closing, we have increased our asset liquidity, built needed direct-to-consumer channels and capabilities, significantly repurposed our spend; all destined to drive near-term revenue opportunities. And at the same time, we refined our focus and further simplified our formula for value creation.

All of this in 2020 despite the pandemic underscores our agility and fortitude and the potential of this team to execute even better as things are expected to return to normalcy in the markets, and why we are looking forward to the rest of 2021. We look forward to keeping you abreast of our continued progress.

And with that, I'll turn the call over to Twanda [ph] for questions..

Thank you. [Operator Instructions] Our first question comes from the line of Ben Klieve with Lake Street Capital. Your line is open..

Hi, thanks for taking my questions. First a question on the R&D front, you commented on your intent to kind of move away from trait discovery to -- I forgot how you phrased but kind of food, you know, more on the food side than then trait side.

Can you update us on what remains in the R&D pipeline from the trait discovery process in both, hemp and wheat?.

Sure. I'll turn it over to Randy to answer that question..

Okay. Thanks, Matt. Yes, so in trait discovery, we continue -- as I mentioned in the call to advance next-generation improvements across our wheat portfolio.

So that would include [ph] stability, the high-resistant starch, as well as the reduced gluten which also has starch characteristics and fiber characteristics, and some additional yield traits that we -- have been in our pipeline.

On the hemp side, we continue to develop new varieties and we're doing that through traditional breeding approaches, you know -- like I mentioned, we've got new varieties coming out this past year and several more in the pipeline.

So we do continue to innovate and I think what really Matt was referring to is, the shift in a significant amount of our spend and our focus on to food innovation, really taking these trait innovations that we've developed over the years and getting them into the proper new and innovative formulations and to consumer's hands..

Yes, that's right. And that's why we hired Tracey Baker, who is the Vice President of Innovation. So when we think about wheat, we've just scratched the surface with pasta and flour; I mean there is a number of other food executions that ought to contain the GoodWheat ingredients.

And so this is an example of leveraging a base platform which is unparalleled in the wheat industry right now, and the opportunity that that represents in just terms of a different way of innovating, and a less expensive way of innovating..

Got it. That's -- I appreciate that, that's helpful from both of you.

A quick follow-up on the hemp side; is the THC knockout still in the pipeline?.

So we do still have that project in the pipeline..

Okay, perfect. Thank you. Pivoting over to wheat, I have a couple of questions there.

With so many variables going on at the same time, first of all, it's really exciting but I'm wondering if you can kind of walk us through how you're constructing your plans to grow inventory over the next year? And specifically around the Good Mills launch, are you building inventory in preparation for a launch in Europe this year? And if so, kind of -- what does that look like?.

Yes, those are the right questions.

And it is a little bit tricky and just had a very good call with our partners at Good Mills this weekend and transparently, COVID has slowed their ability to move as quickly as we had wanted to but I am optimistic in -- they were optimistic in their tone and they gave us specifics with regards to when they're launching certain test with consumers in certain countries.

And so it is their intent to be launching in the second quarter within three different European countries to test three different formulations, and as a follow-on to that, if all goes to plan.

And the early results with regard to their formulation testing has been very, very positive, especially with regard to the way that the pasta is [indiscernible], and how it performs in a foodservice environment which is critically important; can be cooked for 15 to 20 minutes, taken out, put in the refrigerator or put into prepared meals and have them taste extraordinarily well and undifferentiated from when they were first cooked.

All of those are very positive results that they've reported back to us; so I would say they're kind of back on their track but they're very apprehensive as you might imagine, to give us real, real specifics on timing.

But if all goes to plan, we would be ramping up and they would be selling in Europe and in the back half of 2021 provided that they launch these tests with these website strategies as they plan to in Q2. So, I'm very cautious about setting expectations around timing; I'm not cautious about expressing it being if -- when, not if, kind of scenario..

Got it. Thanks, Matt, that's helpful. And one more question from me and I'll get back in queue. With regards to the hemp, I certainly appreciate the challenges in operating in the environment with regulatory uncertainty.

I'm wondering if -- let's hypothetically say that there is all of a sudden visibility of that regulatory uncertainty clearing up; to what degree is your customer base in the U.S., and especially those that are legacy ISI customers, you know, how comfortable are they with the infrastructure that's in place from a processing side in their geographies? And as such how meaningful do you think an immediate boost would be to hemp sales provided that the regulatory uncertainty clears up or do you think there is -- are these downstream hurdles still going to be pretty material even if that regulatory risk is removed?.

I'll start with one point, and then I will turn it over to Randy. But when we look at our projected sales, those are within the swim lanes of what has been demonstrated to be acceptable by the FDA at this point which is really topicals.

Your question is, what happens to all the other applications and are we prepared and our customers prepared to take advantage of that should the FDA come out with clarity on the other areas or other applications. And I'll turn it over to Randy to answer that..

Yes. Thanks, Matt. So, I think two business segments to comment on there. So on the hemp seeds, the GoodHemp seeds business; I think that -- look, I mean farmers already learned how to grow this crop and they are well poised to do so.

There is significant extraction infrastructure in place and it's really -- so if the FDA were to come out with very clear guidance and the large CPG is still uncomfortable entering the space, and I mean as we all know they've been doing R&D in preparation for that as well.

So I think it's a pretty rapid flip of a switch where that demand for new biomass, new extracted material comes pretty quickly, and we will continue to keep ourselves in position to capitalize on that when it happens. On the oil side, the CBD oil side; you know, I think it's kind of the same thing.

So once that guidance comes out those swim lanes as Matt put, that gets well defined for us and for others.

And so the demand for not only a wholesale oil, specifically a Hawaii premium, but also our own product portfolio and how we can deliver to consumers I think gets clarified and opened up; and again I think we're in solid position to capitalize on that event when it occurs..

Got it, very good. Thanks -- thank you both for your commentary, I think that does it for me. Best of luck with all these initiatives, and I'll get back in queue..

Thank you, Ben..

Thank you. Our next question comes from the line of Steven Ralston with Zacks. Your line is open..

Good afternoon and congrats on the topline..

Thanks, Steven..

With the licensing revenues coming from Bioceres, you indicated it coming from GoodWheat, was there any HB4 involved in that?.

Go ahead, Pam..

So, Steven, the licensed revenue was all GoodWheat. We did recognize a gain of $8.8 million that resulted from the value attributed to the -- our share of the joint venture that we sold..

All right.

Part of that licensing revenue -- was that sale of product of GoodWheat?.

No, that was all licensed revenue..

Okay. So that -- it's one-time..

That's correct. There is a potential for soybean royalties to be recognized in the future when Bioceres does reach commercialization of the Verdeca technology but….

Yes. And of course, there is ultimately the whole purpose of the license was that by Bioceres would be bringing GoodWheat to South America and we'll ultimately receive royalty revenue for the sale of seed into South America but that's a couple of years down the line..

All right.

Moving to the U.S., Three Farm Daughters; you say that is now in distribution 38 grocers, does that extend beyond the Hugos [ph] grocery chain?.

It does..

Can you lay any details?.

Horned Bucklers [ph], and -- who else?.

Kowalsky's [ph]..

Kowalsky's [ph] that might be target. These are -- these are really nascent. I should point out these are really strong results for a small team of folks going out and basically through word of mouth doing some testing on distribution.

I mentioned also in my prepared comments that we'd identified and we've now contracted with a formal sales organization who will begin and have begun the process of really getting this out into Tier-1, Tier-2 and Tier-3 retail, and that is -- that's where we're really going to see some expansion in the retail sales.

At this point we're really pleased with what we've seen but I do want to caveat it that it is -- it is essentially an internal sales effort..

I understand. But I also do my due diligence and I think on the last call, I mentioned I did buy it direct on the website. I've gone to Hugoes [ph] and I have two Liguinis [ph] on the shopping cart right now, and I'm looking at it.

When you said that you have increased ad spending slated for April and May, is this in support of that regional effort there in North Dakota and Minnesota?.

No, this is the e-commerce launch. So yes, we're just making sure that we understand our demographics and are targeting to ensure that when we place those ads we have the proper conversion to revenue, that's really what we've been working on to make sure that as we put meaningful dollars against it that we're producing meaningful revenues..

Okay. I forgot to mention that I also saw it on Amazon..

Yes, good..

Moving over to hemp, do you have a timetable for when the revenues will gain traction? And could you address specifically how -- what do you expect from your Canadian partner? And also from Hawaii?.

You bet. I'll turn it over to Randy to talk about that..

Okay. Thanks, Matt. So timing with seed sales, GoodHemp seed sales, in the Continental U.S., obviously is tied with the growing season.

And so, not just hemp but really across the majority of crops you see really Q2 being the major component of revenue with some trailing to either end; so we've picked up some revenue over the last couple of months in Q1, and we would expect to pick up a little bit trailing off in Q3 as well.

That can be mitigated by selling into areas that have multiple seasons, for example, Hawaii would be one or South America. But at this juncture we anticipate the majority of our GoodHemp revenues to be in Q2 with a little bit of trail-off into Q3.

As far as the Hawaii operations go, we're in -- we're going full steam ahead as far as planting, we expect to -- we have the optionality to do three seasons but at this juncture we plan to do two and have some land fallow for a third.

And we expect those timings to be kind of -- Q3 would be when we would have everything harvested, have it extracted, kind of ready for delivery to a B2B channel.

And as we mentioned, we're also in parallel leveraging some of the infrastructure and expertise that we've built around taking GoodWheat products directly to market and building our strategic business plan around -- also leveraging those assets to create a B2C channel for the Hawaii premium oil as well..

And concerning Canada, you said they have interest and they've -- you ship seed to them but it's obviously contingent on Health Canada's approval?.

Right. So, yes. So the indications from our Tritium in Canada -- so Canada's on, essentially the same Q2 sales cycle as the rest of the Northern hemisphere and with the bulk of their sales coming just a little bit earlier in kind of the April-May timeframe when they get in the ground up there.

So we don't expect the timing to be much different, the indications -- so Canada is a much more restrictive market as far as the number of varieties that farmers have access to; it is controlled, unlike really in the U.S.

And so it actually creates a less competitive environment for us, so we're seeing pricing little bit more stable there, and the demand is still strong and the varieties that were together bringing to market there have a competitive advantage because they finished really early which is important in that geography.

So we feel pretty good about our position there, and we've already started shipping seeds. As I mentioned, we expect several more shipments to come through that selling season, and really it's the Health Canada approval that we're waiting for, and we expect that any day now..

Thank you for taking my questions..

Thanks, Steven..

Thank you. I'm not showing any further questions. I will now like to turn the call back over to Matt for closing remarks..

Thank you everyone for joining the call and your continued interest and support. We do look forward to continuing our real-time reporting of our key milestone achievements in the lab, the field, and in commercial markets. And we wish you all safety and good health. Thank you and have a good afternoon..

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