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Edited Transcript of RKDA earnings conference call or presentation 14-Aug-19 8:30pm GMT

Q2 2019 Arcadia Biosciences Inc Earnings Call

DAVIS Aug 20, 2019 (Thomson StreetEvents) -- Edited Transcript of Arcadia Biosciences Inc earnings conference call or presentation Wednesday, August 14, 2019 at 8:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Matthew T. Plavan

Arcadia Biosciences, Inc. - CFO, Secretary & President of Arcadia Specialty Genomics

* Rajendra Ketkar

Arcadia Biosciences, Inc. - President, CEO & Director

* Sarah Reiter

Arcadia Biosciences, Inc. - Chief Commercial Officer

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Conference Call Participants

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* Benjamin David Klieve

National Securities Corporation, Research Division - Analyst

* Raghuram Selvaraju

H.C. Wainwright & Co, LLC, Research Division - MD of Equity Research & Senior Healthcare Analyst

* Robert Smith

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Presentation

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Operator [1]

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Good afternoon and welcome to Arcadia Biosciences Second Quarter 2019 Earnings Conference Call.

Today's presenters will be Raj Ketkar, President and CEO; Matt Plavan, CFO of Arcadia and President of Arcadia Specialty Genomics; and Sarah Reiter, Chief Commercial Officer. This call is being webcast, and you can refer to the company's press release and slides at arcadiabio.com.

Before we start, if you refer to Slide 2, 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 Slide 2 of this presentation.

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

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Rajendra Ketkar, Arcadia Biosciences, Inc. - President, CEO & Director [2]

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Thank you, Josh, and thanks to everyone who is joining us on the call today.

We made major progress on several fronts in the second quarter of 2019 with our wheat, soy and hemp initiatives. Joining Matt and I for the first time on the call today is Sarah Reiter, our Chief Commercial Officer. I'll start by talking about some exciting new developments in our Verdeca's soybean joint venture before turning it over to Sarah to discuss our wheat business and Matt to talk about Arcadia Specialty Genomics.

Turning to Slide 3. Just last week, Verdeca, our joint venture with Bioceres Crop Solutions, received approval from the USDA for the deregulation of HB4 drought-tolerant traits stacked with herbicide-tolerant traits in soybeans. You will recall, U.S. FDA allowed HB4 soybeans to be used commercially in human, food and animal feed in August 2017. We are now able to accelerate our discussions with potential U.S. germplasm partners interested in introgressing our trait into their soy variety. This is a significant achievement as the trait is now fully approved for commercialization in the 3 major soybean-growing countries: U.S., Brazil and Argentina.

Earlier in the second quarter, we received approval from the Brazil regulatory authorities for the HB4 trait. According to the regulatory process, the approval is now in a period of public comment. And as soon as this period is complete, we expect Brazil to grant full approval. We now await approval from China for the import of soybean product. In prior calls, we had guided that this approval would be received in fourth quarter 2019 to enable launch in 2019. We recently learned that we will not receive the approval in 2019, and the approval will most likely be received in 2020. Delays in receiving regulatory approvals are not unusual, and we will use this time for conducting large-scale farmer demos and market research to prepare for launch in Argentina.

I'd like to now turn the call over to our Chief Commercial Officer, Sarah Reiter, for an update on our wheat business. Sarah?

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Sarah Reiter, Arcadia Biosciences, Inc. - Chief Commercial Officer [3]

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Thanks, Raj. Hello, everyone.

In my role, I oversee the sales, business development and productizations, including pricing, market research and supply chain. And as we head towards first sales of GoodWheat in 2019, I'm pleased to have this opportunity to speak to you directly. In the year plus I've been with Arcadia, we've been focusing primarily on GoodWheat and building up our wheat seed and our grain supply chain; advancing our commercial relationships with major food and grain companies through business development, product testing and sales.

I'd like to take a minute to talk in a little more detail about our GoodWheat family of products. First, it's important to keep in mind that GoodWheat is a portfolio of wheat with added value attributes like high-fiber resistant starch and reduced gluten. GoodWheat aims to decommoditize wheat by adding nutritional values to a well-loved food ingredient. It addresses the U.S. and global flour markets. The USDA economists valued the U.S. wheat flour market in 2018 at $9.7 billion. Today, whole wheat captures about 5% of that market. Our market research and the findings from our food formulations research and our nutritional studies conducted by leading research universities demonstrate the attributes delivered by GoodWheat can create unique, high-nutrition wheat segments of similar size.

I want to reiterate our earlier guidance that we'll begin sales of GoodWheat in 2019. We're planning to introduce GoodWheat as retail flour with reduced allergenicity and improved protein quality in fourth quarter. We also anticipate first commercial sales of Resistant Starch GoodWheat in key territories before the end of the year. We're working to be in the position to announce booked product sales in fourth quarter. We'll launch the GoodWheat line of products to the baking industry at the IBIE trade show in Las Vegas in September where we'll provide demos and samples of GoodWheat in a number of foods like pasta, waffles, desserts. And these foods will emphasize the familiar taste and the performance of wheat while providing impressive nutritional benefits.

We expect GoodWheat sales will grow in 2020, both through geographic expansion and because we'll capture the full year sales. We've received inquiries regarding legal proceedings surrounding high-amylose which -- wheat, which we call resistant-starch wheat. While we can -- while we understand a complaint was filed April 1 claiming Arcadia infringes the patents of Arista Cereal Technologies, we have not been served in that case. Furthermore, on June 26, 2019, the court issued a joint stipulation in order to extend time to serve summons and complaint until October 15, 2019, indicating that "The parties have agreed on this stipulation seeking additional time in light of ongoing settlement discussions between the parties and the desire to preserve the litigation status quo for a short period of time in order to enable continuing settlement discussions." We want to reemphasize Arcadia respects the intellectual property of others, and we'll vigorously defend our own. And there's nothing further we can say at this time.

Second quarter marked several key milestones for Arcadia in terms of progress made in building our GoodWheat supply chain. We harvested our alternate season wheats. These grow in what is winter for most North American farmers. Our winter production was significantly more efficient than we'd anticipated, averaging about 140% of our plan. During the second quarter, we also planted our spring wheats in key geographies across the U.S. and are planning harvest in third quarter. The harvest will stretch well into the fall.

And with that brief update on wheat, I'd like now to turn the call over to Matt to discuss Arcadia Specialty Genomics and review financial results for the quarter. Matt?

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Matthew T. Plavan, Arcadia Biosciences, Inc. - CFO, Secretary & President of Arcadia Specialty Genomics [4]

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Thanks, Sarah. Good afternoon, everyone.

During the quarter, we made great progress with 3 of our key initiatives: research and development and building our proprietary germplasm library and in corporate development.

Turning to Slide 5. Clearly, the most transformative achievement is the formation of our new joint venture to serve the Hawaiian and Asian markets, Archipelago Ventures, which we announced last week. This new venture between Arcadia and Legacy Ventures Hawaii combines our genetic expertise and seed innovation history with Legacy's growth capital and strategic advisory in the Hawaiian markets. Additionally, Legacy brings to the partnership over 6 years of proven success in extraction, product formulation and sales of cannabinoid oil and distillate products through its equity partner, Vapen CBD.

Legacy was originally formed by Shane Victorino, the Flyin' Hawaiian and 2 times World Series Champion, to be a vehicle for its partners to pursue hemp and CBD opportunities within the Hawaiian Islands. Legacy's primary objective is to build world-class cGMP extraction facilities to allow Hawaiian farmers to have an outlet to maximize their profits from growing hemp by converting to high-grade CBD and other high-value compounds. Legacy's founders hoped to help restore the flourishing agricultural industry that Hawaii once had as a major sugar and pineapple producer. Legacy's equity partner, Vapen CBD, is a wholly owned subsidiary of Vapen MJ Ventures, which is a publicly traded cannabis operator based in Phoenix, Arizona and is listed on both the Canadian and Frankfurt Exchanges. Vapen CBD is focused exclusively on the processing of high-quality, non-THC cannabinoids like CBD. They will be responsible for the construction and operation of our Hawaiian hemp-extraction facilities.

Through this JV, we now own a vertically integrated supply chain from seed to sale, which we believe is the first kind in Hawaii. We have worked hard this past quarter to be certain we chose the right partner because we believe this to be a vital aspect of our quality control. Archipelago is actively preparing for commercialization and scale-up, expanding our hemp production acres under the Hawaii Hemp Pilot program, which will be transitioned to the 2018 Farmville via the Hawaii Department of Agricultural Guidelines, which we're generally expecting to be implemented over the next 12 to 18 months. We are also in the process of establishing our extraction capabilities on the island and expect to be ready to produce and sell our CBD oil in accordance with the regulatory authorization by the end of the year with a significant ramp in CBD sales expected in 2020 and beyond.

With that said, let's take a moment for a brief update on our research activities in both our Hawaii Industrial Hemp Pilot program as well as our research activities here in Davis. As you can see from the pictures on Slide 6, we recently harvested our first hemp crop as part of our pilot program in Hawaii. And we're very pleased with the results, having achieved major milestones towards commercialization of hemp, flour for CBD extraction. First, the ASG research and development facility located in Molokai has demonstrated the capability to successfully grow and harvest multiple hemp varieties for flour and CBD production. This milestone represents the first successful hemp harvest on Molokai and one of the first in the state of Hawaii, which demonstrates ASG as a leader in the Hawaiian hemp market. Furthermore, this milestone de-risks the next phase of ASG's growth in the Hawaiian market by establishing varieties that can deliver commercial-level performance without exceeding the 0.3% THC threshold that defines industrial hemp.

Now with regard to our hemp breeding program, we also achieved multiple milestones there, which laid the foundation for our expansion of hemp breeding activities in the U.S. as shown on Slide 7. Our indoor growth facilities are operational in Davis, enabling teams to finalize their SOPs and establish breeding operations, which can be replicated in each of our research settings. Our internal platform to analyze cannabinoid and terpene profiles is also operational. This enables our breeding program to select lines with altered potency and/or changes in composition. Our supercritical CO2 extraction research capabilities have been established in our metabolomics lab. This is important because it enables rapid evaluation of hemp lines and sets the stage for new innovations.

In July, the breeding team achieved a major milestone with the creation of our very first in-house hemp line. We see this as an important milestone for many reasons but perhaps most of all, it's a validation of our technological competency in hemp plant transformation. It also sets the stage for expansion of our breeding operations and the acceleration of our pursuit of new hemp varieties, which is where we believe the greatest potential for creating sustained value resides.

Lastly, as we foretold was our intent, our aggressive germplasm acquisition plan has resulted in the development of a new germplasm library that contains sufficient genetic variation to fuel a robust breeding pipeline, which has always been an important objective of ours.

In addition to our progress in the lab and in the field, we've continued to evaluate other sources of near-term hemp revenues. In fact, when meeting with a number of U.S. growers who are looking to begin growing hemp or are ramping up their hemp operations, we observed firsthand a vast shortage of quality hemp seed. In many areas of the country, they are simply sold out or are struggling with the performance of the seeds that they have been able to acquire. As such, we have implemented our own seed production operations targeting select varieties for specific regions and are announcing for the first time today that we expect to begin serving the hemp seed market possibly as early as spring of 2020. We are really excited about this particular development because it is so squarely in our wheelhouse. And based upon the current economics, which look to remain robust for some time now, that's quite compelling to us and should be a material contributor to our new revenues in 2020.

Now this is a part of the call where I typically turn to review the financials. However, with our second quarter 10-Q to be filed later today and available for your detailed review, I'd like to, just for a moment, discuss our outlook on revenues and time to profitability. With the quarter just described in this call as a backdrop, I'm compelled to say that this is the most encouraged I have been since joining the company in late 2016 about our future. I believe the prospects have never been better for: one, near-term revenues for multiple sources; two, high margin within those revenues; and three, revenues that have significant scale-up potential in 2020 and beyond.

So if I were to summarize the financial performance expectations that we've laid out so far in this call, it would be: number one, we expect first revenues this year in wheat and hemp with initial soy revenues following close on in 2020; two, that wheat and hemp revenues should scale significantly next year and new product categories from these crops should also come online in 2020; and three, we continue our steadfast focus on reaching and growing profitability. The advances in our execution and the new market pursuits announced during the quarter give us confidence that we have meaningfully brought forward our timing to breakeven.

With regard to our liquidity and capital resources, cash on hand and cash equivalents as well as short-term investments totaled $20 million at the end of the second quarter, which was bolstered by our financing that we brought in last month. We believe these cash flow resources are sufficient to execute near-term key milestones and to drive value creation. We expect, as part of this execution, to see a significant increase in news flow regarding these achievements and our progress from here forward. As I mentioned earlier, for additional insight into the financial performance during the quarter, please do refer to our 10-Q to be filed later today.

And now I'll turn the call back over to Raj for a wrap-up. Raj?

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Rajendra Ketkar, Arcadia Biosciences, Inc. - President, CEO & Director [5]

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Thanks, Matt.

Before we get to your questions, I'd just like to summarize our results for the second quarter of 2019. We had a successful winter season of production scale-up for our GoodWheat varieties, and we planted production trials across many wheat-growing areas. We continue to position our GoodWheat products for first sales in fourth quarter 2019 with potential customers.

We received USDA approval for the HB4 trait, which allows us to commercialize in the U.S. as we introgress our trait into local germplasm. We advanced the regulatory approval for HB4 drought-tolerant soybeans in Brazil. Together with the approvals in Argentina, the HB4 trait is now approved in the 3 major soybean-growing countries.

In our hemp business unit, as Matt just stated, we formed Archipelago Ventures, a joint venture that ensures a reliable, vertically integrated supply chain from seed to sale, leveraging our research and cultivation facility in Hawaii. We completed our first hemp harvest in Hawaii and achieved multiple breeding milestones, which laid the foundation for expanding our hemp breeding activities in the U.S. And we identified additional opportunities for near-term hemp revenues through production of high-quality seeds targeting select varieties and specific regions.

Our focus for the rest of 2019 will be on continuing this momentum and achieve first revenues in wheat and hemp by the end of the year, positioning us to significantly grow revenues in 2020. We look forward to reporting our continuing progress next quarter.

With that, I'd like to turn the call over to your questions now.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question comes from Ram Selvaraju with H.C. Wainwright.

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Raghuram Selvaraju, H.C. Wainwright & Co, LLC, Research Division - MD of Equity Research & Senior Healthcare Analyst [2]

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Congrats on what's clearly been a very eventful past few months for you, guys. I just wanted to ask, first and foremost, about reasonable expectations ought to be in the wheat business. You had mentioned that you expect the first revenues from the new business model in the wheat business to come in before the end of this year. Can you give us some color on sort of what initial customer arrangements have already been made if you have received certain order commitments already? Or when you expect those might come in? And also looking ahead to 2020, specifically within the wheat context, the wheat segment, do you anticipate that you might be in a position to provide us with some kind of a revenue guidance range and long-term ramp expectations going forward?

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Sarah Reiter, Arcadia Biosciences, Inc. - Chief Commercial Officer [3]

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Thanks for your question. I think we'd be very comfortable sharing our expectation to be able to share commercial agreements perhaps in this call next quarter. We are currently in a number of confidential discussions, but expect this time next quarter to be able to share more detail. We do also expect to be introducing a retail flour line this year. So those expectations are somewhat small for the remainder of this year, honestly, but will ramp pretty progressively in 2020. And I look forward to being able to share much more information come third and fourth quarter calls.

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Raghuram Selvaraju, H.C. Wainwright & Co, LLC, Research Division - MD of Equity Research & Senior Healthcare Analyst [4]

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Great. And then a specification question regarding the wheat business. Do you still expect reduced starch to be the principal driver? Or is it going to be sort of equally driven by reduced starch and reduced gluten? Or are there likely to be other varietals that are going to contribute significantly to the forward trajectory here?

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Sarah Reiter, Arcadia Biosciences, Inc. - Chief Commercial Officer [5]

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So again, thanks for the question. GoodWheat is a platform, a portfolio by which we can introduce a number of different attributes. We believe resistant starch is, obviously, a very offer. The resistant starch offer really goes to turning wheat that we like to eat into a high-fiber concept. And so we think the market for that is really very compelling. That said, we're equally excited about the reduced gluten offer. We're doing a large amount of customer research to better understand it in terms of its appeal. And we also feel like it has some secondary benefits in terms of protein characteristics that may make it just as compelling as the resistant starch technology. I would say, continue to watch the space as we begin to better quantify how big the reduced gluten opportunity can be for us.

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Raghuram Selvaraju, H.C. Wainwright & Co, LLC, Research Division - MD of Equity Research & Senior Healthcare Analyst [6]

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And then with respect to what you had previously talked about regarding the revenue ramp trajectory being driven partially by the wheat business and also by the hemp business, could you may be give us a sense of what you expect the relative contribution to the ramp trajectory to be? Or do you expect one of those business to significantly outstrip the other in terms of foreseeable future growth? And what the margins are likely to be in each of those respective segments? Any sort of a qualitative assessment of the picture would be very helpful.

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Matthew T. Plavan, Arcadia Biosciences, Inc. - CFO, Secretary & President of Arcadia Specialty Genomics [7]

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Yes. That's a very great question, Ram. I think that the wheat business, as we spool up production, we expect significant revenues from that business at reasonable margins. And I think we need to be careful not to get too much more specific than that until we have decided which partners are going to lead because depending on who you partner with and the actual model that we're utilizing, those margins can fluctuate a little bit. But I think that on the hemp side, we're likely to see higher margins. And at the moment, I would tell you very high margins. And we're bracing for price erosion and planning for aggressive price erosion. But despite that, in those plans, we still see pretty positive gross margins on the hemp business even 3, 4 years out. But I would say that when we look at our internal projections backwards from 3 years from now, I would say that wheat and hemp will be competing for the highest revenue numbers and expecting a little bit better margins on hemp.

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Raghuram Selvaraju, H.C. Wainwright & Co, LLC, Research Division - MD of Equity Research & Senior Healthcare Analyst [8]

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Okay. Then just the technical financial questions. The cash on contribution that you guys are making to the Archipelago joint venture, firstly, can you just give us a sense of what the timing of that cash outlay will be, whether that's -- that payment has already been made or within what time frame it's going to be made? And secondly, how are you going to account for it?

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Matthew T. Plavan, Arcadia Biosciences, Inc. - CFO, Secretary & President of Arcadia Specialty Genomics [9]

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Yes. It'll likely be over the next 2 to 3 quarters as we're developing our extraction capabilities on the island. And it is our intent to account for this as a consolidated entity as we own more than 50% of the joint venture.

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Raghuram Selvaraju, H.C. Wainwright & Co, LLC, Research Division - MD of Equity Research & Senior Healthcare Analyst [10]

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Okay. And then last question with respect to the recent news item you guys had on the USDA approval of the drought-resistant soybean strain. If we look at the overall soybean landscape, clearly, there's been a lot of popular press articles about the trade war between the U.S. and China, its impact on the soybean business and so on. Can you just give us a context on that? What extent is that really a factor on -- to what extent should it be taken into consideration when we look at expectations for future economic performance of this product?

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Rajendra Ketkar, Arcadia Biosciences, Inc. - President, CEO & Director [11]

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So the first country that we will be launching this product, Ram, is Argentina. That's what we have been working on and planning towards right from the beginning. The partners are in Argentinian company. So we have approval in Argentina and Brazil as well. Brazil would be the second country that we would introduce it to. And so really, for either of those countries, an approval from China is necessary and -- for import of soybean products. So they import beans or other soybean products from Argentina and Brazil. So as far as the tariff issues go or the trade war goes, really, it doesn't really affect Argentina and Brazil. Those are our initial targets as soon as we get approval in China.

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Operator [12]

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And our next question comes from Ben Klieve with National Securities.

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Benjamin David Klieve, National Securities Corporation, Research Division - Analyst [13]

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A handful here. First of all, Sarah, a couple of questions for you on the wheat initiatives and especially kind of your plans for the expansion next year that you referred to. Really, can you just talk about that broadly? Where are you looking to expand? Do you have growers contracted yet? Is the supply chain in place in those geographies to ensure identity preservation? Any comments you have from that perspective would be helpful.

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Sarah Reiter, Arcadia Biosciences, Inc. - Chief Commercial Officer [14]

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Yes. Thanks, Ben. We are standing up the identity preservation production for both the reduced gluten wheat as well as for resistant starch wheat, both in the United States and in a key -- in a few key international markets. Supply, obviously, needs to sit close to where we think it's going to go. And so you can expect that we would be looking in the main wheat-consuming markets. I'm not in a position to tell you who we're contracting with at this point. But I think you can probably guess based on where most wheat gets consumed around the world. Certainly, our reduced gluten product is going to come to market first in the United States. That one is very clear for us. And we continue to be positioning for commercial announcements on resistant starch as we head into the second half.

Oh, your question about farmers. Yes. Yes, we do have farmers. We've worked with a number of farmers at -- as we develop our technologies, we work with farmers very closely. And we've been contracting a number of farmers for seed production, which changes into grain production the next season. So for us, this will be -- 2020 represents an expansion. More farmers will be needed for the kind of scale that we need, but it's just replicating what we already do. So it's, for us, feels like it's right in our wheelhouse.

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Benjamin David Klieve, National Securities Corporation, Research Division - Analyst [15]

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Okay. Perfect. And then a couple of questions on HB4 and commercialization in the U.S. I guess first, can you talk about -- I know this is probably a little ways off, but can you talk about kind of the geographies that you think you're going to be looking to target? Is this going to be kind of a targeted launch in sort of the Western Corn Belt or some other kind of dryer region that you think will be particularly appropriate? Or do you think that there's opportunities here for this to be launched maybe not nationwide but has a broad reach. What are you looking at geographically?

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Rajendra Ketkar, Arcadia Biosciences, Inc. - President, CEO & Director [16]

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So Ben, for the drought-tolerant trait itself, obviously, the more drought-prone area, the drier areas would be the initial target. But since we have the herbicide-tolerant trait in stack with the drought trait, this actually becomes a broader product that could be used in other areas that are prone to weed, pressure and particularly glyphosate-resistant weeds as well. So we think both of those attributes, the drought-tolerant and the herbicide-tolerant, brings value to farmers. Clearly, in the Central Midwest, Iowa, Illinois areas, not going to have a drought problem there. But the -- so we will be targeting a fairly broad geographies, not all of the United States. But we are working through that now to identify the specific markets for initial launch.

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Benjamin David Klieve, National Securities Corporation, Research Division - Analyst [17]

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Okay. Got it. And in advance of that, can we expect kind of a similar relationship to develop at some point along the lines of what you have with Bioceres? I mean are you looking for private partners to help you integrate that trait into germplasm and eventually commercialize it? Or is this something that you're going to be doing with like university partners, something of that nature?

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Rajendra Ketkar, Arcadia Biosciences, Inc. - President, CEO & Director [18]

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So this will be a Verdeca initiative. Verdeca is our joint venture with Bioceres, so it won't be just Arcadia. It would be Verdeca. Bioceres have their own germplasm, but it's really adapted for Argentina at the moment. So we would be looking for private partners mainly here in the U.S. as Verdeca to work with to introgress these traits into U.S.-adapted germplasm.

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Benjamin David Klieve, National Securities Corporation, Research Division - Analyst [19]

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Got it. Okay. Perfect. And then, Matt, a question for you on the cannabis front. You talked about expanding acreage. Can you talk a bit about -- I believe you said there's 10 acres of production currently. Can you talk about where you think maybe that production acreage will be by the end of next year, say?

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Matthew T. Plavan, Arcadia Biosciences, Inc. - CFO, Secretary & President of Arcadia Specialty Genomics [20]

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I want to be careful, Ben, especially in the Hawaiian market. I think it's going to be one where competition is going to be an issue because it's such a favorable climate. I will say that we're also evaluating opportunities in the mainland. But one thing that I am very encouraged by is the ability to generate substantial revenue off of fairly small acreage. And especially when you look at some of the germplasm that we're evaluating and the ability to improve the amount of CBD, for example, in a hemp strain, I would say that it would not be surprising for us to be on a couple of thousand acres between the mainland and Hawaii or something north of that. It's -- I think we need a little more time to really let things play out with the regulations because that's also really important is that within each state, their guidelines are going to have to be established based on USDA's guidelines. So I think we want to be kind of careful. But I am, at the same time, very encouraged with the revenue potential and the high-margin revenue potential associated with not a lot of acreage.

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Benjamin David Klieve, National Securities Corporation, Research Division - Analyst [21]

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Got it. Perfect. And I guess last one from me, just kind of a big-picture question here. Given that the disruption in South America right now, especially with the Argentinian peso, can you elaborate on kind of your currency risk, both in Argentina and Brazil, what the contract structure is, U.S. dollar-denominated payments that you're expecting versus local currency. Can you just help us understand how you're looking at that risk down the road once you actually commercialize HB4?

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Rajendra Ketkar, Arcadia Biosciences, Inc. - President, CEO & Director [22]

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Sure. Most of the commercial contracts in commodities or particularly export-related products in both Argentina and Brazil are typically dollar-denominated. So -- where we don't have that peso conversion concern necessarily.

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Operator [23]

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And our next question comes from Robert Smith with Center for Performance.

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Robert Smith, [24]

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So looking at your future, naturally, I assume you have a long-term planning function, whether it be 3 years or 5 years. So the question in my mind is whether you'll be able to outrun the needs for further financing by commercializing your product line. You made a statement that you're well positioned over the near term. I don't know how you -- well, address that news as a near-term factor. But I'd like to get some additional color on how you feel the acreage acquisition of additional acreage for planting, how that might dovetail with your plans for the commercialization and then the need for not going back to the well for additional money, at least for some time?

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Matthew T. Plavan, Arcadia Biosciences, Inc. - CFO, Secretary & President of Arcadia Specialty Genomics [25]

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Robert, that is -- that's a $64,000 question.

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Robert Smith, [26]

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It always is. Yes. So according to spend years and finance experiment, now you're in the crossroad, so to speak. The question is how do we value the other products?

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Matthew T. Plavan, Arcadia Biosciences, Inc. - CFO, Secretary & President of Arcadia Specialty Genomics [27]

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Yes. Well, I think as I mentioned in my prepared comments, we've never been -- I've never been more bullish, and I would say that everyone in this room probably feels the same way about our ability to begin generating significant revenues at a meaningful trajectory. Whether that's a high enough trajectory to not need additional capital is not something we're in a position to speak specifically to. But what I can say is that we are highly confident that our milestone achievements that we will report with the resources that we have should be sufficient to significantly improve the current valuation of the company. And should we be in a position to require additional capital, either to grow more quickly or through strategic arrangements, we will be in a far better position from a valuation standpoint to do so, i.e., be much less dilutive than any financings that we would have done in the past. So it truly is -- it's difficult to project, and I think it would be -- wouldn't be prudent for us to get more specific than that. But it is a time where we have good visibility into multiple sources of revenue in the near term.

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Robert Smith, [28]

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So the excitement is palpable. Question, when you say near term, are we talking about 12 months? Is that what you would call near term?

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Matthew T. Plavan, Arcadia Biosciences, Inc. - CFO, Secretary & President of Arcadia Specialty Genomics [29]

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I would call near term the next 12 to 24 months.

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Robert Smith, [30]

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Okay. That's good enough. And could you share with me what your thoughts on -- what are the processes of increasing the acreage? How do you approach this? I mean what are the possibilities of different tax that you might pay?

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Matthew T. Plavan, Arcadia Biosciences, Inc. - CFO, Secretary & President of Arcadia Specialty Genomics [31]

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Well, it depends on the geography. But there are states where there are farmers growing significant amounts of hemp that we might be interested in acquiring, processing and using for our own supply chain. If it were -- if it's in Hawaii, in particular, it is -- our opportunities for expanding acreage there are additional licenses, contracting with other licensees. There are 30 licensees covering 170 acres in Hawaii. And so that, we believe, will expand significantly once the 2018 Farm rule -- or Farmville guidelines are in place. So I think whether you're looking in the mainland or Hawaii, I don't think it'll be long before it's wide open for farmers to plant and grow hemp. And so if you look at any of the analyst reports that are out there, the expectation is that the hemp acreage is going to grow dramatically over the next 3 or 4 years from what was almost nothing just 2 years ago. So we don't anticipate access to land being a gating factor for us.

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Robert Smith, [32]

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All right. And so can you describe at present since so much focus is now on commercialization, can you say something about the R&D function within the organization? I mean you had quite a number of other things on your plate, so to speak. I understand the emphasis, but I'm just wondering what can be said about all the other avenues or areas that you're -- you've been interested in.

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Matthew T. Plavan, Arcadia Biosciences, Inc. - CFO, Secretary & President of Arcadia Specialty Genomics [33]

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We've -- we continue to be a R&D-focused company in addition to a commercialization-focused company. I think one thing that's important to point out is, as a non-GM company, we can do a whole lot more with a lot less money. So we don't anticipate that the investment in R&D will substantially increase in the coming years. We don't expect it to decrease. And with Randy Shultz, our new Head of R&D, we continue to expect to remain very productive in new innovation. So it's a major part of how we continue to feed our growth pipeline.

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Operator [34]

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Thank you. I would now like to turn the call back over to Raj Ketkar for any closing remarks.

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Rajendra Ketkar, Arcadia Biosciences, Inc. - President, CEO & Director [35]

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Thanks, Josh, and thanks to everyone for joining the call today and your continued interest and support of Arcadia. We look forward to speaking with you again during our third quarter 2019 conference call.

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Operator [36]

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Thank you. Ladies and gentlemen, thank you for participating in today's conference. This does conclude today's program, and you may all disconnect. Everyone, have a wonderful day.