RKDA: Closes Private Placement to Fund GoodWheat Brand Building Initiatives & Retail Rollout …

By Steven Ralston, CFA

NASDAQ:RKDA

READ THE FULL RKDA RESEARCH REPORT

Arcadia Biosciences (NASDAQ:RKDA) is on the cusp of increased revenue growth driven by the company’s GoodHemp and GoodWheat initiatives. Though the U.S. hemp effort has been delayed due to a need for regulatory clarity concerning the new legal status of hemp, a new distribution relationship with Tritium 3H, a Canadian hemp seed company, should ramp up revenues in Canada once Health Canada certifies Arcadia’s AOSCA certified varieties. Furthermore, U.S. hemp sales should gain traction when the U.S. regulatory framework has been clarified by the FDA.

Summary of Recent News

To help Arcadia Biosciences further transition into a company that provides high-value, branded food ingredients, management has embarked on a direct-to-consumer marketing campaign, which includes digital marketing programs, in order to establish GoodWheat as a consumer brand. Furthermore, retail channel initiatives are being pursued, including the support of Three Farm Daughters which has both e-commerce and brick & mortar grocery store components.

In order to fund the effort to market the company’s new GoodWheat products to consumers, Arcadia Biosciences has raised over $33 million through a $25 million private placement in January 2021 and an $8.0 million offering under an existing shelf registration statement in December 2020.

Three Farm Daughters

In August 2020, Arcadia formed a strategic business venture with Three Farm Daughters, LLP. Based in North Dakota, Three Farm Daughters is an emerging company focused on developing and marketing food products that utilize Arcadia’s non-GMO GoodWheat. Arcadia Biosciences and Three Farm Daughters ultimately will develop a branded line of food products based on GoodWheat ingredients, e.g. flours, pastas, crackers etc.

The sisters’ parents have grown GoodWheat over the last two years on the family farm. In their diets, they have experienced first-hand the quality and taste of nutritional food made with healthier GoodWheat ingredients. Varieties of GoodWheat can “contain up to 10 times the dietary fiber of traditional wheat, up to 65 percent less allergenic gluten, and nearly 30 percent fewer calories per serving than traditional wheat.”

The sisters are in the R&D stage, developing their first healthy food products. Three Farm Daughters launched its initial products in October, which are sold online on amazon.com and their own website. Eventually, Farm Daughters products are expected to be sold in grocery stores, starting with Hugo’s Family Marketplace (a regional, family-owned supermarket grocery chain serving North Dakota and Minnesota).

Part of the GoodWheat marketing campaign to reach out to consumers was two articles in Ag Week, one in December 2020 and another in January 2021. The articles highlighted the stories, ambitions and family history of the three daughters: Annie Gorder, Mollie Ficocello and Grace Lunski. The Sproule sisters grew up on a farm in in northeastern North Dakota on which a variety of GoodWheat is now grown. After attending college, the three moved backed back to focus on transforming the GoodWheat grown on the farm into flour and pasta products.

Also, a vimeo video on GoodWheat has been produced and it is available on the home page of Arcadia Biosciences’ website.

Hemp Distribution Agreement with Tritium 3H

In order to expand the distribution of GoodHemp into Canada, Arcadia Biosciences signed an exclusive hemp distribution agreement for Canada with Tritium 3H in late November 2020. Based in Alberta, Tritium 3H is a Canadian hemp seed company that works with breeders, producers and end-users in order to provide hemp varieties that will perform well in Canada’s unique climatic regions. In order to ensure the performance that Canadian industrial hemp growers expect, Tritium 3H conducts field testing and confirms certified seed production before distributing hemp varieties in Canada.

Before the initial varieties of Rogue, Umpqua and Santiam are distributed in Canada, T3H requires that the plants be certified by the Association of Official Seed Certifying Agencies (AOSCA) and Health Canada. AOSCA certified the varieties in early February 2021 (see below). The company awaits certification by Health Canada

Four GoodHemp Seed Varieties Certified by AOSCA

In early February 2021, the National Association of Official Seed Certifying Agencies (AOSCA) certified four GoodHemp™ varieties (Rogue, Umpqua, Santiam and Potomac). These certifications give growers assurances of quality, uniformity and performance, since all four varieties have passed the rigorous standards of a review board at AOSCA composed of representatives from seed certifying agencies, academia, the seed industry and USDA.

Umpqua is a CBD-dominant, early photoperiod variety with a unique terpene profile.

Rogue is a CBD-dominant, high yielding intermediate photoperiod variety with extraordinary yields under low planting densities.

Santiam is a CBD-dominant, early photoperiod variety with well above average yields in northern latitudes.

Potomac is a CBD-dominant, full season photoperiod that produces large plants with a heavy yield.

$25.1 million Private Placement

On January 28, 2021, Arcadia Biosciences closed a private placement of 7,876,784 shares of common stock and 7,876,784 5 ½-year ½–share warrants (exercisable into 3,938,392 common shares at a price of $3.13 per share). The private placement was priced at $3.1925 per share for gross proceeds of $25,146,633. H.C. Wainwright & Co. was the exclusive placement agent for the Private Placement.

$8.0 million Registered Direct Offering

On December 21, 2020, Arcadia Biosciences closed a registered direct offering under a shelf registration statement for 2,618,658 common shares a $2.93 per share. Gross proceeds were $7,672,668. In a concurrent private placement, Arcadia issued 2,618,658 unregistered 5 ½-year warrants (exercisable into 2,618,658 common shares at a price of $3.00 per share) at a price of $0.125 per warrant. The gross proceeds for the warrants were $327,332. H.C. Wainwright & Co. acted as exclusive placement agent for the offering.

Valuation

For Arcadia Biosciences, a reasonable methodology is a discounted cash flow (DCF) model that estimates future cash flows and discounts them by using the cost of capital in order to attain a net present value. Arcadia’s revenues for 2020 are being estimated using management’s guidance while revenues in the out-years are being projected by industry forecasts and our estimates of the company’s market share. The model is arranged by products lines, namely GoodHemp, GoodWheat, HB4 soybeans and SONOVA GLA. Our DCF model (which applies a 12.1% discount rate and a terminal P/S ratio of only 0.35) indicates a NAV share price target of $9.05 per share on a fully diluted basis.

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