Categories Analysis, Cannabis

Arcadia Biosciences (RKDA): GoodHemp forms key part of growth strategy

The company believes its CBD sales should come online in the third quarter of this year

Arcadia Biosciences (NASDAQ: RKDA) saw its revenues nearly double to $309,000 in the first quarter of 2020 versus the same period a year ago. The company also reported a profit of $2.5 million versus a loss of $12.6 million a year ago.

Looking ahead, Arcadia has forecast revenues of $10 million for fiscal year 2020. The company’s GoodHemp product line, which focuses on delivering genetically superior hemp seeds and extracts, remains a key part of its growth strategy for the coming months.

In just two months after the roll-out of its GoodHemp seeds catalog, the company received over $3 million in initial seed purchase commitments, which is a sign of strong demand for genetically superior hemp products in the market. Arcadia expects to recognize these revenues when deliveries are made between Q2 and Q4 2020.

Arcadia’s plans were temporarily disrupted by the COVID-19 crisis as a couple of hemp growers decided to put their purchases of GoodHemp seeds on hold last month until they got a better visibility into the economic situation.

However, in the last ten days, the company has been seeing a significant pickup in interest and activity and it is seeing hints of growers moving ahead with their plantings. Historically, May has been one of the most active months in terms of hemp seed sales in the Western US.

Arcadia’s hemp backlog stood at $3.7 million and this number is expected to decline as the company starts fulfilling orders over the coming months. The company expects to see significant hemp seed revenue in the second quarter.

Arcadia also announced a partnership between its joint venture Archipelago Ventures and Vivion Specialties Inc. to supply Hawaiian hemp products in key markets like nutrition and personal care in North America. This deal will give Arcadia access to Vivion’s vast network which spans 18 sales regions across the US and Canada.

However, the restrictions brought on by the pandemic have led to delays in harvesting, processing and the initial shipments of the new CBD line through this partnership. Currently, the company expects to open the extraction facility in the second quarter and believes CBD sales should come online in the third quarter of this year.

The incoming sales of CBD and hemp seeds as well as the corresponding flowthrough of the aforementioned inventories are expected to help in reducing the company’s cash burn going forward.

According to the company’s regulatory filings and data from the Hemp Business Journal and the Brightfield Group, the hemp CBD market is estimated to have generated $190 million in sales in the US in 2018. By 2022, this number is projected to reach $22 billion.

Arcadia’s stock has dropped 25% since the beginning of this year but gained 22% in the past one month.

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