Arcadia Biosciences, Inc.

Good afternoon and welcome to Arcadia Biosciences' first quarter 2021 earnings conference call. Today's presenters will be Matt Plevin, President and CEO, and Tom 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, if you turn to slide two, 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 risk 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 3 of this presentation. With that, I'll now turn the call over to Mr. Matt Pleasant President and CEO.

Thank you, operator. Good afternoon, all. Welcome to our first quarter conference call, and thank you for joining us. Normally, I begin our calls with highlights of our accomplishments for the quarter. However, today, I would like to begin our call with specific coverage of an exciting and strategically pivotal event for the company. Just after the market closed today, we announced that we acquired Leaf Brands, a portfolio of leading CBD and wellness products featuring Soul Spring, the number one selling CBD-infused botanical therapy brand in the U.S. in the natural category. In summary, this transaction is strategically transformative for Arcadia as it substantially broadens our product offering and direct access to consumers. With this acquisition, we gain, one, best-in-class CBD and wellness brands with an immediate and significant impact on our top line revenues with potential for strong organic and synergistic growth. Two, a customer base of over 5,000 U.S. retail stores through an established network of national retail distributors and large independent grocers through which we believe our good wheat, good hemp CBD, and GLA consumer products can be sold. Three, compelling cost synergy opportunities and four, experienced FMCG management, or fast-moving consumer goods management. Referring now to slide three of our presentation, this acquisition is in line with our stated strategy to maximize the value capture from our proprietary innovations in good-for-you foods and wellness products by the vertical integration of our supply chain. We believe with greater control over the manufacturing and placement of our products, we can better participate in the product quality and brand equity we create. We acquired these assets from the parent company, which made its public market debut on the NEO exchange in January of this year with an initial market capitalization in excess of $1 billion. It is the largest cannabis company in California by revenue, footprint, and brand portfolio. If you'll flip to slide four, I'd like to tell you more about this important transaction. Leaf Brands comprises four brands with approximately 80 SKUs spanning 17 product categories in the health and wellness marketplace. Three of these brands, Solspring, Savvy Naturals, and Zola, generated $6 million of revenue in 2020. The fourth and newest brand, Provault, was launched in March of this year. It therefore did not contribute to revenue in 2020. Beginning with Soul Spring, the number one selling CBD bath and body brand in the natural channel according to SPIN's data. Soul Spring was launched in June of 2019, targeting channels including natural, specialty, conventional, drug, and online at mysoulspring.com. Soul Spring is currently sold in over 2,000 retail stores, including Sprouts, Wegmans, Vitamin Shop, Fresh Thyme, Thrive Markets, and others. The SoleSpring body care lineup includes bath balms, body bars, lotions, deodorants, lip balms, and muscle rubs. Now moving clockwise on the slide is ProVault. This is a CBD-infused sports performance formula made with natural ingredients and is designed to provide effective support and recovery for athletes and people with pain. Product formulations include muscle rubs, bath salts, and other creams. As I just mentioned, ProVault was launched in March of this year. It's anchored at Sprouts Market and is showing good reorder velocity. We've also received initial order indications from other target customers. Because of the demand for sports formula for pain management and the initial positive reception of this brand, we believe the prospects for this line to become a strong revenue contributor are encouraging. This product competes favorably with BioFreeze and IcyHot, which collectively generate about $250 million in revenues per year. Continuing clockwise to Savvy Naturals, this is a non-CBD-infused line of all natural body care products, including soaps, lotions, creams, using proprietary formulations and natural ingredients sourced from around the world. We especially like having the diversity of a non-CBD product line to broaden our offerings. This is the most mature line of the products in the Leaf portfolio, having been acquired in 2018 and has a strong consumer brand loyalty. Savvy Naturals were sold in greater than 1,000 retail doors with target channels of online natural specialty and conventional stores. And lastly, we have Zola Coconut Water. Zola is a leading coconut water sourced exclusively with sustainably grown coconuts from Thailand and was named the best tasting coconut water by Epicurious, a Condé Nast digital brand focused on food and cooking. Zola is packed with natural plant-based electrolytes and is made specifically with non-GMO project verified, gluten-free vegan ingredients. Zola is sold in 4,000 natural foods and grocery outlets, including Safeway, Stop and Shop, and Albertsons. With this purchase, we acquire a 20,000-foot square foot GMP-licensed ISO-certified manufacturing facility in Chatsworth, California. On-site capabilities include ingredient sourcing, formulation, manufacturing, QAQC, warehousing, and flexible fulfillment and shipping. We believe the scale capacity of this facility is several times the existing production volume, which bodes well for our synergy plans, which I'll expand on in a moment. Gross margins range from 30% to 60%, depending upon the SKU and the channel being sold into. Today, the aggregate GM of this business, or gross margin, is close to 40%. Through some very basic and inexpensive automation to increase production efficiencies, some strategic product mix shifts, and improved ingredient sourcing, we believe we can increase gross margins by five to 600 basis points within 12 to 18 months. With this acquisition, we also gain a seasoned management team with proven FMCG expertise, including go-to-market strategies, marketing, manufacturing, supply chain, and food and product expertise in the beverage, topical, and wellness markets. as evidenced by a strong sales track record, having built nationally acclaimed brands such as those in the Leaf portfolio. Three key executive ads include Chris Couvelier, formerly CEO of Zola. Chris will be the chief growth officer for Arcadia. Chris founded Zola, an acai beverage company, in 2001. A few years later, Chris successfully extended the Zola brand to include coconut water, a post-exercise favorite hydration drink, and grew Zola revenues to over $20 million annually. In 2016, Zola was acquired by growth investors Carp Riley and Chris stayed on as chief executive officer, doubling down on his passion for delicious plant-based drinks. In May of 2019, Kaleva acquired Zola, and Chris joined Kaleva as head of beverage and a member of the executive team. In January 2021, Kaleva was acquired by the parent company. As Chief Growth Officer at Arcadia, Chris will lead our growth strategy development and sales and marketing execution for our consumer foods business. Brett Mitchell, formerly COO of Leaf Brands, will be the General Manager of Leaf Brands for Arcadia. Brett has been Chief Operating Officer of Leaf since its inception in 2019, overseeing the manufacturing, launch, and expansion of each of the Leaf Brands. Prior to LEAF, Brett was the vice president in sales of operations for a food distribution company based in Southern California. Belinda Yao, whose arrival to Arcadia we announced just last week, is our vice president of operations and has a proven track record leading all aspects of the supply chain, including building things from scratch in startup and small companies to leading supply chain innovation within Fortune 500 pharmaceutical, chemical, and CPG companies. Most recently, she was the vice president of operations at Zola, working closely with Chris to establish and lead a global supply chain for plant-based beverages. Before Zola, Yao served more than eight years with the Danone Company, a premier multinational food products company, where she held senior management positions in supply chain management. For Arcadia, Yao will oversee supply chain strategy for all product manufacturing and production, including demand planning, procurement, and supplier relations, order fulfillment, inventory management, logistics, customer service, and data analytics. Now, I'd be remiss not to mention that much of the success of the LEAF brand stems from the superior formulations of food-grade natural ingredients tested for safety, efficacy, sustainability, and environmental impact sourced from around the world by Hugo and Debra Saavedra. Hugo and Debra are the veteran experts in the National Foods category responsible for the quality standards now adopted by the natural foods industry. In fact, Hugo Naturals, which many of you may be familiar with, which is a very popular line of body care products, was their first successful brand of wellness products. And lastly, the purchase consideration for these assets was $4 million in cash plus 827,400 shares of Arcadia common stock. If you'll turn now to slide five, I'll take a moment to showcase what we believe to be significant bi-directional revenue and cost synergy opportunities with this combination. Let me begin with synergies enabled via the LEAF business. The LEAF Brands team has established a national distribution footprint with significant product flow through the largest national distributors, including UNFI, KEHI, DOT, and Lotus Light, and direct sales to national grocers like Sprouts, Wegmans, Albertsons, and Safeway, as well as into specialty nutrition outlets and pharmacies like Vitamin Shop. Immediate access to this national retail footprint is of significant value to Arcadia, as we are in the midst of bringing our existing and new consumer food products to the retail market. The grocer network is ideal for our Good Wheat-based consumer foods like pastas, flours, and the forthcoming pipeline of products powered by Good Wheat, Similarly, their installed base of pharmacies and vitamin shops are perfect targets for our plant-based GLA-Senova 400 omega-6 capsules, of which we can begin selling immediately into these channels. Perhaps the most obvious revenue synergy for Arcadia in gaining with this acquisition will be the introduction of our Archipelago Premium Hawaiian CBD through the leaf distribution network. versus having to incur the time and cost to stand up a retail network ourselves from scratch. This will be a new SKU available to all stores where Solspring is sold. Moreover, now that we have formulation, manufacturing, and brand capabilities to produce our Hawaiian CBD products internally, we will capture better margins not having to pay outside formulators, packaging developers, and pay co-manufacturing profits. So thus far, I've highlighted the retail sales synergies we gained by leveraging the LEAF retail distribution network manufacturing and formulation capabilities depicted at the top of slide four, but switching now to the ways in which Arcadia capabilities and investment can drive synergies to the LEAF brands. E-commerce is largely an untapped segment for the LEAF products, as there has been no online marketing investment in them. Their online sales account for between 7% and 15%, which we believe speaks to the brand's strength given the lack of any marketing. With a typical online marketing budget, we believe 25% to 30% in online sales as a percentage of total sales is a reasonable expectation. With that said, based upon our learnings from building the digital backbone for the Three Farm Daughters e-commerce business, we've developed a proficiency to effectively capture online consumers. We believe these learnings will translate favorably to targeting new online consumers for our LEAF CBD and wellness brands, a product category that generally does very well in e-commerce. With that in mind, let's have a look at the growth projections for CBD sales. And I can talk a little bit about what we see on the horizon for our line of CBD products. If you'll turn to slide six, as you can see, CBD has already become a large commercial market at over $4 billion. and the expectations for continued growth remain impressive. In particular, beverages and other ingestibles are predicted to lead the category in growth. As you know, a number of large and well-known companies and brands are getting in the game in a significant way. Charlotte's Web, Molson Coors, and Martha Stewart's company are charging forward with CBD-infused beverages, gummies, and capsules. In fact, several of our distributors are clamoring for us to introduce a CBD-infused beverage formulation, too. For that reason, we're evaluating beverage formulations, brand strategies, and the regulatory environment for ingestibles as new product opportunities. Okay, I'd like to now turn to highlights for Q1 and events subsequent to quarter end. Another transaction highlight occurring just after the quarter end is our acquisition of the assets of Agrassus, a food ingredient company based in Barcelona, Spain, and includes all the physical and intellectual property assets to enable Arcadia to further commercialize Tritidorium. Turning to slide 7, you will see Tritidorium is a novel cereal resulting from a cross between two species, durum wheat and a wild barley, giving food companies and consumers a cereal with a unique functional and nutritional properties. It's highly functional in a wide range of cereal-based applications such as breads, crackers, pastas, baked snacks, and beer. As a crop, Tritidorium is a robust and sustainable cereal that is water efficient with good disease and pest resistance and broad environmental adaptability. Finished products made with Tritidorium have a unique gold color and slightly sweet buttery taste. Tritidorium is commercialized within a network of more than 50 grain producers and 25 millers and distributors for delivery of product to customers. It's been sold in 10 countries with 7 retailers in Europe. most recently launching its Tridorium-bred product with Albert Hein, the largest grocery retailer in Holland. To help size the acquisition financially, we acquired these assets for approximately $250,000 in cash. Our recurring revenues for the business today are between $750,000 and $1 million per year, and we expect to be breakeven within a year post-acquisition. We will spend the next 90 days integrating the Tridorium operations with our Goodweed operations quantifying synergies such as adding good wheat formulations to the Tritidorium channels in Europe, and the opportunities to sell Tritidorium products here in the States, again leveraging the LEAF retail distribution network as we are able. And now for an update on our good wheat business. We made good progress refining and optimizing our e-commerce digital architecture in Q1. By March, we were consistently converting website impressions to actual sales transactions in at a rate above industry averages of 2%, driving sales up in March over February. As we discussed in our last earning call in March, it was our intent to substantially increase our digital marketing spend in April with our three farm daughters partners to increase the scale-up of our customer acquisitions and begin building a broad base of good wheat consumers. Concurrently, however, in April, diligence with LEAP brands was well underway. We quickly recognized having access to the leaf sales and distribution networks gives Arcadia the horsepower and in-house flexibility to drive strong sales in a more strategically advantageous arrangement through a partnership where strategic decisions and profits are shared equally. So when broaching the topic with our partners at three farm daughters, they welcomed the opportunity to also make their own strategic decisions and invest in what they believed is best for their brand and their business goals. Therefore, we mutually agreed to reconfigure our alliance as a license arrangement versus a joint venture, whereby they licensed the Good Wheat ingredients from Arcadia for their products. The continued commercial success of the 3FD brand Pastas and flowers remain of an essential importance to both of us, and we continue to collaborate well to ensure the success of the brand. Shifting for a moment to Arcadia Innovation. As we have discussed over the prior couple of investor calls, our portfolio of developed traits in wheat and hemp represent the potential for significant commercial value, and our primary innovation emphasis is now around new food formulation and product line extensions. As such, we've reduced our investment in new trait discovery and increased our investment in revenue-generating activities for these new product introductions. This evolution necessitates a different expertise and capability to lead our innovation efforts. Hence the reason we recently hired Tracy Baker as our Vice President of Product Innovation, who brings nearly 40 years of experience in product formulation and commercialization with organizations like Tropicana, PepsiCo, and Gerber. As we complete this evolution, we no longer require a chief technology officer at the company. Therefore, it's with mixed feelings that I announce that Dr. Randy Schultz will be transitioning out of the company by month end. Randy has been instrumental in advancing our traits to commercial viability, in building intellectual property protection, and most recently, leading our good hemp variety development. We thank him for his contributions and look forward to following his continued professional successes. Now, with respect to good wheat, new product introductions, Tracy's leading efforts to evaluate the greatest bang for our buck in food formulation. From among those, you'll see listed on slide eight. That is to say, where does our nutrient-dense good wheat have the greatest value to consumers and food formulators? We believe the most immediate category opportunities and where customer testing is currently focused are in those shown, including pancakes, waffles, baking mixes, snacks, and pizza crusts. In fact, outlined in slide nine, we're targeting the introduction of two to three Good Wheat products in 2021. We're evaluating consumer preferences, testing formulations, and lining up manufacturing over the next few months in order to begin commercialization introduction likely in Q4 of this year. Also indicated herein is the staggered launch by brand for our commercial introductions. As you can see, we're planning for a total of six brands to be launched in addition to the good wheat consumer products. These are rough estimates based on a number of variables. Therefore, we do expect some changes to these timelines, as much as plus or minus 30 days for each. Switching briefly now to Good Hemp Seed Update, because of the delay in the approval from Health Canada, revenues for Good Hemp Seeds did not start in earnest until April which totals today just over 315,000 for the year and slightly under a million seeds sold, but for the quarter, sales were, in fact, de minimis. We're now well into the growing season, and our sales team has been in the field actively engaging with growers and having attended a number of hemp conferences. For us, the fog around this season's prospects has dissipated, and it is clear to us that the lack of action on the part of the FDA to establish a regulatory framework for hemp extracts is causing the seed market to regress. Specifically, in the fall of last year, hemp analysts were projecting an increase in acres planted for 2021 over the 72,000 acres that were planted in 2020. Most everyone expected actually well over 100,000 acres of hemp to be planted in the 2021 planting season. Most recently, and to the contrary, hemp benchmarks published their estimates for the 2021 planting season of approximately 27,000 acres based upon licensing data. This is a significant downturn that very few anticipated based upon the reasonably positive buying signals that I think everyone was receiving up until very recently. We are seeing as growers continue to struggle to secure offtake contracts for hemp, they are changing their minds and declining to grow in 2021. and in some cases are choosing to grow commodities instead, which are at an all-time high. We'll continue to compete aggressively for our share of seeds sold through the balance of 2021, but expect now for this malaise to persist until the FDA follows through on regulations. The primary hope for action by the FDA now is the Bill H.R. 841 introduced into the House in February of 2021 by Congressional Representative Kurt Schrader of Oregon. This bill allows the use of CBD as a dietary supplement, provided that the supplement meets other applicable requirements. If passed, we believe this bill will reinvigorate demand for hemp genetics in time. Before turning the call over to Pam for a review of the financials, I'd like to close with a macro perspective on our corporate mission, Healthy People, Healthy Planet. Having executed on the stated goal to verticalize, I believe the fundamental commercial strength of the company and our strategic plan to achieve that mission to create shareholder value stronger now than ever before. I believe this because, one, we have a broad suite of plant-based and sustainable good-for-you consumer food and wellness products lined up for retail and e-commerce channel revenue generation. Two, we are enabled to provide quality assurance of our premium consumer products from seed to shelf, a critically important criteria for any CPG sourcing products, especially in the emerging CBD market. Three, we can maintain better control and margin protection against market shocks like those we are seeing in the hemp seed markets today. Four, we are now fully participating in brand and retail margins. And lastly, we possess proven FMCG leadership expertise. With that said, I'll wrap up with that and turn it over to Pam for an update on the financials. Pam?

Thank you, Matt. Okay, I'd like to take a few moments to share the financial highlights for the quarter with you now. As Matt mentioned at the onset of the call, we are very pleased to have made the asset acquisition of Leaf Brands and Zillow Coconut Water, and we look forward to reporting revenue from product sales starting in second quarter. Turning to slide number 10, total revenues recognized for the first quarter of 2021 were $828,000 compared to $309,000 in the first quarter of 2020, with the majority of the $519,000 increase driven by good wheat grain sales this quarter along with additional GLA product sales. Total operating expenses of $6.2 million in 2021 were up slightly from the $6.1 million recognized in 2020, although the composition differed. Cost of product revenues of $856,000 increased by $724,000 from the first quarter of 2020 to the first quarter of 2021, due primarily to higher good wheat grain and GLA product sales, along with the destruction of some non-viable seed in Hawaii. RID expenses for the quarter were $1.2 million in 2021 as compared to $2.2 million in 2020. The $1.1 million decrease was driven primarily by lower employee-related expenses as we shifted our focus away from true research and development and towards the development of commercial products during the latter portion of 2020. Selling general and administrative expenses totaled $4.1 million in the first quarter of 2021, a $346,000 increase from the $3.7 million recognized in the first quarter of 2020. Increased employee expenses, along with higher marketing and advertising activities, were partially offset by lower consulting-related stock compensation expense in the first quarter of 2021 as compared to the first quarter of 2020. Net income to common stockholders was $2.1 million in the first quarter of 2021 compared to $2.5 million in the first quarter of 2020. And I'll give a little more detail on that other income and expense line on the slide that totals $7.4 million for the first quarter of 2021 and $8.3 million for the first quarter of 2020. So the first quarter of 2021 included an unrealized gain in the amount of $7.5 million related to the 1.875 million shares of BioSeries stock that we hold as the stock price increased significantly from December 31st, 2020 to March 31st, 2021. And we recognized $769,000 of issuance costs associated with the pipe transaction in January of this year that brought in $25.1 million of gross proceeds. In addition to a non-cash gain of $322,000 for the change in the fair value of warrant liabilities from the end of quarter four to the end of quarter one. And the first quarter of 2020 did not include any issuance or offering costs. but we did recognize a non-cash gain in the amount of $8.2 million for the change in the fair value of common stock warrant liabilities. The number of warrants outstanding that are associated with these liabilities increased significantly with the January pipe transaction. And the balance of cash and cash equivalents totaled $32.8 million at the end of first quarter of 2021. Short-term investments at the end of the quarter was $19.1 million, comprised of the fair value of the BioSeries stock held and up from the 11.6 million fair market value balance at the end of December 2020. So this concludes our financial highlights for the first quarter of 2021. Thank you very much for your attention today, and I'll turn the call over now to the operator for questions.

Leah? As a reminder to ask a question, please press the star and then the number one key on your touchstone telephone. If your question has been answered or you wish to remove yourself from the queue, please press the pound key. Your first question comes from the line of Ben Clyde from Lake Street Capital. Your line is open.

All right. Thanks for taking my questions here. Congratulations on a good quarter, and it sounds like a lot going on over there. First question is, in the context of the quarter itself, just a clarification around the grain sale classification that you have for good wheat grain. Is that – Revenue to three farm daughters, I mean, is that how that's termed, or is good wheat grain sales in the quarter? Is that something else?

Hi, Ben. I can take that question. That is not sales to three farm daughters. Those were sales to other customers.

Okay. And, okay. All right, interesting. Okay, and next question I have, you talked about the $6 million – recurring revenue from the acquisition. Uh, and, and Matt, it sounds like that $6 million number was, was the revenue from those brands in 2020. Is that, is that correct? That's not a forward looking estimate. That's, that's an actual 2020 number.

Yeah. Thanks for clarifying or asking for clarification. That is correct. That was the revenue generated by three of the four brands in 2020. Provault was launched, uh, in March of this year, so anything that generates will be additive to that recurring number. Got it. Okay. As well as those existing brands.

Got it. Okay. And then you talked about integrating your Hawaiian operations into the supply chain of this acquisition. It sounded like what you were referring to was that there was going to be new labels to the brands that have a Hawaiian brand element to it. Is that correct, that these are going to be new brands in this portfolio and you're not necessarily going to be replacing the existing supply chain with your own? internal capabilities. Is that right?

That's correct. These will be additive to the existing SKUs that they have. They don't currently sell a Hawaiian CBD, so this will be an add. Okay.

Got it. And then on the two other really quick questions. One, you talked about the expectations later this year of launching new good wheat brands. consumer product one, two, and three is how it was phrased on here. Is it fair to assume that you are focused now exclusively on building your own brands internally and that the partnership model is not something, you know, maybe you'll entertain that down the road, but the internal brand development is what you're focused on for GoodWeed?

Correct. Right. We think that's the best way to create value for our shareholders is And we've learned a lot about the value of the Good Wheat brand itself, and we believe that it will resonate directly with consumers. So that is our strategy going forward. And, look, I think Three Farm Daughters will continue to be successful as well. I think that it is their desire to add other products and do things with their brand that are of interest to them. And we want them to be free to do that while we pursue what makes the most sense for us and our shareholders as well.

Got it. And the last question, and this is something I asked in the last call, but given your comments about the trade portfolio today, I'm going to re-ask it. I mean, at this point, given how much has changed in the strategy, even over the last six weeks, can you talk about really what is in your trait discovery pipeline today and really what's left of the kind of legacy ag biotech capabilities in terms of headcount today versus a year ago, what remaining strategic objectives there are, anything around that would be helpful. Sure.

Sure. So when we look at wheat in particular, you know, there's a fairly broad set of traits that we have that we've added to by having acquired the agrisis assets that we believe are applicable to just about any wheat formulation, any food formulated with wheat to improve its nutritional content. So we think that whether it's high fiber, reduced gluten, extending the shelf life of the wheat, all of those capabilities are within the portfolio of traits that we have. So that right there, we think, is an enabler to become a gold standard in wheat, which is a very large opportunity for us. And so the way to do that at this point is to develop new formulations and focus on food science in order to ensure that we're bringing those products to market in the right consistency and taste, which is a slightly different skill set than the traditional biotech. So that's the reason for the evolution. And that's an example of the breadth of the traits that we have available to us in our portfolio for wheat, for example. For hemp, we've developed strong varieties for our good hemp, and we have continued to kind of evaluate genetic opportunities, but I think for the time being, given that what we've learned is that the germplasm market for hemp in the near term and foreseeable future is not likely to be a very large market. We think for the near term, our dollars are better spent in iterating on those varieties and germplasm advantages that we've seen attributes that we've created to date. So discovery of new traits, we've really decreased that investment to zero for the near term and are investing in exploiting those discovered traits to date. Got it. And that would be a significant reduction in our R&D, both headcount and spend. That's why you see such a significant improvement or reduction in that expense over the prior year quarter.

Got it. That's all helpful context. Very good. Well, I appreciate you both answering my questions, and I'll get back in queue. Okay. Thanks, Ben.

And your next question comes from the line of Stephen Ralston from Zax. Your line is open.

Hello. Can you hear me? Yes. Hi, Stephen. How are you?

Hi. Congratulations on this LEAF acquisition. It's quite transformative. It seems like you make a leap from being an ag tech company to a consumer brand name company. You're welcome. Curious about a couple of things. One is I'm looking at the now you have multiple product lines. And I'm trying to look through these layers of revenues that you're going to be generating going forward. Leaf is about $6 million a year. It seems like the relationship with Tritorium is going to be almost a million. Your Good Week and GLA is, well, you did at least $800,000 in the first quarter, so we'll call it about a $4 million run rate on a yearly basis because both are growing. And then you have this additive layer of the Hawaiian CBD product line that will probably come online. I mean, conservatively, it seems like you'd be generating at least $2 million a quarter. How off is that?

Well, I mean, I think it's premature for us to give specific guidance, but I think you kind of laid out all of the shots on goal that we're looking at. that will contribute to revenue, the timing of which we're doing our best to assess and whether, like you said, I think the recurring revenue, if you looked at what these products produced in 2020, is around $7 million, including Tritorium. And then as we push these products on e-commerce, hard to predict. how quickly and how much revenue, but when you look at how well some of these CBD topical brands do online, it's encouraging. So we're going to refrain from commenting, giving guidance or commenting on it, but I think you're putting the pieces together and connecting the dots appropriately to recognize that we really are well positioned right now to bring these products to market and have significant revenue generation during the year. and into, you know, into the future.

Thank you. Last question, but it's a broad general one. Could you go into any further details of how you expect to get the synergies through the multiple distribution channels that you now have access to?

Yeah, so I think If you go back to the comments I went through, there's a very broad independent grocery chain that LEAF is selling into where they've done very well with their products and have a good relationship, whether it's Safeway, Albertsons, and others. We think those are premier outlets and great opportunities for all the products we took you through on slide, I think, And so leveraging those relationships and introducing through those relationships these new products we think is a tremendous synergy. And similarly with the Hawaiian CBD going into where Soul Spring is today and over a couple thousand stores. In addition, we can see significant synergies. The other direction, the experience that we've had with the digital infrastructure for selling our three farm dyers pasta. There were some significant learnings there, and we think we're pretty well positioned to use those learnings to begin targeting consumer demands for those LEAP brands that have yet to really be invested in from an e-commerce standpoint. So that would be synergies going the other direction. Also, we really see some significant low-hanging fruit with regard to improving efficiencies around manufacturing. Some minimal investment in automation should bring a fair amount of improvement in margin. CBD, frankly, has come down as an ingredient cost over the last year very, very significantly. So people were paying $11,000 for a kilogram of distillate 16 months ago. Today, it's maybe $1,000. So when we look at the prior margins, where they were and where they're going to be in 21, taking into account those automation and formulation sourcing improvements, we think that there are significant opportunities for synergies there on the cost side. So between revenues and costs, We're pretty excited about growing this business and growing it more profitably than it was in 2020. And when I look at how it did against COVID and all the other challenges last year, we feel like we've got a tiger by the tail. So we're pretty excited about this deal and how we're going to do here for the rest of the year. Thank you for answering my questions. Sure.

Thanks, Stephen.

I'm showing no further question at this time. I would now like to turn the conference back to Mr. Matt Cleven. Please go ahead, Shane.

Well, thank you, everyone, for joining us and your continued interest and support. We are looking forward to real-time reporting our key milestones and achievements in the field and commercial markets, and we wish you all safety and good health. Have a good afternoon.

This concludes today's conference. Thank you for your participation and have a wonderful day. You may all disconnect.