Arcadia Biosciences, Inc. (RKDA) is an agricultural biotechnology company that has been at the forefront of developing innovative, plant-based health and wellness products. With a focus on improving the nutritional profile of staple crops, Arcadia has leveraged its scientific expertise to create unique, high-value offerings that cater to the growing consumer demand for healthier alternatives.

Company Background and Evolution

The company’s journey began in 2002 when it was founded in Arizona and later reincorporated in Delaware in 2015. Initially, Arcadia focused on developing products primarily in wheat, which it commercialized through the sales of seed, grain and food ingredients and products, as well as through trait licensing and royalty agreements. Over the years, Arcadia has strategically expanded its portfolio, making key acquisitions and partnerships to strengthen its position in the market. In May 2021, the company’s wholly owned subsidiary Arcadia Wellness, LLC acquired the businesses of Eko Holdings, LLC, Lief, LLC, and Zola. This acquisition included Saavy Naturals, a line of natural body care products, Soul Spring, a CBD-infused botanical therapy brand, and ProVault, a THC-free CBD sports performance formula, along with the Zola coconut water brand. This move allowed Arcadia to diversify its product offerings and tap into the thriving coconut water segment, which has seen robust growth in recent years due to its health benefits and appeal to health-conscious consumers.

In July 2022, the company entered into an agreement to license Saavy Naturals to Radiance Beauty and Wellness, Inc. However, in July 2023, management made the decision to exit the remaining body care brands, Soul Spring and ProVault, as a result of continued pressure on the CBD market due to regulatory uncertainty. Body care operations ceased during the third quarter of 2023.

Financial Performance

Arcadia’s financial performance has been a mixed bag in recent years. For the fiscal year ended December 31, 2023, the company reported total revenues of $5.33 million, a decline from the $7.42 million recorded in the prior year. Net loss from continuing operations stood at $13.16 million, compared to a loss of $10.83 million in 2022. The company’s cash and short-term investments totaled $11.64 million as of December 31, 2023, down from $20.64 million a year earlier.

For the most recent quarter ended September 30, 2024 (Q3 2024), Arcadia reported revenue of $1.54 million, representing an 18% increase year-over-year. This growth was primarily driven by a 55% increase in Zola coconut water sales. However, the company still reported a net loss of $1.61 million for the quarter. Operating cash flow (OCF) was negative $1.75 million, while free cash flow (FCF) was positive at $0.25 million.

The cost of revenues increased by 26% compared to the prior year period, which the company attributed to higher input costs and a $0.15 million write-down related to hemp and GoodWheat seed. This increase in costs outpaced the revenue growth, putting pressure on margins.

Strategic Initiatives

Despite these challenges, Arcadia has continued to execute on its strategic priorities. In May 2024, the company sold its GoodWheat brand to Above Food Corp. for $3.7 million, enabling it to focus on its core Zola coconut water business and monetize its wheat intellectual property (IP). Additionally, Arcadia sold its non-GMO Resistant Starch (RS) durum wheat trait to long-time partner Corteva AgriScience for $4 million, further strengthening its balance sheet. Under the terms of the agreement, Arcadia retained certain rights to use the RS durum wheat trait.

Zola Coconut Water Performance

The company’s flagship Zola coconut water brand has been a bright spot, with revenues increasing 55% year-over-year in the third quarter of 2024. Zola’s distribution network also expanded significantly during this period, with retail store count growing by 68% compared to the same quarter in the prior year. This growth has been driven by strong demand from both new and existing customers, as well as the introduction of new product flavors.

Zola is a pure, natural, 100% coconut water sourced exclusively from Thailand. It has a crisp, clean taste that is slightly sweet and refreshing, and is naturally hydrating and rich in electrolytes. Zola is Non-GMO Project Verified and contains only 60 calories per serving. In taste tests, Zola has been shown to beat out competitors by a ratio of 2-to-1, positioning it as the “best tasting way to rehydrate, reset and reenergize.” Zola offers several flavor varieties including original, original with pulp, espresso, lime, and pineapple.

During the three months ended September 30, 2024, Zola product revenues accounted for 100% of Arcadia’s total revenues. For the nine months ended September 30, 2024, Zola product revenues increased 4% to $3.83 million compared to the same period in 2023. While Zola has shown steady revenue growth, the coconut water category is seasonal, with higher sales volumes typically seen in Arcadia’s second and third fiscal quarters when the weather is warmer.

It’s worth noting that the coconut water category as a whole grew 15% over the last 52 weeks, while Zola outperformed the category with 23% growth over the same period.

Research and Development

Arcadia’s research and development efforts have also yielded promising results. The company’s proprietary, non-GMO wheat varieties, developed using advanced screening and plant breeding techniques, have reduced allergenic glutens and increased essential amino acids, while also delivering higher fiber content. These innovative traits have the potential to address the needs of health-conscious consumers seeking alternatives to traditional wheat products.

However, with the sale of the RS durum wheat asset to Corteva AgriScience, Arcadia’s R&D expenses decreased 27% to $40,000 for the nine months ended September 30, 2024 compared to the same period in 2023. This reflects the company’s strategic shift towards focusing on its Zola coconut water business.

Liquidity and Financial Concerns

The company’s liquidity position has been a concern, with cash and cash equivalents declining to $3.94 million as of September 30, 2024, from $8.1 million at the end of the second quarter. This has raised doubts about Arcadia’s ability to sustain its operations in the long term, as the company’s net losses and cash burn continue to put pressure on its financial resources.

In response to these challenges, Arcadia has taken steps to streamline its operations and reduce costs. In the third quarter of 2024, the company’s selling, general, and administrative expenses increased by 20% year-over-year, primarily due to severance and transition-related costs associated with the sale of the GoodWheat brand. Management has indicated that these one-time expenses are expected to be minimal going forward.

Despite these concerns, Arcadia’s balance sheet remains relatively strong, with a debt-to-equity ratio of 0, a current ratio of 4.60, and a quick ratio of 4.24. These ratios suggest that the company has sufficient short-term liquidity to meet its immediate obligations.

Discontinued Operations

As part of its strategic realignment, Arcadia has discontinued several business lines. In July 2023, the company exited its body care brands, including Soul Spring and ProVault, due to continued pressure on the CBD market from regulatory uncertainty. The body care business generated $83,000 in net losses during the three months ended September 30, 2023 before ceasing operations. For the nine months ended September 30, 2023, the body care brands contributed $591,000 in net losses.

Furthermore, the sale of the GoodWheat brand in May 2024 resulted in $430,000 in net losses during the three months ended September 30, 2024 and $2.69 million in net losses for the nine months ended September 30, 2024 prior to the sale.

In total, the discontinued operations of the body care and GoodWheat brands resulted in $1.61 million in net losses for the three months ended September 30, 2024 and $2.97 million in net losses for the nine months ended September 30, 2024. The sale of GoodWheat and wind-down of the body care business has allowed Arcadia to streamline its operations and focus solely on driving growth in its core Zola coconut water segment.

Future Outlook

The company’s future success will largely depend on its ability to capitalize on the growing demand for healthy, plant-based products, while effectively managing its cost structure and liquidity position. Arcadia’s strategic focus on its Zola coconut water brand and monetization of its wheat IP could provide a path to profitability, but the company will need to execute flawlessly to overcome its current financial hurdles and deliver long-term value for shareholders.

Arcadia has chosen not to provide specific forward-looking guidance, citing the challenges in forecast accuracy due to the significant new distribution gains in the third quarter of 2024. The company added that new stores represent one-third of Zola’s total retail distribution, with approximately 95% of this new distribution not starting to ship until the end of the quarter. While this creates some uncertainty, management views these challenges as positive indicators of the brand’s growth potential.

Conclusion

Overall, Arcadia Biosciences is a company with a compelling mission and a portfolio of innovative products. The company’s strategic pivot to focus on its Zola coconut water brand has shown promising results, with strong year-over-year growth and expanded distribution. However, its financial performance and liquidity concerns will require careful monitoring and proactive management to ensure the company’s long-term viability and success in the rapidly evolving plant-based health and wellness market. The coming quarters will be crucial in determining whether Arcadia can leverage its recent distribution gains to achieve sustainable profitability and growth.

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