Roots enters California as it targets other states in the US

Roots Sustainable Agricultural Technologies Limited (ASX: ROO) is pleased to advise that it has signed a non-binding, non-exclusive Letter of Intent (LOI) with smart technology provider, Humboldt CCTV, to market, sell and distribute root zone heat exchange device kits in Northern California.

The kits comprise the company’s heat exchange probe (formerly the heat exchange stub) and Root Zone Temperature Optimisation (RZTO) technology.

The heat exchange probe as shown below is designed to be inserted into the tops of plant pots and grow bags to significantly simplify the working procedures and lower the installation cost associated with Roots’ RZTO technology.

Humboldt is an established family-owned business that specialises in smart agricultural technology and wireless connectivity solutions for farmers.

The group has a longstanding and established customer base, as well as a team of engineers and sales representatives covering the Californian market.

Upfront payment combined with licensing fees

Under the LOI, Roots will receive an upfront payment for each kit bought by Humboldt, as well as licensing fees for the technology.

Humboldt CCTV will initially target the Lake Mendicino and Humboldt counties.

Upon meeting certain milestones, both parties aim to expand the LOI to a binding agreement which would cover the remainder of California and other states in the US.

Management anticipates that a binding agreement will be reached in the coming weeks.

Humboldt will dedicate two to three sales people to drive product uptake amongst its client base.

The group will also import the kits, handle logistical parameters, provide installation services and offer post sale services and maintenance where required.

Humboldt will also be responsible for identifying sub-contractors, manufacturers and suppliers to be approved together with Roots to integrate system components based on the company’s bill of materials.

Exposure to a US$50 billion market

California represents a large market opportunity for Roots and its technology.

It is the top agricultural producing state in the US, and in 2018 California’s farms and ranches generated almost US$50 billion in revenue for output.

The state has nearly 70,000 individual farms and ranches that contribute 40% of all organic production in the USA.

Roots executive chairman and chief executive Boaz Wachtel highlighted the importance of this development in terms of regional expansion and access to fast-growing subsectors in the agricultural industry in saying, “This agreement is an important milestone for Roots and the first step in creating a permanent beachhead for our technology in North America.

"Humboldt have witnessed firsthand the benefits of our technology and will be instrumental as the Company continues its international expansion.

“California presents a huge agricultural sector and importantly, a rapidly growing cannabis market. Roots has extensive experience in providing solutions to growers that provide higher yields, shorter growing cycles and production security so we have no doubt our products will be well received.

“We have been working with Humboldt, part of the Tim Blake team, for the last two years and during this time they have conducted extensive due diligence on our technology and our company. This agreement is validation of the group’s confidence in the near term potential for RZTO in North America. Further, partnering with an established distributor in the USA will allow us to build our international footprint and deliver another competitive advantage at a time of restricted travel.We expect first sales will materialise in the near term.”

Opportunity to expand its presence in the US

Roots is no newcomer to the region as this agreement follows four previously successful RZTO installations in California.

These were all undertaken in various weather conditions and over structure types and provided higher yields, shortened growing cycles and production security to growers.

Management anticipates that the agreement with Humboldt will expedite uptake of the company’s solutions throughout the US with use of first sales at the ratification of a binding agreement being near-term share price catalysts.

On the score of share price, the group’s shares doubled in the last fortnight only to come unstuck in last week’s sell-off, but this may provide an entry point for investors who may have written the company off as ‘’the one that got away.’’