Roots Makes 2020 The Year of The Cannabis Deal

In January this year, Roots Sustainable Agricultural Technologies Ltd (ASX:ROO) announced it was placing much greater emphasis on pursuing opportunities in the global cannabis sector.

Cannabis is a market that presents considerable upside and more near-term revenue opportunities for the company.

Grand View Research suggests the legal cannabis market will reach US$66.3 billion (A$98.6B) by the end of 2025.

Growth will be driven by increasing legalisation and use of marijuana in medical as well as recreational applications.

To capitalise on these trends we have seen an explosion of growing facilities crop up around the globe. However, these facilities face the same challenges of any agricultural operation including creating suitable environmental conditions to cater for each stage of growth.

Roots’ patented Root Zone Temperature Optimization (RTZO) technology provides a stable temperature range year-round, assuring stability in crop growth.

The company has already had great success in this sector evidenced as recently as December when it signed a collaboration agreement with Tel Aviv Stock Exchange Listed medicinal cannabis producer, Seach Medical Group Ltd (TASE:SEMG) to research the effect of Root’s RTZO technology on cannabis crops.

And just today, Roots announced it has received a further A$30,000 signed order for its RZTO technology from Israeli medical cannabis producer, Barlev Group.

Barlev Group has been using RZTO technology to control soil temperatures in pots and grow bags and elevated beds.

Its endorsement of Roots’ RZTO technology sets the company’s 2020 cannabis sector objectives in motion. These objectives will be given a further boost following the recent completion of a $500,000 placement that comes on top of the $820,000 raised in October 2019.

The money will be used to commercialise RZTO marketing and sales opportunities in various jurisdictions, expand cannabis growers’ marketing and sales activity in North America, fund the pursuit of new cannabis and hemp opportunities, and to provide ongoing working capital.

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It is not surprising that Roots Sustainable Agricultural Technologies Ltd (ASX:ROO) will focus heavily on the cannabis market this year.

New CEO Boaz Wachtel, is a pioneer and one of the global leaders of the cannabis industry having co-founded two ASX-listed cannabis-related companies during the past five years.

Wachtel was partly responsible for formulating the legalisation for medical cannabis in Israel and is involved in various other global medical cannabis initiatives. He has been intimately and actively involved in Roots for over a decade and is the inventor of Roots’ RTZO technology ­— the company’s core technology.

The change in leadership has been planned for some time and coincides with Roots placing much greater emphasis and focus on pursuing opportunities in the global cannabis sector.

There is reason for this: the global cannabis sector is set to reach US$66.3 billion (A$98.6B) by the end of 2025.

Roots is looking for its own stake in this sector, with its unique RZTO technology which optimises plant physiology for increased growth, productivity and quality by stabilising the plant’s root zone temperature.

Using either sophisticated heat pumps and/or Ground Source Heat Exchange (GSHE) coils the technology stabilises plants’ root zone temperature year round, by either heating or cooling the roots as needed. Heated (or cooled) water is pumped in a closed cycle through the pipes installed in the root zone, where the heat (or cold) is discharged.

This significantly increases yields and provides flexibility of growing cycle planting options, improves quality, mitigates extreme heat and cold stress on plants and reduces disease load.

All these benefits can be achieved with a fraction of energy compared with air climate control systems that are currently available in the market.

The technology has seen widespread adoption across the agricultural sector to great success.

Cannabis now a major focus

Seach Medical Group signed with Roots on December 2019 and is researching the effect of Root’s patented RTZO technology on cannabis crops.

Seach is one of Israel’s preeminent medicinal cannabis companies that has been growing top quality medicinal cannabis since 2008 and supplying various forms to patients with a medical cannabis licence issued by the Israeli Ministry of Health.

Here is Seach’s CTO explaining Israel’s pre-eminence in cannabis growing:

Not surprisingly, news of the collaboration with Seach resulted in a substantial surge in Roots’ share price to 5 cents, for a gain of 85% in less than a month.

The company is now back at 4 cents, however there looks to be plenty of share price catalysts still to come.

Furthermore, to kickstart 2020, Roots announced it has received a A$30,000 signed order for its RZTO technology from Israeli medical cannabis producer, Barlev Group.

This is the second order from Barlev, which has been using RZTO technology to control soil temperatures in pots and grow bags and elevated beds.

This follow on sale is due to the beneficial effect on cannabis of Roots’ RZTO technology at Barlev’s farm and continues the successful collaboration between the pair in the medicinal cannabis sector. More orders are expected in line with a planned expansion at the grower’s growing facilities.

Under the agreement, Roots will install its unique RZTO technology in a 15,000sqm installation due to be completed this month.

Barlev’s success is due in part to RZTO’s ability to mitigate unique challenges faced by growers, derived from the multiple stages of growth and the special conditions required.

Roots’ RZTO technology provides a stable temperature range year-round and assures a supply stability.

“Commercial sales of our RZTO technology is the ultimate validation that our technology delivers clear measurable commercial benefits for crop growers”, said Roots’ CEO Boaz Wachtel.

“The grower is highly respected in the medicinal cannabis sector and this sale gives us increased visibility in the Israeli cannabis sector and in the broader agribusiness market here and in other international markets. The sales pipeline for the RZTO technology continues to build most favourably and we look forward to reporting on more of these successes.”

RZTO and cannabis yields

Roots has provided tangible evidence of the positive impact on plant yields of its RZTO cooling system in a cannabis greenhouse growing environment.

Roots’ upgraded cooling system was used to stabilise the roots of cannabis plants at an optimal temperature of 21 degrees Celsius (70°F), despite ambient air temperatures within the greenhouse reaching 30°C (85°F) and outside temperatures topping 43°C (120°F).

Increases of 30% and 118% were achieved during the US summer on two cannabis strains of 400 and 200 cooled plants respectively within a climate-controlled greenhouse utilising wet mattresses and fans.

To protect this technology, Roots recently advised the market that its T-shaped heat exchange stub design patent has been registered by Australian IP, the official government agency.

Patents are pending in other countries.

Root zone heating and cooling systems using the stub have shown significant energy savings compared with air heating and cooling technologies.

The design patent further strengthens Roots’ international and Australian IP position following the grant of a “Heat delivery system and method” by the Australian patent office. The heat diffusing "smart pipe" patent was awarded in Australia in 2018. The Patent will lapse 20 years from the filing date which was April 2015.

While the stub is used in any substrate, type of crop or structure facility, it is especially appropriate for cannabis and other high-end crops such as berries.

The stub facilitates efficient heat exchange in any substrate and can deliver a narrow range of optimal root zone temperature year-round.

Recent quarterly sets the tone for 2020

Roots has made strong progress in demonstrating the positive applications of its proven RTZO technology in increasing yields from cannabis crops.

Optimal root zone temperature is known to be the most influential parameter for yield, disease load, length of growing cycles and supplies security in plants.

However, while cannabis is now a major focus the company is still influencing other markets.

Roots has made further advances into the organic meat replacement market with its heat zone temperature optimization technology.

The company plans to advance in the high end organic meat replacement niche.

Read: Could Roots’ Recent Positive Results Impact the $240BN Fake Meat Market?

Roots entered the Canadian agricultural market in December, signing a non-binding exclusive agreement with Water Ways Technologies, which specialises in providing water irrigation equipment solutions to farmers around the world.

Under the terms of the agreement, Water Ways have the right to import and sell RZTO technology in Canada, thereby capitalising on Water Ways’ established market presence.

This is a significant market opportunity for Roots, as Canada is actively promoting new agricultural innovations through the C$3 billion ‘Canadian Agricultural Partnerships’ innovation program.

Roots also entered the Italian market via a 12-month Letter of Intent (LOI) signed in October with leading Italian ag-tech producer and nursery Cairo & Doutcher.

Under the LOI, Roots installed its hybrid ground source heat exchange system combined with a heat pump to improve crop quality and increase yields for herbs and flowers at Cairo & Doutcher’s growing facilities in Southern Italy.

By all accounts, Cairo & Doutcher is extremely pleased with the effects of the system and even attracted the attention of the Italian minister of Agriculture.

Once the demonstration results are finalised, both parties will look to collaborate on an exclusive multi-year purchase and distribution agreement in Italy.

Roots is also advancing a new design of its Irrigation by condensation (IBC) system and anticipates it will advance collaboration with international partners.

The company expects this year to be a watershed year. With so much work going on within its various operations and, with a greater focus on the growing cannabis sector, we expect further investor friendly news as the year goes on.