Finistere-backed ZeaKal inks cannabis partnership, $10m investment

The crop chemicals company had been reluctant to enter the cannabis market without relevant expertise, says chief executive Han Chen.

Finistere Ventures-backed plant science company ZeaKal has secured a $10 million investment to develop its yield-enhancing traits for use in cannabis.

NYSE and TSX-listed Canopy Growth’s venture unit, Canopy Rivers, acquired an 8.7 percent stake in ZeaKal and assumed an observer seat on its board of directors as part of the deal.

ZeaKal’s existing investors committed an additional $5 million to the San Diego, California-headquartered company.

Founded in 2010, ZeaKal is developing two agricultural trait technologies: PhotoSeed, which is designed to improve photosynthetic capacity of several major crops; and SunZoil, which promotes higher yields and oil content in crops including soybeans, canola and camelina.

Finistere led a $5.3 million financing round for ZeaKal in February 2016 that also included Middleland Capital and a group of unnamed family offices and high-net-worth individuals.

Earlier this year, ZeaKal signed a strategic research and development collaboration with Corteva Agriscience, formerly the agriculture division of DowDupont, to develop and test PhotoSeed. As part of that deal, Corteva acquired an unspecified minority stake in ZeaKal for an undisclosed sum.

ZeaKal chief executive Han Chen told Agri Investor that Finistere introduced the company to Canopy after it had signed a similar deal last month with BioLumic, a New Zealand-headquartered company offering an ultraviolet crop yield enhancement system that is also in the Finistere portfolio.

Since ZeaKal’s previous fundraising in 2016, Chen said, an influx of interest in agriculture has translated into larger Series A and B rounds for startups and a much shorter capital raise for ZeaKal, which had been planning to pursue a Series C round before Canopy’s investment came together.

Chen said the partnership does not grant Canopy early access to ZeaKal’s products and Canopy Rivers’ investment is instead designed to help the company grow as an independent entity.

“As the venture arm and affiliate of Canopy Growth, they are obviously keeping their eyes on the technologies that are of great interest and could a strategic asset of interest in the future,” added Chen.

Due to the nascent state of the overall cannabis market, said Chen, most companies have focused on securing assets and only recently begun establishing novel genetics or traits as defensible intellectual property.

“While we’ve been working with rice, corn and soybeans for hundreds of years, cannabis and hemp have largely been untouched,” he said. “We view this as another very valuable crop where our genetics can have significant impact and where we think the path to market is very attractive.”

Though cannabis and hemp were already among the crops ZeaKal was interested to explore, the company was hesitant to enter the market alone due to its lack of expertise in the highly-regulated crop, said Chen.

Whereas the size of the row crop market means it can take as long as four to five years for new traits to be field-tested and commercialized, according to Chen, ZeaKal expects it will take just two to three years before PhotoSeed can be commercialized for cannabis.

In addition to the up to 20 percent yield increases achievable through the use of PhotoSeed – which improves photosynthesis by creating oil bodies of the type typically found in seeds within the green tissue of plants – Chen said there is also hope that use of the trait on cannabis could open up new sources of revenue.

“We are very curious if that [creating additional oil bodies] could lead to cannabinoid enrichment, and really create a new co-product stream that comes out of cannabis and hemp plants that doesn’t currently exist in the un-improved varieties,” Chen explained. “If you are just producing cannabinoids in the trichomes and a very small part of the plant – versus trying to produce them throughout the plant – that could be very exciting in terms of total yield.”