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The Spoon

Daily news and analysis about the food tech revolution

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High Tech Farmer AppHarvest is Rapidly Running Out of Money

Kentucky-based controlled environmental agriculture company AppHarvest has warned in its latest financial report that it only has enough capital to continue operations into the first quarter of 2023.

According to its quarterly report filed on November 7th, the company says there is “substantial doubt” about its ability to continue as a going concern unless it can raise additional outside capital.

As of September 30, 2022, we had $36.2 million of cash on hand, and an accumulated deficit of $270.6 million. In October 2022, we entered into a $30.0 million note and loan agreement with Mastronardi Produce-USA, Inc. (“Mastronardi USA”) and received $15.0 million upon execution. In November 2022, we initiated a third restructuring plan to further reduce operating costs and our losses. Despite these actions, management believes there is substantial doubt about our ability to continue as a going concern and absent additional sources of financing, we expect that our existing cash and cash equivalents will only allow us to continue our planned operations into the first quarter of 2023

According to a story in the Kentucky Herald-Leader, the company needs $85 to $95 million in cash to fund operations for the next 12 months. That’s a lot of new capital in a market where raising new money has become increasingly difficult.

AppHarvest is looking at a few strategic options, including selling Berea farm to its primary distribution partner  Mastronardi Produce Limited (the same company it borrowed funding from to launch the first 5 acres this past month). They are also talking with potential acquirers according to AppHarvest CEO Jonathan Webb.

“There are large conglomerates in auto manufacturing,” Webb told the Lexington Herald Leader. “I mean, look at GM, for example, and all the different auto brands inside of GM. So yeah, we’re actively having conversations with CEOs, with investors, with partners, with anyone who wants to partner with us here in Kentucky and to help make our mission succeed.”

The company’s current situation is a far cry from its early days when it was seen as one of the brightest lights of the CEA farming world. And while the company’s massive capital needs show a potential downside of building automated indoor farms – especially compared with more traditional farms that take significantly less capital to build and run – it’s worth pointing out other high-tech indoor farmers like AeroFarms and Bowery are continuing to thrive and find new partners.

As we wrote a couple weeks ago, the company’s new farm in Berea is impressive to watch in action and will no doubt produce a whole bunch of salad kits once the full 15 acres is operational. Let’s just hope the company can survive long enough to see it come to fruition.

Equilibrium Capital Closes a $1.02B Fund for Indoor Ag

Equilibrium Capital has closed its second fund dedicated to indoor agriculture. The Controlled Environment Foods Fund II (CEFF II) raised a total of $1.02 billion, exceeding its original goal of $500 million. 

Speaking in a company blog post, Equilibrium CEO David Chen said that the fundraising for CEFF II reflects a broader shift where larger institutional investors are concerned. “Investors and retailers are increasingly looking for more sustainable and less volatile ways to invest in and scale agriculture. The fund is reflecting the magnitude of the opportunity and the growing importance of CEA in our food system,” he said. 

CEFF II will invest between $10 million and $125 million per deal, mostly in high-tech greenhouses and indoor farms as well as “other CEA segments of alternative proteins and aquaculture.” The fund is focused largely on North America: the United States, Mexico, and Canada. 

Equilibrium’s current assets are mostly in lettuce and tomatoes, which are two of the most popular produce types when it comes to indoor ag. However, Chang name-dropped berries in blog post, saying that Equilibrium will be “dramatically expanding” its presence in the berry family in the future. The statement reflects the larger development for indoor ag where more companies are either currently growing or planning to grow berries. Chang also mentioned peppers, cucumbers, mushrooms, and herbs.

The new fund follows the original CEFF, which closed at $336 million in April 2019 and includes well-known CEA companies like AppHarvest, Revol Greens, and Little Leaf Farms. All of those companies focus on raising crops in high-tech greenhouses, as opposed to the massive vertical farm setups a la AeroFarms or Plenty. Whether CEFF II will invest in more vertical farms remains to be seen. Chang said there were “niche applications” for the technology, though he was not specific about what those applications are. Currently, most vertical farming operations only grow leafy greens and herbs at the kinds of volumes that can supply grocery stores and restaurants. Debate persists as to whether this particular indoor ag format can produce more crops in an environmentally and economically sustainable way.

How AppHarvest Is Investing in the First Generation of High-Tech Farmers

Agriculture may have been slower to digitize than other parts of the food sector, but these days a lot of folks would agree artificial intelligence, automation, and other technologies have a role to play in the future of farming. The presence of such things means farming will soon require lots of new skills, which in turn means training a whole new generation on a whole new set of tools. It means, in the words of AppHarvest’s founder and CEO Jonathan Webb (pictured above), “getting young people to really visualize what agriculture is” in a way they haven’t before.

Standing under a tent in the middle of a downpour outside Elliott County High School in Sandy Hook, Kentucky recently, Webb explained to me how his company is training the next generation of farmers while simultaneously investing in the company’s own future as a high-tech agricultural powerhouse.

We, along with with students, parents, teachers, and Kentucky governor Andy Beshear, were at the launch for the latest unit of AppHarvest’s high-tech educational container farm program, which teaches high-tech farming to Eastern Kentucky high-school students. Launched back in 2018, the program retrofits old shipping containers to house controlled-environment vertical farms that grow leafy greens. Farms at each school serve as hands-on agricultural classrooms where students can learn not just horticulture but also how to use the technologies powering the next wave of farming innovations around automation, connectivity, and data.

“What we’re doing here is trying to plant the seeds of what it means to be in an exciting industry and get that groundswell early,” Webb told me. 

He was talking specifically about the container farm program but might as well have been referring to the entire company’s MO. AppHarvest, itself a product of Eastern Kentucky, is both a Public Benefit Corporation and a Certified B Corporation, which means the company has to strike a balance between profit and less measurable purposes like environmental impact, transparency, and social good. 

The company’s main business is headquartered about an hour away from Elliott County High School, in Morehead, Kentucky, where AppHarvest operates a 60-acre high-tech greenhouse that grows different varieties of tomatoes. Two additional farms, one for leafy greens and another for tomatoes, are under construction, and the company just broke ground on a couple more last month. All of these farms provide or will provide produce for restaurants and grocery retailers within a day’s drive. They will also provide jobs for a local community that’s seen unemployment rise as the coal industry declines.

The high school container farms are altogether smaller and somewhat different in terms setup and technical specs, but the idea is the same: grow crops in a controlled environment and use technology to improve plant yield, quality, and nutrition profile. In doing so, people from the community get an opportunity to learn the kinds of skills that will be relevant as agriculture gets more and more digitized.

“We’ve tried to say at AppHarvest we’re not building facilities, we’re building an ecosystem,” said Webb. “Obviously our large production facility is the core critical center piece of that, but us investing in a high school education, we’re truly trying to create an ecosystem that includes facilities and the brainpower to be able to operate the facilities.”

This isn’t just feel-good talk, either. Technologies like artificial intelligence, robotics, sensors, and analytics are coming to agriculture in response to multiple problems looming in the near future for the global food system. As McKinsey notes, “Demand for food is growing at the same time the supply side faces constraints in land and farming inputs.” With a population expected to grow to 9.7 billion by 2050, the planet needs to produce around 70 percent more available calories. At the same time, inputs like water supply and arable land are shrinking, raising costs for farming and negatively impacting an already burdened planet.

Part of the promise of controlled environment agriculture formats like high-tech greenhouses and container vertical farms is that they can grow more food faster, at a higher quality, and closer to the buying public. Many of these facilities operate via hydroponics systems that recirculate water, saving on that resource. (AppHarvest’s greenhouse runs off rainwater collected from the facility’s roof.) In the case of vertical farming, less land is required because plants are stacked. AppHarvest’s container farms, for example, can pack three to five acres of leafy greens into a forty-foot-long shipping container. Other large-scale vertical farms a la Kalera or Plenty are growing pounds of greens that number in the millions and also exploring additional crops such as berries.

Most individuals in this industry I’ve spoken to agree that indoor farming isn’t “the savior” that will wholly replace traditional agriculture. Nor was it never meant to be. Rather, greenhouse growers, vertical farm companies, and those operating container farms believe we need all of these formats working together and alongside traditional agriculture practices to try and resolve the above issues.

One of the many things needed to make that a reality is a new generation of young people interested in farming as a career and able to navigate the technical as well as horticultural aspects of agriculture. 

Right now, that’s a challenge. “We don’t have our brightest young people inspired to go into agriculture,” said Webb, adding that the issue is, “How do we inspire them early to get into agriculture and the technology sphere of agriculture?”

AppHarvest started investing in its education program before its main facility was ever complete, spending $200,000 of its initial $1 million investment on the program. “I’m not sure if there’s ever been a venture-backed company that’s taken 20 percent of their raised proceeds early and invested in education,” said Webb.

In 2021, AppHarvest has five different container farm programs operating at Eastern Kentucky high schools, all of them operating independently but also networked together, just as AppHarvest’s larger farms will eventually be networked. 

Students learn a huge range of skills working on these farms, from horticultural-related ones like seeding and harvesting to technology management across multiple farms to food safety, data entry, marketing, packaging, and creating a budget. Via a screen inside the farm, students can learn to track the pH levels of plants, carbon dioxide levels, temperature, humidity, and all the other variables present in a farm. And since farms from every high school are networked together, students can view one another’s activity. Elliott County High can see data from Shelby Valley High School in Pike County and vice versa, for example.

Webb says the farms are also an opportunity for schools and students to collaborate using different skillsets, whether technological, horticultural, or otherwise. “Some students might have more of a background or interest in horticulture. Some students might have more of a background or interest in craftsmanship. All we’re trying to do now is say, ‘Here, it’s your thing, bring it to life, and openly share information.’”

And while there’s no pressure, the hope is that some of these students eventually bring their skillsets to AppHarvest’s main operations and help improve them, along with indoor ag, over the coming years. “Hopefully in four years we have students that might end up at MIT. And then they’re telling us what to do,” said Webb, adding that the ROI here isn’t quick. The true impacts of the company’s investment in school programs probably won’t be seen for another five of six years, which is a few lifetimes when we’re talking about tech. 

“We get judged on quarterly earning calls, [but] that’s not the way I think,” he said. “I want us to think, first decade, second decade, third decade, and these are very long-term investments.”

He hopes to see more tech companies investing in high schools, and AppHarvest isn’t quite the lone wolf when it comes to this. Freight Farms, which deals exclusively in container farms, has a partnership with Sodexo to bring its units to K-12 schools and universities in the U.S. AeroFarms, also a Certified B Corp., has partnerships with various schools and community centers, too.

For AppHarvest, the educational program is is an integral part of the operation, and one tied to the company’s long-term success. “It’s not a ‘nice to have,'” Webb told me. “It’s something we truly believe is going to give our company a competitive advantage medium to long term.” 

‘Great Challenge Can Expose Great Opportunity’: AppHarvest’s Jonathan Webb on the Role of Indoor Ag

For AppHarvest founder and CEO Jonathan Webb, the role of the high-tech greenhouse goes far beyond providing produce to surrounding locales. Over the phone recently, he went into great detail about his company’s role in not just growing plants but also in providing jobs and morale for the community and playing a part in the solution to some of the agricultural industry’s most pressing global issues.

As a company, AppHarvest, based in Morehead, Kentucky, is only a few years old. But since its inception in 2017, it has moved quickly to make good on its mission of build a network of high-tech, controlled-environment farms that can grow non-GMO, chemical-free produce and at the same time help create a more resilient economy for Appalachia.

The year 2020 has been especially eventful for the company, which raised $28 million in August and finished building out its 2.76 million-square foot flagship facility a few months ago. When we spoke on the phone, AppHarvest had just completed planting of its first crop of tomatoes. It has also broken ground on two additional farms in Kentucky, a 60-acre one in Madison for fruits and vegetables and a 15-acre facility for leafy greens in Berea. Earlier in 2020, it also announced a partnership with the Dutch government as well as multiple universities to bring more research and education on controlled ag into the area and effectively turn Appalachia into an agtech powerhouse. 

Technology is an important part of the plan, and AppHarvest employs it in its greenhouses to grow crops all year and use substantially fewer resources in the process. The company doesn’t build its own technology. Rather, it uses existing technologies on the market that, when put together, amount to a more efficient grow system in terms of both crop yield and cost. Webb cites AppHarvest’s use of Philips GreenPower LEDs, which improve climate and crop control in greenhouses, as one example. 

“There [are] a lot of great technologies that are cutting edge and available and we can use them to be better aligned with nature,” he says, adding that AppHarvest is “trying to use proven technologies that are at the cutting edge without jumping over the edge.”

What is unique to AppHarvest’s approach is its rainwater system. Eastern Kentucky gets abundant amounts of rainfall, which AppHarvest captures and uses for its hydroponic system. This has a distinct advantage over using groundwater, since the latter contains sodium, which leads to agricultural runoff and the need for a system to be periodically flushed. AppHarvest’s greenhouse runs entirely off this rainwater. Webb says that to his knowledge, no other controlled ag system of this size in the world does that.

Webb is quick to point out that AppHarvest’s operations are more than a matter of steel and glass structures and hydroponics systems. “We’re trying to build an ecosystem,” he tells me. That’s one reason AppHarvest is locating its facilities near universities, with which the company can have a knowledge-sharing relationship. 

Even more important is the impact AppHarvest’s work has on the surrounding communities. Morehead sits in the foothills of the Appalachian Mountains, and is in an area that has for generations relied on the coal mining industry for jobs. Coal mining has been in decline for years, a situation further accelerated by the COVID-19 pandemic. As of May 2020, there were more coal industry mine closures and job losses than at any point since the presidency of Dwight Eisenhower 60 years ago.

“Many of us knew what was happening with the decline of the coal industry,” says Webb, a Kentucky native. He adds that the “vacuum that was created because of the rapid decline of the coal industry was a big reason as to why we looked to be located where we are.”

But great challenge, he says, can expose great opportunity, and morale in the community surrounding AppHarvest is “incredibly high” because the company’s efforts are creating jobs and therefore livelihoods for residents. 

That human element of AppHarvest’s story is, he admits, hard to translate into investor-speak. “What we’re able to do here and how quickly we’re able to move and how much communities want us to be here on the ground, you can’t put that in a pitch deck or capture it in financial means,” he says.

Equally important to communicate is why we need the efforts of those in the controlled ag space.

Most indoor ag companies, from Gotham Greens to AeroFarms to Plenty, highlight the more well-known benefits of controlled-environment farming: 90 percent less water usage, 40 percent less energy consumption. Less talked about are the reasons indoor ag is so crucial right now. The UN has already warned that we only have about 60 harvests left in our top soil. Plowing and over-tilling have increased erosion by 10 to 100 times natural rates, and that’s to say nothing of deforestation, overgrazing, and pesticides that add to soil degradation. Throw in a human population predicted to reach nearly 10 billion people by 2050, and traditional agriculture’s toll on both the earth and the food system start to look a little less abstract and far more disconcerting.

“We have to free up land and water to the wild,” says Webb. “This is a topic we’re not talking about nearly enough.” 

Controlled ag, he says, plays a critical role in this process, and is in many ways the third wave of sustainable infrastructure, after alternative energy and electric cars. Like the other two areas on that list, controlled agriculture will continue to evolve over time as one piece of the overall agricultural system. 

What it will look like in even just a few years remains to be seen. The last several months have seen huge investment dollars and a lot of different companies trying different methods around controlled-environment agriculture, from vertical farming in reclaimed shipping containers to high-tech rooftop greenhouses to planting farms in grocery stores. 

For Webb, analyzing whether one method is superior to another shouldn’t be the focus right now. The point is, companies are building solutions in response to a global problem with profound environmental and humanitarian consequences. 

“We can debate all we want but at some point we have to move,” he says. “At some point you have to leave the analysis behind. At some point you have to build something.”

Gotham Greens Raises $87M for Its High-Tech Greenhouse Network

Indoor agriculture company Gotham Greens has raised $87 million in new equity and debt capital, according to a press release from the company. The fundraise includes Gotham Greens’ recent Series D round, which was led by Manna Tree with participation from The Silverman Group and existing investors, and brings the company’s total funding to $130 million.

Gotham Greens operates a network of high-tech greenhouses across the U.S. These controlled-environment farms use hydroponics as well as a good deal of automation software to grow leafy greens and herbs.

In today’s press release, Gotham Greens said it planned to use the new funds to expand to increase the operational capacity of its farms, develop new products, and expand to more locations around the U.S. The company currently operates its high-tech greenhouses in Brooklyn, Queens, and other areas of the country. Those locations collectively serve over 40 states, according to Gotham Greens. 

The newest additions to those farming locations include facilities in Providence, Rhode Island, as well as Chicago, Denver, and Baltimore, all of which Gotham Greens opened this year. The company said that through these new locations it has doubled its capacity. 

This latest fundraise comes at a time when controlled-environment ag companies are seeing more investment dollars flow their way than ever before, particularly when it comes to large-scale commercial farms like those of Gotham Greens. In August, AppHarvest raised $28 million for its own high-tech greenhouse network, news that was quickly followed by Plenty’s $140 million fundraise and BrightFarms’ $100 million Series E round. 

These investment dollars aren’t too surprising when you consider the many flaws in the food supply chain highlighted by the pandemic-induced disruptions earlier this year. Demand for more locally grown food is up, and it is expected to last long after COVID-19 is under control. 

At the same time, traditional agriculture’s environmental impact contributes to both climate change and global food security, according to the United Nations. Controlled-environment farms such as those of Gotham Greens, Plenty, and others are one solution to helping stave off some of the more catastrophic consequences of climate change by altering the way we produce and get our food.