New debt sources will support US indoor ag expansion – Artemis

Founder Allison Kopf says banks, private funds and midstream incumbents could all be among lenders supporting expected capex of about $20bn over the next 10 years for leafy greens alone.

The pool of lenders supporting US indoor agriculture will see considerable expansion in the coming years, said the author of an industry survey released Monday by Astanor Ventures-backed software provider Artemis.

Allison Kopf told Agri Investor that partly due to a lack of a standardized approach to evaluating greenhouse construction proposals, the indoor ag industry is made up of a small group of established companies with an array of project financing options available to them, and a host of smaller producers capitalized by local and regional banks, ag lenders and rural investment funds.

An expected expansion of US indoor ag that will require an estimated $20 billion in capex over the next five to 10 years of for leafy greens alone, she said, will attract a variety of new lenders.

“The expansion needs are going to be so great that by nature, debt is going to have to come into this space in a pretty meaningful way,” said Kopf, highlighting Bank of America’s late 2019 financing of Devens, Massachusetts-headquartered greenhouse lettuce provider Little Leaf Farms.

In addition to private debt, energy, ESG and infrastructure funds, she added, midstream agricultural incumbents already lending in the sector are also likely to increase their exposure to indoor ag in coming years. Equilibrium’s partnership with Credit Suisse and the relationship between Atlanta-headquartered communications, media and automotive business Cox Enterprises and BrightFarms, Kopf said, are both indicative of how capital sources to the indoor market are likely to change.

“For anyone who has done energy before as a portfolio or understands that world, as people start to remove some of the more traditional oil and gas pipeline, sustainable ag is actually a nice slide in,” said Kopf, who held solar-related project management position and served as real estate and government affairs manager at BrightFarms before founding Artemis in 2015, according to her LinkedIn profile.

“This isn’t going to be a bank writing half a million dollar checks; it’s going to be a sophisticated lender who wants to own the infrastructure in this asset-light way to think about this space and deploy capital. These are going to be big checks,” said Kopf.

Brooklyn, New York-headquartered Artemis provides software to help horticulture facilities manage crops, compliance and personnel. It raised $8 million in a 2019 Series A led by Astanor.

In its State of Indoor Farming 2020 report, Artemis surveyed 73 respondents from a variety of greenhouse, indoor vertical farm and other facility types throughout North America. More than three quarters focused on more than one crop, with leafy greens, herbs and microgreens the most common and smaller respondent groups representing producers of crops including tomatoes, cucumbers and strawberries.

While large retailers like Costco, Walmart and Wendy’s see indoor ag as a mechanism to ensure supply while improving sustainability of their supply chains, Kopf added, the considerable volumes they require already often necessitate collaboration among the markets leading companies.

The potential for consolidation among producers was one of the topics discussed in the 2020 report, added Kopf, which she said highlights the importance of brands for smaller producers that are often very localized and well-positioned to respond to local tastes.

Any consolidation that does occur, she said, could help provide conditions for the new approaches to financing greenhouse construction.

“You can have that model where somebody finances and owns the underlying greenhouse structure or land and then it’s a lease-back model, where you have produce as the asset,” Kopf said. “You might see more asset-light plays come in that are a little bit more akin to something like McDonald’s; is it a real estate play at the end of the day, rather than an infrastructure play?”