In the fourth and final week of our four-part SPAC series on Industry Focus: Financials, host Jason Moser sits down with David Lee, president of AppHarvest (NASDAQ:APPH), to chat about the business, its journey to the public markets through a special-purpose acquisition company, and the roles technology and 5G are playing in the burgeoning ag-tech movement.
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This video was recorded on March 22, 2021.
Jason Moser: It’s Monday, March 22. I’m your host, Jason Moser, and today marks the final installment of our four-part series on SPACs, and we’ve got one more great interview to wrap things up. AppHarvest is a company that combines conventional agricultural techniques with cutting-edge technology and is addressing key issues, including improving access for all to nutritious food, farming more sustainably, building a home-grown food supply, and more.
Recently, I had the good fortune to chat with David Lee, president of AppHarvest, about the business, its journey to public markets via SPAC, and the roles that technology and 5G play in the ag-tech movement. We hope you enjoy our conversation.
David, thanks so much for joining me today. This is really a thrill to be able to talk with you, particularly because AppHarvest is such a young company. I think the goals are so big, so bold, and so, honestly, admirable. I think this will be a lot of fun, this conversation. I wanted just to see if we could start just talking about exactly what AppHarvest is. It’s a fairly new business, I think to a lot of investors, probably a lot of folks don’t know about AppHarvest or ag-tech. Let’s start with AppHarvest. What is AppHarvest?
David Lee: AppHarvest is a newly public company, whose mission is quite ambitious; it’s to help make a better food and ag company, from seed to the plate. We like to think that our fruits and vegetables will be better for consumers, that consumers will vote for, for example, our tomatoes that use recycled rainwater and don’t use up all the precious resources of the globe, have no chemical pesticides, and are grown right in the United States. In fact, we’re trying to bring to Central Appalachia, Kentucky, West Virginia, for example, a brand-new industry. A renaissance from the old days of coal mining to the new days of technology-enabled renewable food. That’s our mission. I’m super excited to talk with you about it today.
Moser: I think one of the things that strikes me about what you’re doing with AppHarvest, it feels like you’re focused on solving what is clearly becoming a crucial problem. We have a planet of growing demand, more and more people every year, seemingly dwindling resources in the face of that growing demand. What you’re doing in regard to the recycled rainwater, the controlled agriculture using technology to your advantage. We like to find companies that are really focused on solving big and crucial problems, and that’s what strikes me about AppHarvest first and foremost. Now, the interesting thing to me is, obviously, a very young company, still very new. I don’t know exactly how much you’re generating in revenue, but I know it’s really just getting started, that ball just getting rolling as well. SPACs have been a big topic of conversation among the investing community, certainly in our Foolish investing community here at The Motley Fool. What was it about going the SPAC route that made sense for AppHarvest at this time versus the other options, traditional IPOs, direct listings, what was it about going the SPAC route that made sense to you all?
Lee: It’s interesting. I joined the board of the company back in August, before the merger was announced complete with Novus Capital, who was the SPAC sponsor, happened in September. I had a chance as an independent board member to really think about all of the options, private, public, direct listings, SPAC, IPO, and when we thought about the urgency of our mission, as you mentioned, we simply can’t make enough food to serve the existing and future needs, and with climate change, it gets even more challenging. It felt that our business and our mission had a sense of importance and urgency. For us, one notable factor was to find a partner, Bob Laikin, and the team at Novus understood the long-term mission and frankly allowed us to operate with speed. That was from September to when in the third week of January, we were trading under our own ticker, A-P-P-H. That allowed us to bring in great PIPE investors like Fidelity.
We had a significant PIPE along with the proceeds from our sponsor partner, and as a result, we are building. We’re going to build 12 very large at scale. Our first firm for perspective in Morehead, Kentucky, is a little under 2.8 million square feet, 60 acres. Which isn’t an idea. We built it; we are harvesting from it; it has the ability to do 40 million pounds of product and tomatoes, for example, and imagine we’re going to have 12 of those by 2025. We really think that we need to operate quickly to have the impact for our investors in terms of their return, but also for the mission, so that consumers in the U.S. can trust the products that they are consuming, that they’re not all imported anymore from outside the country covered in chemical pesticides. Something like two-thirds of the vine crops that we all eat today are imported from outside the United States. These are vine crops that are bred to be stuck on a track using up a bunch of diesel for days. Whereas our product is wholesome; it’s a day away from 70% of the population that wants to buy great tomatoes that’s homegrown.
Moser: I was just going to say, I found that statistic fascinating. That to me, is something I think a lot of people don’t think about. To your point about the imports, it’s living in a global community, and imports and exports that’s always going to be part of the deal. But when I saw some of these numbers, talking about tomatoes because I think that’s the primary focus for AppHarvest right now, I think I saw something like 4 billion pounds of tomatoes were imported from Mexico last year.
Moser: To your point, those are tomatoes that are not being grown in a sustainable fashion; there’s pesticides.
Lee: They don’t taste great; they need to be designed for transport; the global impact and all the diesel that’s used is significant. Listen, we have a lot to prove, but we have the potential at AppHarvest to not just make a better product, but to make it in a way that’s better for the world. We’re proud to provide a living wage to our employees. We’re investing in more and more skilled labor in the U.S., in Central Appalachia. We’re trying to make a difference in every aspect of the company. That’s the ambition of what we’re trying to do.
Moser: I love that. That’s bold, and that’s what you got to be, I think these days. Dig a little bit further into the SPAC discussion there, because I think your background is really fascinating as well. You used to be the CFO; you were the chief financial officer of Impossible Foods, which I know a lot of our members and listeners have heard of, and clearly we’ve seen the reception to companies like Beyond Meat coming public. I think that the attitude toward finding new and creative solutions toward our food chain supplies, that attitude is only, I think, growing and becoming a little bit more open-minded. What were some of the experiences that you had with your time at Impossible Foods that gave you the confidence to come to such a new operation with AppHarvest and do what you all are doing?
Lee: Well, yeah, it was a wonderful five years at Impossible Foods. I started in 2015, when the company was pre-revenue, pre-brand, pre-supply chain, and I joined as the chief operating officer and CFO, and my mandate was to launch the business and grow it. For me, learning at Impossible Foods how technology and a brand, basically how consumers and capitalism could combine to be powerful, positive forces of change. I think we raised $1.3 billion from large global funds who invest in private and public companies like Temasek and nearly Global Asset Management and others. It was such a privilege to be able to take a pre-business, to take a mission and an R&D, and to develop the sales and marketing and the fundraising. I’m a big believer in the team there.
While I’m super excited to join as president of AppHarvest, I frankly exercise every single option I was given over the five years I was there as COO and CFO. I’m a big believer in that. It’s just another great example of companies like Impossible Foods or AppHarvest, and there are a few others that are seeing consumers and investors, ESG investors, retail investors, and everyday consumers vote with their stomach and their paycheck. They really want to be a part of companies that are better for them and the world. I think with what’s to come, you’re going to see a wave of more and more investment buy us back and otherwise, in companies like Impossible Foods and AppHarvest, because the food system desperately needs new technology and a new set of brands. I’m encouraged by everyone in the space. The problems we’re solving at AppHarvest and the problems we were solving at Impossible are so global and large that we can afford to have a rising tide for a number of great, successful, perhaps one day public companies, all trying to solve the same enormous problem, but maybe in different ways.
Moser: Yeah. I think to your point there in regard to that rising tide, you look at a market opportunity like this. The beauty of food is that everybody has got to eat. [laughs] That is one of the greatest recurring revenue models; people have to eat. So I think it’s refreshing to see your approach, it’s refreshing to see this widespread approach, and we’ve seen certainly with the advent of Certified B Corporations. This new idea where companies actually have to consider the impacts of their decisions. It’s not just a good thing to do it now; there are the legal implications there, and it seems like that’s a growing movement, too. That’s got to be a point of pride there for your company.
Lee: Absolutely. I remember in 2004-2012, I was at a company called Del Monte Foods. We were public. I ended up taking it private, selling it to KKR and others. I remember when I was running the consumer products for the food business, and we put in solar at a number of our locations. Back then, we were doing the right thing for the environment; we were doing the right thing for our bottom line. It created such savings on cost and goods sold for us, that it was just a win-win decision.
Today, the big difference since those days running a big food company, you are seeing investors demand that be the common practice, and we’re proud. I think we’re one of the just a handful of public companies that are both B Certified and a benefit corp. What that means for us is that we can make decisions that serve the bottom line and serve the planet and our employees equally well. We are a for-profit company, to be clear. We think doing good by the world is a great model to reward our investors. In the case of food, it’s really true because of how daily we consume it and also, how big an impact it has on the environment. It’s probably a little more challenging to do what we’re trying to do, if we weren’t in the business of creating sustainable food. But it seems totally doable, and I am proud that the company is on this path.
Moser: I think if anybody just Googles AppHarvest, I think the first thing they probably learn, it’s this very tomato-centric business right now. I think that’s really what you’re best known for, and I’ve read something about these 48-foot-tall tomato vines. I’ve got a green thumb. I enjoy growing tomatoes in the summer at home, and I think about a 48-foot-tall tomato vine, I think, wow. But to me, it seems like this is a platform ultimately that you’re building. We talk a lot about technology and companies where they’re building this platform where you can do many different things. It seems to me that with AppHarvest, you’re essentially doing the same thing, just serving a different market. It feels like you’ve got to be able to go well beyond just tomatoes.
Moser: I wonder if you could share a little bit about what the future holds for AppHarvest. What direction do you feel this business can go and beyond just tomatoes, for example?
Lee: Well, it’s interesting. The first way I like to think about how big our potential can be is just start with demand, and then share how we’re going to fulfill it. The demand right here in the United States, but it’s true globally, for better fruits and vegetables, is immense. Some have estimated a desire for 20,000 acres of controlled environment agriculture here in the United States alone. Here we are talking about our 60-acre first farm and 12 more to come. Consumers are ready, and they’re asking for affordable, better fruit and veg. Only 1 in 10 of us consumers get enough fruits and vegetables, and with the change to the climate, it’s even more of an opportunity given that demand is there. Our approach is different than a lot of companies. We take large-scale facilities, not small rooftop facilities, large farms. We take proven technology that already exists. If you travel to the Netherlands, which is one of the largest producers of tomatoes for Europe, you’ll see that technology today exists to have an incredible farm that’s insulated from the weather, that uses far less water, etc.
In addition, we have pioneered four areas of technology so that it’s not just what we have today; we are making investments to have the best technology today and tomorrow. It’s everything from the nanobubble technology we use to make sure the water that we recycle has maximum oxygen and nutrients. It’s the automation and robotics that we’re pioneering to make sure we can supplement the hard workers in our farms. We have an artificial-intelligence platform. We have cutting-edge LED lights that are designed to use far less electricity than other forms of requirements for farming. So for us, going with speed at scale to serve a huge amount of demand today, but using technology to do better for people’s health and for the planet, is the way that we are choosing to approach the problem.
Moser: Well, I like that. I do a lot of the cooking in our house. Most of the cooking, I would say. So I, for one, work hard to make sure we get our fair share of fruits and vegetables. I feel like we always need more. I’m always looking for quality stuff and it sounds like you are definitely turning that out. You mentioned something a moment ago, and I want to turn the conversation in a little bit of a different direction here, because technology is such an important part of what you all are doing. We are hearing a lot about fintech, for example, these days. Many investors out there probably don’t realize that there’s such a thing as ag-tech, and that’s the market that not only you all pursue, but I think it’s probably safe to say that you’ve been really I think pivotal in defining that market. But tell us, what is ag-tech exactly?
Lee: Well, ag-tech for me is how you use technology to do better by the consumer. An example would be, our farms can yield 30 times the amount of fruits and vegetables than a typical one. What does that mean? It means that we can provide a better product that’s better for health and the world, faster, and we can do it at affordable prices. A big part of the mission we have is to give everybody the ability to have a better choice. So technology is critical, but not if it doesn’t deliver something that creates a consumer movement, that creates positive change.
For ag-tech, what’s interesting is, if you think about the seed, we worked hard on our non-GMO seed that produces a great tomato, for example, that tastes great. From the seed to the plate, meaning what seed we use, how we grow great fruit and veg in a way that’s better using technology for the world and consumers. Then how do we deliver it? Using less diesel, less miles with the brands that, increasingly consumers are looking for brands they can really trust, not just brands in yesteryear, like the companies I used to work for, but new brands that stand for a better company, that treat its employees better. A big part of that is trying to make a difference here in the U.S. Have a homegrown, better solution, focus in Central Appalachia, replace perhaps some of those coal mining jobs that have been lost with renewable-food jobs.
The whole seed-to-plate spectrum requires technology. It’s technology that, when you’re a young upstart, like AppHarvest, we have the benefit of taking a clean sheet of paper and picking the best that the world can offer in technology today versus some of the larger players. I remember running the business at Del Monte or even in technology when I was the CFO at Zynga — it’s hard sometimes when you are part of a multibillion-dollar-already public enterprise, to seek to do the very best by consumers with the best technology, because you are oftentimes cannibalizing sales that were created decades ago. The great thing about these new companies like AppHarvest is we can start fresh and try to make a difference right now.
Moser: In regard to technology, because obviously ag-tech, the technology is really core to it, 5G is really taking off as a point of discussion among the consumer community, among the investing community. It’s something that’s gaining a lot of attraction here. How’s 5G playing to your strategy with the business? Are you finding this rollout of 5G — is it opening doors, is it opening windows of opportunity for the business as far as the connected farm goes? Because I mean, y’all are utilizing all of that stuff. You’re utilizing cloud services and connectivity and sensors. All of that stuff comes into play. How important is something like 5G to your business?
Lee: I think it’s, 5G and other forms of connectivity are critical because we use artificial intelligence. We monitor in real time our plants. Imagine a company that has, first in the U.S., we’ve talked about 12 of these enormous CEA farms in Central Appalachia, but frankly, our platform has a global mandate. So having the ability in real time to have access to data on growing conditions, connectivity to multiple sites of production, and as a public company having the ability to be present in one part of the world — I’m Zooming in from California and my company is based in Kentucky — that interconnectivity is critical for us to leverage the best talent and the best data. So I think it’s critical for ag-tech, and that’s one of the things about ag-tech.
It’s so fundamental, the need to have good food. It’s such a huge use of the world’s resources that it spans almost all forms of technology from biotech in the seed to all the connectivity data requirements we have and the software and hardware with automation, all the way through to how we grow and produce a 30 times yield in our farms that we’re building. We really are a technology company, and we benefit from all of it.
Moser: What about distribution? Given that you are such a young company, I think a lot of folks are really just maybe hearing about you for the first time, perhaps listening to our conversation here. Obviously, we go to the grocery store. Most people go to the grocery store to get food, right? That’s where we get our fruits and vegetables and whatnot. What types of distribution agreements? Do you have partners? Do you have an industry today that is helping spread the word and get that product further out beyond just that in Appalachia, a hub where you all work?
Lee: We like to focus on the areas that we believe we have strategic advantage, right? You’ve heard about it from how we grow our products, even to the seed that we use to grow it. But our brand is a critical area of future competitive advantage, because very few companies have the opportunity to stand for a better food company and better food all the way through the life of, for example, a tomato or another vine crop. We’ve made agreements with great distribution partners, we think the best in the business today, so that our initial focus is just to scale up the production and provide our brands and the most product we can, but we leveraged partners, so that you can go to a Kroger or eventually, we hope, every major supermarket chain to find an AppHarvest tomato or other vine crop, or maybe, who knows, the leafy green one day. That’s the scenario of partnership for us. We think that if you build a great product and great brand and you partner with the best distributors to get it to market, that eventually, over time, you create a consumer movement that continues to push the mission and the business.
Moser: Well, it makes me think of you going to the store and you see the Chiquita banana. I feel like I’m going to be going to the store now, and forever I will be looking for those AppHarvest tomatoes and whatever other fruits and veggies you all bring to the table.
Lee: I hope you do. I think we’re a little bit away before you’ll be able to find it in every grocery store. But listen, I have been in the branded produce business as long as Del Monte Foods for one, almost eight years, and it’s really true already that consumers look for brands. They want to trust what they pick up, and I hope that our partners can create a brand where people can really trust it as well.
Moser: Well, it sounds like you all are on the right path, and I’m excited to watch your progress as you move along. I think you’re doing something really important there with the company. I really appreciate you taking the time today, David, to speak with us. This has been a lot of fun. I hope we can do it again soon.
Lee: That sounds great. Take care.
Moser: You, too. And that’s going to do it for us this week, folks. We hope you enjoyed our four-part SPAC series. Remember, you can always reach out to us on Twitter at @MFindustryfocus, or drop us an email at [email protected] As always, people on the program may have interest in the stocks they talk about and The Motley Fool may have formal recommendations for or against, so don’t buy or sell stocks based solely on what you hear. Thanks as always to Tim Sparks for putting the show together for us. For David Lee, I’m Jason Moser. Thanks for listening, and we’ll see you next week.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.
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