Opinion - Activist Spotlight

Indoor farming company with backing from Ubben aims to solve the problems with America's produce

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Source: AppHarvest

Company: AppHarvest Inc. (APPH)

The agriculture technology company focuses on building an indoor farm in Appalachia. The company combines agricultural techniques with cutting-edge technology and including access for all to nutritious food, farming and building a homegrown food supply. The company operates a 60-acre controlled environment, agriculture facility in Morehead, Kentucky, which grows juicy beefsteak tomatoes and tomatoes on the vine. It also operates a 60-acre indoor farm, outside Richmond, Kentucky, where it cultivates fresh fruits and veggies. The company's technological systems monitor the pollination across all 68 bays and 684 rows of plants. AppHarvest is only the fourth U.S. public Certified B corporation. A B corporation is a company that has (1) achieved a high standard of social and environmental performance as measured by the B Impact Assessment, (2) verified their scores through transparency requirements, and (3) made a legal commitment to consider all stakeholders, not just shareholders. Any company can apply to be one.

Stock Market Value: $3.3 billion ($33.26 per share)

Activist: Inclusive Capital

Percentage Ownership:  12.05%

Average Cost: n/a

Activist Commentary:  Inclusive Capital Partners was formed in 2020 by ValueAct founder Jeff Ubben, to leverage capitalism and governance in pursuit of a healthy planet and the health of its inhabitants. The firm seeks long-term shareholder value through active partnership with companies whose core businesses contribute solutions to this pursuit. Inclusive is a returns driven fund with a focus on environmental and social investing. Their primary focus is on environmental and social value creation, which leads to shareholder value creation. It is the successor to the ValueAct Spring Fund, which was launched in January 2018 and merged into Inclusive in 2020. Inclusive is building a huge network and has accessed experts in industries such as energy, electrification, water, agriculture, food production, particulates, education and human rights. Just like ValueAct's constructive, patient investment style, Inclusive will seek to earn the trust of managers, board members and institutional investors. Jeff Ubben serves as the portfolio manager and Eva Zlotnicka serves as vice president. Eva has a pre-existing relationship with ValueAct through their interactions with Morgan Stanley, where she served as a VP and U.S. lead for the Global Sustainability Research Team. At Morgan Stanley, she worked to help address and raise awareness of environmental and social issues both inside and outside of corporations.

What's happening:

Jeff Ubben was appointed to the company's Board in connection with the company's business combination with Novus Capital.

Behind the scenes:

This was initially an investment of ValueAct Spring Fund, which was converted into Inclusive Capital in 2020. Jeff Ubben first met AppHarvest founder Jonathan Webb in 2017 and has been involved with the company since the 2018 Series A round, working with Webb to put the management team together and develop a strong balance sheet. The company went public on February 1, 2021 through a $100 million SPAC transaction and a $375 million PIPE investment. Jeff Ubben is on the board where he can continue to help the company execute.

AppHarvest plans on having 12 facilities by 2025. The goal here is to make Kentucky the Netherlands of North America. The Netherlands (at 16,000 square miles) is the second largest agricultural exporter in the world, using greenhouse technology to feed two-thirds of all of Europe. In comparison, the state of Kentucky is 40,000 square miles and the US is 3.8 million square miles. AppHarvest's motivation is first and foremost to benefit society, but if successful would have extraordinary financial returns as well.

As of 2018, 69% of fresh vine crops in the U.S. were imported, mostly from Mexico. These crops are pesticide-laden and grown using labor practices not up to U.S. standards. Moreover, they sit at the border for days and are driven 2,000+ miles to their destination, using tons of diesel fuel and resulting in less fresh produce. AppHarvest produces crops with no pesticides with greater nutrient density, and from their central location can reach 70% of the U.S. population in one day resulting in 80% less diesel fuel and much lower emissions. However, the larger environmental and economic benefit is in how the crops are grown — using 90% less water and yielding thirty times more per acre.  Moreover, AppHarvest's resources are nature based – the greenhouse structure allows them to use 12 hours of sunlight per day and they collect the heavy Kentucky rainfall for their system resulting in a much less adverse effect on the water supply while greatly decreasing their cost of production by not having to pay for water. The greenhouse system also eliminates any weather or seasonal constraints, allowing the company to grow more efficiently 365 days per year.

While the company has no historic revenue, they just made their first delivery of beefsteak tomatoes on January 19, 2021, to customers that include Walmart, Kroger and Publix.

Ken Squire is the founder and president of 13D Monitor, an institutional research service on shareholder activism, and the founder and portfolio manager of the 13D Activist Fund, a mutual fund that invests in a portfolio of activist 13D investments. AppHarvest is a holding in the fund.