Indoor Harvest (INQD): Real deal, stacked deck… or both?

salad

I’m a fan of Vertical Farming, that being: the cultivation of stacked layers of plants (predominantly leafy greens) in a tightly controlled indoor environment with carefully timed exposure to specific light frequencies through light emitting devices (LEDs, which have gotten a lot cheaper over the last few years) and reliance on nutrient mixtures with a combination of hydroponic and aeroponic delivery and recirculation systems to foster crops instead of rainfall or traditional irrigation, rooted in a cloth like material or similar proprietary strata rather than soil.

The dividends are staggering; farming done anywhere, regardless of climate, 95% less water usage, negation of unpredictable weather and exposure, lowered GMOs, no pesticides/herbicides/fungicides, near 50% less fertilizer and its runoff pollution, and of course, healthier, faster growing crops.

And now, The Bad: The methodology and practice is still being tested and tweaked, and occupies a very, very small corner of a very specific market that’s still trying to find the right formula.

Chief among the problems faced by the vertical farmer are energy use and costs, as the lighting, water, and nutrient delivery systems need a healthy dose of juice themselves. Startup costs to create this environment are formidable. This is “designer farming”- a case by case entrepreneurial venture, not a commercial industry breakout.

But these are problems worth solving.

The firm I see leading the pack is Aerofarms. I love these guys. Repurposing defunct Laser Tag arenas and nightclubs in New Jersey into tens of thousands of square feet of vertical farms with produce yields sold in local markets and restaurants; it’s tunnel-to-table, if you will, actually giving New Jersey a second chance at earning the name The Garden State from fuckin’ Newark of all places. Hardly the spot I’d expect a neo-Hanging Gardens of Babylon.

*You’ll* hate them, or at least, you’re going to resent me for having you read so much about them. See, here’s the deal:

Aerofarms is a private company.

Ask them if they’ll do a public offer and they’ll smile politely and gently but firmly guide you away from their business, with a quiet but pleasant thank you for your interest and maybe a small Tupperware of darkroom arugula.

Aerofarms don’t play stock. Seeded with private funding from angel firms like Goldman Sachs (the only time you’ll ever see me write “angel” and “Goldman” in the same sentence, but even a shuckstering predator firm trips and falls into something good once n’ awhile) and Prudential, forward looking investors funding technologies which might bear fruit down the line, all in service of making the tech and the idea commercially viable and profitable (I mean, Goldman Fucking Sachs, right? I don’t think their vision of a finish line includes feeding the world fo’ frees).

It’s a grand experiment. Many moons from now, when the soil is scorched and the Earth a desert planet not unlike Frank Herbert’s Arrakis, where it’s not swallowed by salted oceans, Aerofarms will have become the real world Fremen, hanging out by vast underground caverns of hanging salads, politely smiling over their miles of Caesar and Cobb salads as the surface world sizzles. Go with God and the sandworms says I.

But for now they repurpose the buildings and test the tech and grow the food and and work on getting it right. That’s the mission, that’s their goal. They’re the real deal. They want to make the leaps forward and save the planet. That’s one way to go.

Alternatively you can develop the tech, raise money from selling shares of your company and throw a chunk behind marijuana grow where much of the homework and practice have been in place for decades, while Greenrushers have the munchies for anything that can make their green beget green. That forest is dense, increasingly difficult to navigate and you best have a finely honed machete to clear the brush to get to the weed.

Comes now Indoor Harvest Corp (INDQ).

This one read like a textbook pumperdumper not too long ago, having quickly thrown themselves on the Altar of Public Offering with nary a profit to their name as recently as December 2015 with over 35k in marketing in just one month and a stock running highs of 1.50 and lows of .40.

Writers at Seeking Alpha sniffed around last year and they did not like the whiff they got, and I have had an eye on them ever since, trying to discern whether or not they are ecological hero or crapstock villain.

But revisiting in 2016, INQD is actually now showing some dollars in the black column.

Meager amounts to be sure, but a pulse is a pulse, and they are very much aware of the pitfalls of getting it wrong.

Indoor Harvest’s founder, Chad Sykes, discussed the obstacles to profit in an interview with TakePart.

“The industry is still not in a place where we can mass-produce a low-cost, high-volume product you can sell in places like Walmart, but the technology we’re developing and the lessons we’re learning will help us get there in the next 10, 15, or 20 years,”

“Vertical farming right now is a small niche and it’s not a resolved science; there is still a lot of [research and development] left to do.”

Ironically, it was INQD’s inroads to Cannabis that made me a believer. Typically that’s my first red flag as its the easiest method for hacks to drive up interest. The weed craze has lots of people seeing money with nary a single leaf to show for it, but INQD is clear that this is an experiment, and they too are making it work. They’ve just gone a parallel route, funding themselves through share sales until the tech is proven and the client base is built.

In 2014, INDQ created a pilot program with Canopy Growth Corp (formerly Tweed, no stranger to the column inches at Equity.Guru). That program was built and now it’s showing positive results.

There will be a second pilot. There may be more. With continued success, Canopy has been known to make big grabs for anything that will help their Kong-like ascent to the top of the Canadian MM Empire. And if you’re the folks that supplied the working tech that made it possible, chances are you are getting the Fay Wray treatment on that climb.

So despite the company making the moves on (and with) paper, or perhaps because of it, I have trepidation about them. It’s a ballsy enterprise and they’ve latched on to the niche-in-a-niche courting the Weeders, but are also pushing overseas with their product where Vertical Farming is being warmly received, making loud connections with known vendors, researchers and developers, and there is the fact of their meager but true profit this year (which could only go up but looks much better in black ink than red). It also helps that they went and built something and it works. These guys built something. That counts.

With day lows at .40 and the highs still not exceeding the .50-.74’s to even the 1.50 they have sported in days past, Indoor may not be the market shysters they’ve been tarred as (maybe) but, at present, I’d approach this plate of veggies with a dine n’ dash mindset, one foot propping open the exit door as you grab for a bit of that green – they are making progress, but it’s in the shadow of cyclopean debt, with one misstep bringing the whole thing down.

I think they’re the real deal and the pricing is as ground floor as it can be (.41 as of close on 7/26), so long as they can stick with what works and stay ahead of their massive operational costs with some good works.

-A Mark Dankel work of fart

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Joe
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Joe
3 months 15 days ago

Hi Chris, what are your thoughts on Calyx now?

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