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Vertical Farming’s Success Depends On The Cheapest Lightbulb
More than a decade ago, microbiologist Dickson Despommier floated the idea that nations with little arable land like the UAE could become self-reliant by growing food in skyscrapers with perfectly optimized artificial light and heat
The industry promised to tackle world hunger. But all it may end up delivering for now is expensive basil and perhaps some better quality marijuana.
January 16, 2021
Abu Dhabi’s giant Yas Mall isn’t the most obvious location for embracing nature. The sprawling complex, which houses a 20-screen cinema, leads to a Ferrari-themed amusement park.
At its heart is the Carrefour SA hypermarket. There’s no natural light or soil, yet floor-to-ceiling shelves offer shoppers herbs and microgreens grown right in the store. The fresh produce is a rare sight in the United Arab Emirates, which is almost all desert and imports 80% of its food. It’s marketed as a healthy way for customers to reduce the carbon emissions that would be generated transporting their groceries.
Carrefour grows herbs and microgreens such as arugula on shelves stacked floor to ceiling.
Photographer: Christopher Pike/Bloomberg
More than a decade ago, microbiologist Dickson Despommier floated the idea that nations with little arable land like the UAE could become self-reliant by growing food in skyscrapers with perfectly optimized artificial light and heat. He called it vertical farming and argued that it could reduce world hunger and restore forests depleted by commercialized agriculture. It would also eliminate planet-warming emissions caused by plowing fields, weeding, and harvesting, as well as transportation.
In the years since millions of dollars have poured into companies trying to make Despommier’s idea a reality. Agriculture and forestry account for about a quarter of the world’s greenhouse gases, while the hunt for new farming land to feed a growing global population has exacerbated deforestation. The prospect of solving both problems has enticed all sorts of investors, from tech entrepreneurs to restaurateurs and industry giants like Walmart Inc.
A record $754 million of venture capital was invested in the industry in the first three quarters of 2020, according to PitchBook data, a 34% increase from the whole of 2019. It’s drawn particular interest in Singapore and the UAE, whose governments have set goals to increase their national food production.
Mostly Leaves
Percentage of vertical farmers who say they grow a given crop
But vertical farming will have to get a lot cheaper to deliver on its lofty aspirations. While it frees up arable land and uses 95% less water, creating the ideal conditions for growing plants ends up consuming much more energy than traditional methods. Lights need to run for 12 to 16 hours a day and heating must be used in the winter. Miguel Povedano, chief operating officer at Majid Al Futtaim Retail, which runs the Carrefour franchise across the Middle East, Africa, and Asia, says vertical farms cost 20% to 30% more than traditional ones.
Investors may not be able to live up to the hype they’ve created around the industry, and see their bubble burst before they have a chance to prove themselves, says Michael Dent, an analyst at IDTechEx. “If people are expecting world-changing progress and they don’t see it in the first two or three years — and what they see is high-quality salad — there’s a chance they might pull out their investment on the field and move on to the next thing.”
His analysis shows that most vertical farmers focus on herbs and salad greens because of their rapid and simple crop cycles. Microgreens in particular are popular with consumers concerned with healthy eating, rather than in deprived areas. They’re also more likely to grow herbs like cannabis than higher-calorific squashes or melons, which need more energy and water.
A migrant worker adjusts lettuce inside an indoor hydroponic farm operated by Green Container Advanced Farming LLC (GCAF) in a Carrefour SA grocery store in Dubai, United Arab Emirates, on Monday, Nov. 9, 2020. Photographer: Christopher Pike/Bloomberg
Rather than feeding the world’s poor with high-calorific foods, the microgreens and herbs grown by indoor farms are only going to be an option for the world’s wealthy elite for many years to come. Vertically farmed produce is far more expensive than conventionally farmed goods and even most organic produce, Dent found. For example, New York-based Bowery Farming’s indoor-produced kale mix is almost three times more expensive per pound than Whole Foods Market’s baby kale option, and its cilantro is more than five times more expensive than its Whole Food’s equivalent.
Emerald Technology Ventures investor Gina Domanig says she’s more interested in backing technologies that can reduce energy costs than the farms themselves. She compares indoor farming to desalination technology — the process of removing salt from seawater to provide fresh drinking water to people in water-stressed countries such as Israel.
“When desalination came out, everybody said it’s the holy grail for freshwater,” she says. “But desalination is really energy-intensive.” Vertical farming “might be an interesting thing” if there are technologies to make it less energy-intensive, she says, but right now “it’s not economic or environmentally sound in all areas.”
Salad greens require less energy and water to grow indoors than higher calorific foods.
Photographer: Christopher Pike/Bloomberg
One option to cut costs is solar power, which has become the cheapest source of electricity in many parts of the world. In Germany, Farmers Cut has developed a combination of solar power plants and batteries so it pays less for power than it would connecting to the country’s grid, says Chief Executive Officer Henner Schwartz. The cost of storing energy can be as low as 10 or 11 euro cents per kilowatt in Germany.
“The energy issue is the key thing you need to crack,” he says. “We’re not claiming we can do carrots or watermelons any time soon at competitive prices, because it’s just not possible.”
In Abu Dhabi, Carrefour is trying to find a lightbulb supplier who can reduce its power use by as much as 65%, according to Povedano. “The kilowatts consumed in electricity is the major handicap,” he says. “It’s not only what you, as a company, want to do. It’s how you get the customer to substitute imported products for this technology, and the key is that it needs to be really affordable in terms of price.’’
— With assistance by Agnieszka de Sousa
Lead photo: LED lighting at an indoor hydroponic farm inside a Carrefour SA grocery store in Dubai.
Photographer: Christopher Pike/Bloomberg
Legalized Marijuana in New York State: The Green Gold Rush
Andrew Cuomo unveils a plan for legalizing recreational marijuana in New York State.
It’s a moment cannabis advocates have been waiting for. On Tuesday, Governor Andrew Cuomo officially unveiled a plan for legalizing recreational marijuana in New York State, in his State of the State budget address in Albany.
The plan includes the creation of a new Office of Cannabis Management, taxes on cultivation and wholesale, a ban on sales to anyone under 21, licensing for businesses throughout the supply chain, and the ability for counties and cities to ban sales, Gannett’s Jon Campbell reports. Also in the works: a program to review and seal past marijuana-related criminal convictions.
Officials estimate that legalization will eventually bring in $300 million in tax revenue a year, but the industry will be slow to ramp up, the New York Times reports:
That number, though, would not be available until the fiscal year starting in 2023, according to Mr. Cuomo’s budget director, Robert Mujica.
The initial rollout would bring in much less revenue, projections show. Budget documents released Tuesday projected no revenue from marijuana regulation and taxation for the 2020 fiscal year, and $83 million for 2021.
A code name for marijuana written on a train in New Jersey. Source: Wikimedia Commons.
Keeping Up With The Joneses
With more and more states moving toward legalization, the climate around cannabis is shifting quickly. Politicians who would have been loath to endorse recreational marijuana just a few years ago are now starting to worry that their states will lose out economically if they don’t jump on board the legalization bandwagon.
New Jersey, whose governor Phil Murphy campaigned on a promise to legalize recreational marijuana, is racing New York to pass a cannabis law. Reporter Payton Guion for NJ.com explains why New Jersey legislators are anxious to get there first:
If New Jersey were to somehow get beat to legalization by New York, the state would be leaving a lot of potential tax revenue on the table. Millions of people would likely cross the border to buy legal weed, based on estimates of New Jersey’s potential marijuana market.
But no one is likely to cross the border to buy weed in New Jersey if it’s also legal in New York.
While our neighbors New Jersey and Connecticut have yet to legalize, New York is already losing potential business–and tax dollars–to Massachusetts, where recreational cannabis has been legally available since November. Recently, Rockland/Westchester Journal News columnist David McKay Wilson, who writes about tax policy, took a road trip to Northampton, home to Massachusetts’s first legal dispensary. There, he met New Yorkers willing to stand in line for hours for the chance to purchase just an eighth of an ounce:
The New Yorkers claimed they could find marijuana on the streets of Schenectady for $150 an ounce, which would produce about 60 marijuana joints. That cost would be far less than what they would pay in the Massachusetts dispensary. Though state law allows dispensaries to sell as much as one ounce of cannabis, NETA has limited its sales to a maximum of one-eighth of an ounce because its supply of Massachusetts-grown marijuana is limited.
The one-eighth ounce was on sale for $50–equivalent to $400 an ounce. But they wanted to buy the legal cannabis, with its potency tested and certified.
“It better be good stuff for this wait,” [Johnny] Deitz said. “It will be a joy to finally smoke it legally.”
Cannabis isn’t the first vice New York State has seized on as a potential boost to the local economy. In recent years, the state has rewritten the laws on locally made beer, hard cider, and spirits to be friendlier to small brewers and distillers. The result has been a renaissance of small-scale craft beer and spirits in the state.
In an interview with Leafly, Melissa Moore of the Drug Policy Alliance, a pro-cannabis-legalization advocacy group, likens the recent push to legalize cannabis to the craft brewing and distilling movement:
“I think it’s encouraging to look at what the governor has done in terms of encouraging the craft beer and wine industry in New York State, and trying to put forth provisions that help smaller businesses in that arena be able to actually get a foothold to be competitive and grow and thrive,” Moore said. “And I think that’s something that we would certainly encourage him to look for in marijuana legalization as well.”
The chamber of the New York State Assembly, soon to be tasked with hammering out the fine print on marijuana legislation. Source: Wikimedia Commons.
Bumps in the Road?
Even with a cannabis-friendly Democratic majority in both the Senate and Assembly, and the endorsement of the governor, legalized recreational marijuana won’t happen overnight. There are still many details to be ironed out. The AP’s David Klepper reports:
Taxes and regulations must be approved. Rules for licensing retailers must be written. A new government entity may have to be created. Local governments will have to be brought in. Even after a bill passes, it could take a year or more for any pot shops to open, based on what’s happened in other states and New York’s own experience with medical marijuana.
One of the biggest worries for lawmakers is how to deal with marijuana-impaired drivers. There’s no clear consensus on what level of THC in the blood constitutes impairment, and unlike alcohol, marijuana can leave trace substances in a person’s blood for days or weeks, long after the initial high has faded. States are enacting a broad range of different laws and “playing catch-up” with science on the issue, Kaiser Health News reports.
Among the states that have legalized recreational marijuana, there is a range of approaches, from relatively permissive California to highly regulated Colorado. So far, New York has opted to keep the marijuana industry on a tight leash: After the state legalized medical marijuana in 2014, only five licenses were awarded in an intensely competitive process. In 2017, five more companies were awarded licenses.
One of those first five license-winners has deep roots here in the Hudson Valley: Etain, a company with dispensaries in Kingston, Syracuse, Yonkers and New York City, and the state’s only women-owned cannabis business. Founder Amy Peckham, who owns and operates the business with her daughters Hillary and Keeley Peckham, is a Katonah resident whose family operates a large construction business called Peckham Industries.
Getting into business in New York State isn’t easy. Just to apply for one of the state’s five coveted licenses cost the Peckhams about $750,000,The Cutreported in a 2015 feature story.
The first few years of legal medical marijuana have been tough on New York’s pioneering cannabis businesses, with few physicians to prescribe and daunting restrictions on every aspect of the business, but Etain’s founders hope to make good on their investment. Recently,The Street cited Etain as one of the top five businesses that stand to profit most from legalized recreational marijuana in New York State.
Disruptor of the Year: Constellation Brands
Constellation Brands' stake in Canopy Growth, the largest investment in the marijuana market to date, could fan the flames of a cannabis arms race between U.S. alcohol manufacturers.
AUTHOR
Emma Liem@emma_liem
PUBLISHED
Dec. 3, 2018
CEO: Rob Sands
Total investments in marijuana: $4.07 billion
Outlook: Constellation Brands' stake in Canopy Growth, the largest investment in the marijuana market to date, could fan the flames of a cannabis arms race between U.S. alcohol manufacturers.
When Constellation Brands invested $3.9 billion in Canopy Growth this summer, it not only made the largest investment in the marijuana market to date, but broke an industry taboo that had kept many beverage players on the sidelines.
The cash infusion increased the beer giant’s stake in the Canadian cannabis supplier to 38%, and Constellation will nominate four directors to the company’s seven-member board as part of the deal. The partnership has legitimized a trend that beer makers and analysts have been buzzing about for years: cannabis is set to become a cash cow for the alcohol industry.
“I cannot imagine a more disruptive development within the alcohol industry in the last couple of millennia, to be honest,” Spiros Malandrakis, head of alcoholic drinks at Euromonitor International, told Food Dive of the rise of cannabis in the beer space.
But while many bemoaned the marijuana industry’s impending threat to alcohol sales, Constellation identified cannabis as a potential growth driver in the sluggish U.S. beer space.
"Over the past year, we've come to better understand the cannabis market, the tremendous growth opportunity it presents, and Canopy's market-leading capabilities in this space," Constellation CEO Rob Sands said in a company release following the August investment. "We look forward to supporting Canopy as they extend their recognized global leadership position in the medical and recreational cannabis space."
Constellation isn't a first-mover in this budding segment, however. Craft brewers were the first to begin dabbling with marijuana-infused product. Heineken-owned Lagunitas Brewing rolled out a non-psychoactive, cannabis-flavored IPA brewed with marijuana terpenes in 2017. This year, it debuted a THC-based sparkling water, complete with the marijuana high.
But Constellation’s formidable advantage in the Canopy partnership can’t be ignored. The cannabis supplier, valued at $5.4 billion, will use the American beer titan’s financial backing to enter emerging recreational cannabis markets, as well as achieve global scale in the nearly 30 nations working toward federal medical cannabis programs. Though the company doesn't plan to sell marijuana-based beverages domestically before the U.S. fully legalizes the substance, this market reach — combined with Canada's legalization of recreational marijuana use in October — has driven rival beer brands to enter the space.
"Once Constellation broke the taboo, people started discussing [cannabis innovation] much more openly, and the other thing we have to remember is that not many cannabis companies in Canada are right now available for M&A."
Spiros Malandrakis
Head of alcoholic drinks, Euromonitor International
"In a way it's a game of musical chairs. There aren't many chairs left. So even for the biggest players in the alcohol space, they're not going to have the luxury of an infinite amount of time to choose their chair before the music actually stops."
Less than a year after Constellation's initial investment in Canopy Growth, Molson Coors announced that its Canadian business had formed a joint venture with Hydropothecary Corp. to make nonalcoholic, cannabis-infused drinks to sell in Canada. As part of the deal, Molson Coors Canada gained a 57.5% controlling interest in the firm.
But the most striking result of the M&A domino effect that began with the Constellation-Canopy partnership came from beyond the alcohol segment entirely. In September, Coca-Cola announced it was in talks with Canadian marijuana supplier Aurora Cannabis about developing marijuana-infused drinks. The soda behemoth's stock climbed 0.72% to $46.32 on the news, and boosted the stock of other cannabis companies as well.
"We are closely watching the growth of non-psychoactive CBD as an ingredient in functional wellness beverages around the world," Coke spokesman Kent Landers told Bloomberg News. "The space is evolving quickly. No decisions have been made at this time."
On a conference call in October, Coca-Cola CEO James Quincey said the company "doesn't have any plans at this stage" to enter the CBD market.
As interest in the medicinal properties of cannabinoids grows and stigma around marijuana use relaxes, alcohol manufacturers face a new path to growth. Whether or not these players can unseat Constellation's lead, however, is an open question.
"You’re looking at an arms race which, in my mind, is already in full swing," Malandrakis said. "There’s no doubt in my mind that the 'green tide' is inevitable at this stage, and it's just going to gain more momentum moving forward."