There is one thing that Craig Hurlbert wants to make clear about Local Bounti: It is not like the other controlled environment agriculture companies. It is worth the investment.
“The industry has been plagued with people raising a lot of money and not really executing very well,” Hurlbert, co-founder and co-CEO of the Montana-based indoor farming company said. “And I think the firms that execute well are going to really differentiate themselves over time.”
Hurlbert made this prediction in an interview about a week before Local Bounti was set to go public through a merger with special purpose acquisition company Leo Holdings III Corp. in a transaction that could value the company at $1.1 billion. The deal was approved by the vast majority of Leo Holdings shareholders on Nov. 16. The new company’s stock was originally slated to begin trading under the ticker LOCL on Nov. 18, but the deal's closing has since been pushed to the week of Nov. 22.
Hurlbert described going public as “a quicker route to capitalization” that gives Local Bounti more clout with its employees and its vendors.
“When they see us as a publicly traded company, they see us as maybe a little bit of a different cut from some of the other people in the indoor farming landscape,” he said. “It's a little bit cluttered right now, right? Not many firms can make it through this gauntlet that we've gone through.”
Hurlbert's use of the word "gauntlet" is apt; it's not been an easy journey. He described the SPAC market early on as "very frothy," although today sees it less so. And investors' priorities continue to shift. "One day they like growth, the next day they like value — you know, it's one of those things," he said.
Hurlbert and his fellow co-founder and co-CEO Travis Joyner can identify with investors' mindset here. Both entered the CEA business from private equity firm BrightMark Partners. They saw the promise of indoor farming but were underwhelmed by their options among existing players.
“We couldn't find the business that we thought was investable,” Hurlbert said. Instead, they decided to build a company around four elements they saw missing in the space. First, Local Bounti embraces unit economics — or measuring the profitability of selling a unit of product. Hurlbert said it's a commonly tracked metric in the energy space, where he spent the early part of his career, but missing in the CEA industry, which has struggled with turning a profit.
Next, Local Bounti aims to ensure solid unit economics by building a highly local distribution footprint. The company currently has just one facility in Hamilton, Montana, that supplies leafy greens, salad mix and herbs to about 500 retail locations in the western U.S. It was recently expanded to more than 80,000 square feet in size. Local Bounti is set to break ground on a second facility in Pasco, Washington, that Hurlbert said will be operational and drive revenue in 2022, with two more planned for Colorado and Nevada. The company wants to build four more facilities by 2025, and has national and international ambitions.
With brand a key element, Local Bounti has hired Josh White, a branding expert who has worked with Greek yogurt giant Chobani, as its chief marketing officer. And the fourth differentiator — one would argue it’s table stakes for the CEA industry — is sustainability. Hurlbert said Local Bounti's focus on unit economics enables it to grow and harvest plants more efficiently, and deliver better savings in terms of greenhouse gases, food miles, and water and energy consumption than its competitors.
Going through the 'gauntlet'
In outlining Local Bounti’s differentiators, Hurlbert is trying to counter a narrative that has developed around the financial viability of CEA companies. Granted, there have been large funding rounds for players such as Bowery Farming, BrightFarms and Revol Greens. But industry observers continue to wait for a success story among CEA operators who have gone — or tried to go — public.
In October, AeroFarms called off its own SPAC deal after it apparently failed to convince investors of its potential. This is despite raising a total of $238 million, according to Crunchbase. AppHarvest, which has raised over $566 million, was the first indoor grower to go public through its merger with SPAC Novus Capital in February. However, it has seen its stock price fall from a high of $37.64 a few weeks after it completed the merger to under $7 through October and most of November.
Hurlbert was quick to contrast Local Bounti, which supplies its own branded product, with AppHarvest. “We're not even in the same business today as AppHarvest. They're contractors,” he said. AppHarvest has a 60-acre greenhouse in Morehead, Kentucky, dedicated to growing tomatoes, with one for leafy greens and another facility for tomatoes under construction. The Appalachia-based company plans to have 12 indoor farms by the end of 2025. Recently, AppHarvest launched a reorganization effort to get a better handle on costs and improve its profitability.
"When they see us as a publicly traded company, they see us as maybe a little bit of a different cut from some of the other people in the indoor farming landscape. It's a little bit cluttered right now, right? Not many firms can make it through this gauntlet that we've gone through."
Co-founder and co-CEO, Local Bounti
In making his case for Local Bounti, Hurlbert said the linchpin is its ability to turn a profit.
“In our very first facility in our very first year, we have positive gross margins. Many of our competitors don't have positive gross margins projected for two or three years out into the future,” he said. The company expects to reach breakeven around “2023ish,” Hurlbert said, and may expand into new product areas such as berries and salad kits to drive future growth.
Demonstrating that Local Bounti can actually deliver on its profitability promise will be key for Hurlbert and the rest of the leadership team. They are aware of what's at stake — and what a successful public debut means for the indoor grower's ambitions and regaining investor confidence in the space.
Local Bounti has seen some success in attracting investments pre-SPAC. Cargill serves as both a lender, providing $200 million in debt financing, and an investor. This November, Leo Holdings announced it had raised a total of $150 million in private investment in public equity commitments.
"Going through this experience, this gauntlet, if you will, has really [been] a great process for us," Hurlbert said. "So now we can deliver and then show our shareholders what we're capable of, and then be able to go back to the market if we need to down the road for more capital.”