Dickson Despommier wasn't satisfied with the way we farm. So he decided to do something about it. The professor of Public and Environmental Health at Columbia University came up with a radical proposal that has spurred others to launch companies and add to the pool of Canadian stocks.
What is vertical farming technology?
Rather than spread out plants, as we have for thousands of years, Despommier proposed we could get better results by using vertical farming techniques.
He and his students devised a plan to build a skyscraper capable of feeding 50,000 people. That idea never came to fruition, but he was successful in popularizing the concept of vertical farming which has lead to new factions within Canadian agriculture stocks.
Is vertical farming a good investment?
More than 20 years have passed since Dickson's initial proposal, and the concept has proven successful. It's much easier to control growing conditions indoors. It minimizes the footprint needed compared to large outdoor crops, which cuts down on farmland costs that other companies might be exposed to, such as some Canadian wheat stocks, and it doesn't disrupt native plant and animal ecosystems as much as more traditional farming. Multiple sets of crops can be grown at once. And you don't need to use as many pesticides. These factors improve crop yields, music to every farmer's ear.
However, there are disadvantages, too. There are substantial costs associated with constructing a building and keeping it in an ideal climate zone. These assets can also contribute to global warming, especially if the energy used to operate them comes from non-renewable sources. Furthermore, a certain amount of technology is required to maximize plant growth. Many farmers, especially older ones, can't run a farm that way.
As the concept gained popularity, these new farmers have found ways to creatively use abandoned space. Recycled shipping containers are an increasingly popular option for hosting vertical farms. Abandoned mines are being used as well; these are called deep farms. And if less office space is needed, those assets could also be converted to house plants instead of cubicles.
Are there any vertical farming stocks?
Vertical farming has the potential to disrupt agriculture forever. It's an area investors should be seriously looking at. Here are four vertical farming stocks that should be on your radar.
The Top Vertical Farming Stocks to Buy in Canada
- Kalera (NASDAQ:KAL)
- Hydrofarm Holdings (NASDAQ:HYFM)
- Appharvest (NASDAQ:APPH)
- Village Farms International (TSX:VFF) (NASDAQ:VFF)
Kalera (NASDAQ:KAL) is a vertical farming company headquartered in Orlando, Florida, operating hydroponic farms and other related facilities that produce various types of lettuce and micro greens. It is a recent addition to the stock market, having completed its IPO in 2022.
The company hasn't gotten off to the most fantastic start.
It burned through much of its IPO proceeds, leaving it with only a tiny amount of cash, significant debt, and long-term lease obligations. It also did a reverse share split and was forced to sell international operations to help shore up the balance sheet.
But it's not all bad news. Kalera plans to bring the company towards being a cash flow-positive enterprise, taking steps like temporarily shutting down production at higher-cost facilities, increasing utilization at other facilities, and relocating head office space to unused offices adjoining an existing farming facility. These moves, combined with a few others, should help decrease expenses by 50% in 2023, which management projects will lead to a cash flow break even by the end of 2023 and positive cash flow from 2024 on.
Kalera is struggling a bit, but these moves, combined with continued strong demand for its produce, should be able to help it right the ship.
Hydrofarm Holdings (NASDAQ:HYFM)
Hydrofarm Holdings (NASDAQ:HYFM) offers investors a different type of exposure to the vertical farming space. The company manufactures and distributes branded equipment and supplies for controlled environment agriculture, including grow lights, nutrients, and various climate control solutions.
Think of Hydrofarm as a modern-day version of selling picks and
shovels to gold miners. The company offers a much safer way to get access to this space. Similar angles exist in many sectors, including Canadian gold stocks, where investors sometimes look for indirect exposure to producers of whatever commodity it may be.
Hydrofarm has been around for a long time. The company has been a farm supplier for over 40 years and has grown net sales by 11% annually from 2005 to 2022. It has also made numerous acquisitions to help grow the business, especially in the last few years, as more competitors have popped up to cash in on the lucrative business of supplying cannabis producers.
Unfortunately, the last few years have been tough on cannabis growers and some Canadian cannabis stocks as oversupply hit the market hard, especially in Canada. Hydrofarm's revenue and profits have taken a hit. The company has responded by cutting costs, laying off about a quarter of its workforce, and selling off certain pieces of real estate.
Appharvest (NASDAQ:APPH) is a sustainable food company operating in Appalachia, developing and operating some of the world's largest high-tech indoor farms. These facilities are designed to maximize crop yields while using 90% less water than more traditional techniques.
The company is expanding quickly, adding three additional
facilities to its portfolio in 2022, bringing the total to four. They cover 165 acres and have helped the company diversify its product offerings. These Kentucky-based facilities grow lettuce, tomatoes, cucumbers, berries, and assorted leafy greens.
Naturally, these new facilities are projected to really goose the top line. After growing revenue from $9.1M to $14.6M from 2021 to 2022, the company's top line is expected to flirt with $50M in 2023. Profitability should come soon after, with these new assets likely contributing to the bottom line in 2025.
Appharvest is well positioned as it awaits profitability. The company has a good-sized cash position and secure debt against its newly built facilities. Cash generated from crop sales should also get closer to breaking even in 2023 compared to previous years.
Village Farms International (TSX:VFF) (NASDAQ:VFF)
Village Farms International (TSX:VFF) (NASDAQ:VFF) is slightly unlike every other vertical farming stock mentioned. The company has been in this space for over 30 years, opening greenhouses to grow produce around Vancouver in the 1990s. It's the elder of the group.
After growing produce for most of its history, Village Farms
pivoted into the marijuana space shortly after the drug was legalized in Canada. It has growing cannabis operations in British Columbia, Quebec, and Colorado and investments in facilities in the Netherlands and Australia. The company also has produce-growing operations in British Columbia and Texas and various partnerships with other vertical farms.
In short, Village Farms is a powerhouse. It owns more than 500 acres of vertical farming assets across North America, producing marijuana and vegetables. It also acquired Pure Sunfarms, owner of one of the top retail cannabis brands in Canada.
Village Farms was able to weather the slowdown in Canadian cannabis sales much better than its peers since it already had most of its greenhouses built before deciding to get into cannabis sales. Most of the debt associated with constructing these assets has long been paid off, giving it a certain amount of flexibility many of its peers do not have.
Finally, the company has a strong balance sheet and reasonable debt obligations. It has been consistently growing the business for years now. It is probably the best equipped of the stocks listed to weather any bad times. That staying power is a good thing in such an uncertain new industry.