Indoor Harvest Corp.: Growing an Attractive Business on a Shoe-String Budget
March 7th, 2016
News, Top News
Indoor Harvest Corp. (INQD) was founded by Chad Sykes in 2011 after working investor relations for Sino Agro Food (SIAF), the world’s largest indoor fish farming company and then briefly provided consulting to Angel Eyes Produce, the first organic certified vertical farming operation in the U.S. With fresh insights into modern trends in agriculture and following the failures in vertical farming by companies like VertiCrop and TerraSphere, Mr. Sykes realized that a “one-size-fits-all” approach doesn’t work for every grower and he set out to develop fixture components that could be combined in many different ways to meet customer needs.
Mr. Sykes positioned the Company as a Design-Build, Engineering, Procurement and Construction contractor that is hired to design and build the system from these components that meets a client’s individual needs rather than selling an off-the-shelf solution. In addition, the Company has focused on incorporating cutting-edge technologies like aeroponics – which both reduces costs and increase yields – and providing project financing through a commercial lender to its customers, even to cannabis producers – which he believes removes a key sales barrier.
The Company has spent the past three years building out its technology platform and acquiring initial customers, while spending less than $2 million, according to its latest 10-Q SEC filing. While many micro-cap companies raise toxic financing and pay exorbitant salaries, the Company owes on just one $35,000 bank loan, holds more than $120,000 in cash, and has averaged a monthly cash burn rate of just $60,000 over the nine-month period ending September 30, 2015. In a recent presentation filed with the SEC, the Company disclosed a $5M+ sales pipeline and in its most recent 10-Q SEC filing disclosed revenue for these projects had commenced.
In this article, we’ll take a look at the Company’s innovative approach to vertical farming, plans to generate near-term revenue, and why investors may want to take note.
Indoor Harvest has focused on aeroponics as a way to reduce water usage, which results in lower fertilizer usage and improved plant yields. In layman terms, the technique involves spraying a plant’s roots with a very fine mist that makes water and nutrients more readily available. The approach, originally developed by NASA, provides both economic benefits and the ability to quickly conduct research, because the results can be immediately observed in the plant.
Based upon the Company’s testing, the grower benefits from up to a 70% decrease in fertilizer usage and a 30% to 40% faster growth cycle that increases yields. According to Mr. Sykes, these dynamics can translate into an 80% decrease in the cost of goods for growers and a 150% increase in biomass production for most cultivars. In other words, growers benefit from both increased top-line revenue and an improved profit margin from the sale of their crops. These results are based upon seven technology pilots undertaken, including two conducted by MIT CityFarm and another two with Canopy Growth.
Aeroponics can also be used to fine-tune the chemical make-up of plants by carefully controlling all of the inputs to a degree not possible with hydroponics or soil grown. For example, cannabis growers can leverage the technique to optimize for THC or CBD content rather than optimizing for the size or number of flowers. These attributes may be highly desirable for cannabis companies focused on plant extracts rather than raw size or physical yield.
These approaches differ from competitors in the cannabis industry, like GrowBlox Sciences Inc. (GBLX), which are focused on modified commercial HVAC systems and self-contained cultivation technologies, respectively.
Road to Commercialization
Indoor Harvest’s deep expertise and unique approach has landed it some large initial strategic partners, including Canopy Growth Corp. (CGC) (TWMJF). As the largest licensed producer of medical marijuana in Canada, Canopy Growth represented an ideal opportunity to conduct R&D and document the tangible benefits of its technology platform with cannabis. The Company believes it can then more easily go out and market the platform to countless other companies in the burgeoning cannabis industry.
According to its 10-Q filing, the Canopy Growth pilot project presented some compelling findings growing Ghost Train Haze, a sativa dominate strain:
Fertilizer usage was reduced by as much as 68% with the system averaging 8 gallons a day under high pressure sodium and 9 gallons a day under LED, operating drain to waste. As tuning of the system progressed, average water use was reduced to approximately 5 gallons per day drain to waste. The Company believes that through additional tuning, more water savings for drain to waste and under recirculated operation can be achieved, and water use could be reduced by as much as 98% overall. Under 2,000 watts of high-pressure sodium lighting, the aeroponic system produced 3.1 pounds of dried flowers and under 1,040 watts of LED lighting produced 2.8 pounds of dried flowers in its initial test. The Company believes that with additional tuning, yield can be increased.
The Company’s agreement with Canopy Growth would be to develop the IP for the process specific to cannabis. Canopy Growth will have the rights to all licensing outside of the U.S. and Indoor Harvest will retain the licensing rights inside of the U.S. The Company will also have exclusive manufacturing rights to all systems for a period of ten years, which it believes could generate additional revenue over time.
In March, Indoor Harvest announced a separate agreement with the City of Pasadena, Texas to build an indoor agriculture facility that will consist of a non-profit vertical farm R&D facility and classroom and office space. The Company will serve as the primary design-build contractor for both the initial project and future projects in conjunction with City Farms America and EB5 Solutions – groups that hope to turn the project into a multi-state model.
Indoor Harvest Corp. has also established working relationships with key leaders in their respective industries, such as Illumitex, Freight Farms and recently IGES Canada. These alliances show the Company’s ability to secure business-to-business relationships that can provide additional project deal flow. The Company also secured the ability to provide financing for both produce and cannabis related projects through a reputable commercial lender, Noesis.
The Company believes that all these factors combined will give Indoor Harvest a competitive advantage.
Indoor Harvest represents a unique opportunity both in the cannabis industry and in the wider agricultural industry. With an innovative approach and technology, the Company has proven early efficacy through agreements with leading growers like Canopy Growth and is well positioned to begin commercializing the technology over the coming quarters. The Company encourages investors to take a closer look at the stock, as a key tipping point could be when the Company begins planned commercialization of the technology over the coming quarters
For more information, visit the Company’s website at www.indoorharvest.com.
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