On this week's episode of Industry Focus: Wildcard, host Jason Moser chats with AppHarvest (APPH) founder and CEO Jonathan Webb about the growing opportunity in the agtech space, what makes AppHarvest unique, his vision of the future of farming, and much more.

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This video was recorded on May 26, 2021.

Jason Moser: It's Wednesday, May 26th, I'm your host, Jason Moser, and we've got a terrific interview to share with you on this week's Wildcard Wednesday show. Jonathan Webb is the Founder and CEO of AppHarvest, a company that combines conventional agricultural techniques with cutting-edge technology to address key issues including improving access for all to nutritious food, farming more sustainably, building a homegrown foods supply, and more. Recently, I had the opportunity to chat with Jonathan about the growing opportunity in the AgTech space. What makes AppHarvest so unique? His vision of the future of farming and much, much more. I hope you enjoy our conversation. 

I want to talk with you about in regard to AppHarvest. I don't know that we're going to have enough time, but let's just start first and foremost this is one of our most recent recommendations in our service. I was really excited to be able to recommend it after all of the work I had done on the business, learning more about it, listening to you in your passion regarding this company, I think it would be beneficial for our members, for our listeners to hear it from your own words as the founder, as the CEO of AppHarvest. What is AppHarvest to you? What are you trying to accomplish?

Jonathan Webb: AppHarvest, we're based here in Central Appalachia and we're building some of the world's largest controlled environment agricultural facilities. We believe controlled environment agriculture is the third wave of sustainable infrastructure. 20years ago it was renewable energy. Ten years ago, Tesla made electric vehicles popular in the mainstream, and right now, it's controlled environment agriculture. We have to figure out how to grow a lot more food with a lot less resources and we can use that by utilizing technology and infrastructure to grow fruit and vegetables with 90% less water and get about 30 times yield per acre. We're focused on bringing that production back from Mexico that has been shifted outside of the U.S. and bring that back into the U.S. in a controlled environment. Then I got to mention the area we're in, Eastern Kentucky has been known for coal mining for decades, it was known as the whole country, so to speak, and empowering the U.S. through the industrial revolution with low-cost coal. Now, we want to turn this region into an area of the country that's known for sustainable food production, but beyond just loving the place, I'm from Kentucky, beyond just loving this area, we can get to three quarters of the U.S. on a day drive. We're building these facilities here where we can access markets and get to about three-quarters of the U.S. on a day drive.

Moser: It's impressive to think about the scope of what you are taking on because agriculture, farming, that's been something for so long, people just think, well, it's just what it's always been and we do it this way because that's the way we've always done it. Those are always famous last words as we move into some disruptive phase. To me, at least, it feels like we are at the [...] of a disruptive phase here, and a lot of that is thanks to technology. We'll talk a little bit about your quarterly results here in a minute because I want to get into that, but one of the things that stood out to me in the earnings call. As I was listening, there was a quote, you said, "We are farmers and futurists." That to me, was in a nutshell what it's all about. Because our services are focused on technology, 5G connectivity, and all of the different benefits we're going to get from that. I was hoping maybe we could talk a little bit about that idea that you're farmers and futurists. What's the technology that you are looking toward to help you change this space?

Webb: Well, the last great technological revolution in American farming is really when the tractor was introduced. There has been nothing more impactful on farming since that time, and now, it's AI robotics and using data to make decisions. Visualize our facility in Murray, Kentucky, it's 2.8 million square feet, nearly 50 football fields under-glass. We're farmers, we are growing fruits and vegetables, and we're utilizing sunlight, we're utilizing rainwater. But the futuristic pieces, we've combined a technology team with a great plant science group. Yes, we're using nature for what it's good. For example, we use integrated pest management, good pest to kill bad pest. We use bees to pollinate our plans. We use completely recycled rainwater. But then there's the other side, and introducing robotics that's operating on AI, that's collecting data in our facility and making data-driven decisions. For young people, we've invested heavily in high school education here in this region and part of it is, we're not just building facilities, we're building an ecosystem and part of that is change the narrative that farming is simply outdoors and on a tractor, we very much respect American farmers, we have great respect for the four-season farmer that's putting food on our table but we have to get young people to think, the average age of the American farmer is about 60 years old, and so for us by investing in high schools, it's teaching young people you're operating a farm with an iPhone and iPad using industrial sensors, with robotics operating on AI. That's, for us, again, there's a piece where we need to be very close to the product and that's we're optimizing for the plant. But then it's pulling technology in to drive nature from behind.

Moser: Yeah. It's so cool to think about what you guys are doing there. I know that you're not the only one focused on controlled environment agriculture. I think we have seen some other players in the space that are starting. This is still a very new space though. It feels like this is something that really is just getting some traction here. I made the point at one point in regard to AppHarvest. You came public a lot sooner or probably that you would have had the opportunity to even 10 years ago. The SPAC opportunity, let you, I think, become a publicly traded company maybe sooner than you really felt like you needed to. But I think there are a lot of benefits that come with that. Even though you entered at such a young stage of your business, You essentially were pre-revenue coming into the public markets, and now, you're just getting that started. Is there a benefit? How do you feel about coming public a lot earlier than you probably would've normally?

Webb: Well, we built the company from day one. I was very fortunate. We were just talking earlier and you mentioned how you're in the DC area, it was fortunate that we had Steve Case, the founder of AOL, and he fundraised the rest. His fund's based in DC, we had them as early investors. Then Jeff Obin, who is on our board and has been an early investor. Many of our early investors have been very helpful with the company, and we knew that we are not just building one facility, we're building an organization that's going to go toe-to-toe with agriculture and food, globally. As part of that, in order to bring trust and transparency to agriculture, you have to be a public company. There's a level of rigor that comes with that, and so for us, the SPAC was just a vehicle. There's a lot of different ways to go public and at the time and we did it, and I think it was definitely the best decision for us at the time. We could've raised capital privately on the balance sheet and kept building. Let's force that rigor early. Let's let the consumer of our product also be the buyer in our company. Let's prove to the world what we're doing through results and even that, our first quarterly earnings call today, there's a level of rigor that you're acquired through the public markets. We thought in order to build an organization that's going to be selling to the top grocers. We're selling to Kroger, we're selling in fast food chains like Wendy's. If we're going to be working with the largest players in the world, then we need to be in the big leagues, and the only way to do that is to be a publicly traded company. 

Earlier this year we did get listed on the Nasdaq. I've tried to say, we have a team that looks at this as this is our 30-year journey here at AppHarvest. We're in our first decade and we're going to try to look at judging the company on decade one, decade two, and decade three. The world's food and agriculture problems are not going to be solved overnight. They're not going to be solved in a month or a year or a quarter and we just want to build an organization that's going to be able to go toe-to-toe with the larger incumbents out there, and the best way to do that is to have that rigor of being a publicly traded company.

Moser: Yeah. Well, I mean speaking of a publicly traded company, you just released your first-quarter results, and I think this was your first full quarter as a publicly traded company. I'm sure it was an exciting time. Just wondering if you could share some of the highlights, some of the things you're proud of in regard to this earnings release, and your excitement here for the year to come.

Webb: To put this in perspective, this was our first facility under operations, our flagship facility. Then by the end of the year in 2022, we'll have five facilities operating. We're ramping up and scaling quickly. But in order to prove to our investors and prove to our shareholders and broader stakeholders, for us, it's about meeting our targets, and I've tried to say AppHarvest, we're in the business of delivering on our promises. We hit our Q1 guidance, $2.3 million in revenue. We're ramping up this first facility in the middle of a global pandemic, we had an ice storm. If people remember that ice storm back in February, our facility operated, ramping up into full capacity with no issues in the middle of a global pandemic and the middle of an ice storm. For us, this year, it's less about the dollars and more about hitting our targets and we were able to hit our Q1 guidance and ramp up our facility to, later on, this year by Q4, we'll be at full capacity in Q3 and Q4, selling tomatoes out of this facility in more Kentucky.

Moser: That's exciting. I'd tell you, we go through tomatoes, handover, [...] in my house alone, I'm sure. I'm looking forward to being able to find more and more of these AppHarvest products in our grocery stores as we move forward. I have no doubt that we will. One of the things we like to discuss as investors and when we find companies, we find businesses that we like and we want to be owners of. I think you really keyed in on something important there, a 30-year journey. I mean, that is right in line. You are speaking our language here at The Fool. We take that long term approach, we don't view things by quarter. We look at them over the course of time, years, and hopefully, decades we can be a part of that journey with you all. But one thing we'd like to talk about is competitive advantage, what makes a company special? I feel like with AppHarvest, at least, my takeaway, I found a lot of things that make you all special. But I wonder, is there something to your mind? What's that Harvest's secret sauce? What's your competitive advantages or something you feel differentiates you from your competition? Is there any one thing or is it a collection of many things?

Webb: Well, I'll start by saying, anyone that is growing good, clean produce, without harsh chemical pesticides, I try to call them my colleagues, not competitors. The same way there won't be one energy company powering the world. There won't be one automotive company transporting the world. There's not going to be one food company feeding the world. But with that said, what we have at AppHarvest is fairly unique. One, our geographic location. We can get to 70% of the U.S. in a one-day drive. We've had record amounts of rainfall. You look at California and the Southwest of the U.S., drying up, drought-stricken, flagged by wildfires. We've moved most of our fruit and vegetable production down to Mexico and we're importing and shipping in 2,000 miles. But the production we've left in the US is being grown in areas that are running out of water. Here, we've had three years out of the last ten years in Kentucky have been our wettest years on state record. We've had one of our wettest decades on state record. We're building infrastructure in an area of the country where we're having record amounts of rainfall, and if you look at the climate maps, we continue to get wetter. Why is that important? 95% of a fruit and vegetable is water. 

We're really in the business of packaging up water and then shipping that out to major markets and then beyond that execution at scale. My background was a part of building some of the largest solar projects in the U.S. David Lee, who joined us from Impossible Foods, joined impossible foods five years ago as their CFO and COO raised them nearly over $1 billion in the last five years and turned them into what was a boutique idea, into a mass-market product on store shelves. Our team is built to scale and you look at where we're at today, we've launched our first facility. By the end of next year, we'll have five operating facilities. Then we have to remember this isn't just a U.S. problem we're trying to solve. We're going to be based in Central Appalachia. That's our headquarters. But if you look at the world, China and India account for 40% of the world's population. They have 10% of the world's freshwater. 

Most countries in the Middle East import nearly all of their fruit and vegetables. We're laser-focused on getting this right here. We're going to be headquartered in Central Appalachia, execution at scale here in the U.S. but this is a global problem that we've gotten phone calls from around the world about how and when we can take our solution and go elsewhere. We'll head down here and then I would start or I would end with what I started with. There's going to be a lot of companies hopefully working to solve our food and agriculture problems. We just want to be one of those and we're cognizant that there's going to be plenty of large players. But if you look at the current food system today, it's high fructose corn syrup, it's sugary food that has low nutrient density. These food companies today are like the cigarette companies 40 years ago.

Moser: Yeah.

Webb: Regulators are pounding on them, consumers are pounding on them. I would not want to be one of those large operators and food today when you see the consumer trends changing as quickly as they are, and we feel very optimistic again about where our growth trajectory is. We just have to keep our head down and execute and do our job every day here at AppHarvest.

Moser: Yeah, I'd tell you, I think you're right. I mean I'm glad you keyed on the fact this is a global situation, it's a global issue. As investors were looking for the biggest market opportunities we can find, market opportunities that are growing. To me, this feels like just that, a growing market opportunity that is global in nature, and really the opportunity, just getting started. I did want to know here because I saw this in the earnings release and I just thought it was one of those quotes that stood out to me from Mastronardi, your distributor. The president and CEO, Paul Mastronardi said, "We want every AppHarvest tomato they can grow. We have high demand for U.S.-grown and pesticide-free produce already, and when you combine that with the taste, color, and freshness of the AppHarvest model, on top of their social mission, it's driving our customers to ask for more." I mean, I think that kind of speaks for itself.

Webb: The industry is at an inflection point. If you look at the largest grocers in the U.S., we're selling to Kroger, Walmart, Publix, and we're selling to Wendy's. We've just been selling product for a matter of months. We're in that classic scenario of demand exceeding supply. If you look at the grocery and then you go, wait a second. Why? If I can sell you a grocer, a product at around the same price, what are we solving for? Look at the open fields in Mexico. You have climate disruption. Are you going to have drought? Is that drought going to impact yield and you don't end up being able to get product to the grocery store? You have food safety concerns. Look at how many times in the last few years you've had leafy greens yanked off store shelves. You've had fast-food chains, that is one of the biggest risk to a grocer is the paranoia and being terrified of where that product is being grown. You have labor concerns. 

My competition in Mexico, you have people getting paid $5 a day. You talk about sustainable. We're feeding our country with people in Mexico who are making $5 a day. You have illegal chemical pesticides where the EPA cannot track the chemicals being used on these farms in Mexico. It's nearly impossible to have full transparency. If I'm a grocer and I'm saying U.S.-grown in a controlled environment we solve for all that. Now, our job is to make sure it's at around the same price. I'm one of those people growing up I went to public schools here in Kentucky. I graduated from the University of Kentucky. Most people every day are just concerned about can they put food on the table? Our job at AppHarvest, we need to make sure that we're keeping prices at a fair, good place where we're at today. They can be competitive. We want to be selling to 90% of America. We don't want to be selling just to the high-end. I know you're in the DC area. We love DC, but we don't want to just be selling to the high-end restaurants in DC. We want to be at Wendy's, we want to be at Walmart. We want to be at Kroger. In our first month or two, we're already at all those outlets. Again, for us, it's about keeping our head down, growing good fruit and vegetables. But if you look at all the problems in the agriculture system, this industry really solves most of those problems.

Moser: Yeah. I pay attention to my kids. I have a 16 and then going on 15-year-old daughters. I watch them, I watch their friends, the things that they care about. Clearly, the younger generation is coming up, sustainability matters, better food matters. I mean, all of the stuff that you just talked about really does matter. I think that's going to be something that just continues to get into the public's mind. We'll talk a little bit about that in just a second. But I wanted to ask you before we do, the Root AI acquisition. I encourage anyone to go out there Google Root AI and go check out the videos of what some of this stuff does. Because it is cutting-edge technology. I don't think anybody thinks of farming from this perspective. How excited are you to bring that Root AI company in their leadership into your family? It sounds like there's a lot of potential there.

Webb: We could not be more excited. If you look at AppHarvest, what are we doing? We're building large facilities to grow fruit and vegetables running completely on recycled rainwater using LED lights, software, and sensors. But then what have we done with Root AI? We've been able, very fortunate, a very talented team, MIT team out of Boston that has a proven track record and great products that we've integrated them fully into the AppHarvest team. Again, for their CEO, for their team to say to them not just about money, we can have more impact at scale with AppHarvest and achieve our mission and achieve our goals by working together. We've been very fortunate and humbled that the Root AI team is fully a part of the AppHarvest team building robotics that's operating on AI, collecting data. Visualize this, down the rows of our facility, we have a robust that's going to take thousands of photos of a tomato plant. Again, tomatoes are our first crop, but by next year, strawberries and leafy greens. Going down, scanning the plant, pest, is there a disease, brightness? Not only picking, pruning, harvesting, being able to actually get the tomato off the vine, and ultimately, shipped out, but also the predictive analytics that we can use. 

Instead of just being able to tell a grocer 24-hours in advance here's the quality of product and here's when it will be shipped, with robotics going down the rows scanning the plants, we'll be able to get to days out and weeks out of being able to predict the yield, predict the quality, give more information to the grocer on when that product is going to be coming. Again, if you look at the U.S. right now, this is a USDA statistic, nearly 40% of fresh fruit and vegetables end up in a landfill. That's because of our inefficient systems in the supply chain. By being able to have robotics and AI they can have more real-time information. We can better understand what product we are going to have available? When is it going to be able to ship? Then we'll be able to give that data over to the grocer in more real-time. Very excited about the Root AI transaction. Again to some of your viewers that aren't aware of Root AI just look them up and take a look at some of those videos.

Moser: Yeah, absolutely. I know you're busy. I don't want to keep you all day, but before we wrap it up, I did want to talk to you a little bit about ESG, environmental sustainability governance issues. This is becoming really a hot-button topic for a lot of investors, rightly so. It's a nice evolution in the investing world that we care more and more about it. It means transparency. It means being a little bit more upfront with your investors. You've taken a lot of steps early on in the development of your business to address a lot of those ESG concerns. Talk a little bit about what ESG means to you and some of the things that you've done, because corporately you set your business up to be able to account for some of that transparency and whatnot.

Webb: You said you didn't want to talk the rest of the day about ESG, right? [laughs] This is something I'm very passionate about.

Moser: Yeah.

Webb: We've been very fortunate that some of our investors and board members, Fidelity was the largest investor in our pipe during the public process, Jeff Ubben of Inclusive Capital, our Chief Sustainability Officer, Jackie Roberts came to us from the Carlyle Group, we're all very serious about this. Part of it is we're building companies not just for today and not just for the quarterly earnings call today, we're building this company for the next generation. In order to do that, you have to have rigor. You have to judge yourself internally. We're a public benefit corporation, and we're B Corp certified. We're one of four companies that are publicly traded that have both of those as a company. For us, we're looking at metrics, how can we be more sustainable? But to our investors the question and I got this on the roadshow, I'm in this to make money, great. People, planet, wonderful, but I'm trying to make money. My answer to that is always; sustainability is profitability. By us running on completely recycled rainwater, we have no water cost. All of our water is captured on our roof. Putting a retention pond, we filter it with no chemicals and we're able to run our facility. We pay every employee at AppHarvest a living wage. Everybody has full healthcare. 

I asked on a call earlier today, well, have you had issues hiring people? No. We've had 8,000 people apply to work at the company and we've hired 500 people in the middle of a global pandemic. We're investing in our workforce. Yes, maybe we're paying marginally more in the short-term, but that workforce is the one that's beating production targets daily. It's the workforce that we're going to use to grow the organization. Again, the private markets get a very bad rap socially. The private markets can be a part of every solution we have that we're seeing today. The private markets don't need to be a part of the problem, but we can't just be quarterly earnings focused. Yes, today, we met our quarterly earnings projection, we hit our guidance, but we're making the hard investments and spending the hard time to set an organization up that's going to thrive 10 and 20 years from now. We need to all collectively have a much more longer-term viewpoint on how we're building companies that are going to be good for communities, good for employees, and return a good return to our investors and shareholders. But for us, it's not a back-and-forth, it's not OK, well, I'm going to invest in an ESG company and I'm going to sacrifice profitability. No. That's not the conversation at all. 

ESG should be at the core of profitability and it should be at the core of building a resilient company. We have a lot of work to do ahead of us over the years to come. But being true to our ESG values, we think it is a competitive advantage and going to make us more competitive in the years to come. The last thing I would say to that is whether or not we want to do it or not, the world is changing and regulators are approaching back. Consumers are pushing back. You mentioned your children. People are becoming more and more aware of where they get stuff and for people that question how quickly a sector can transition, I have a lot of friends that worked in the coal industry. I'm sitting in the heart of coal country right now. Almost every company in the coal industry has gone bankrupt over the last 10 years. That's how quickly the energy industry shifted. Again, if we look at agriculture, there's a lot of trouble in our current agriculture system and we can use ESG metrics to clean up our food supply and create better food systems. We can also do it by returning investors to our shareholders. It doesn't need to be one or the other, it needs to be both, and we're happy to be a bit of a public benefit corporation and B Corp certified.

Moser: I guess you're saying, and a lot of us would agree, you can't have your cake and eat it too. This is the direction in which the world is going, so companies better get on board [laughs] or get out of the way.

Webb: That's right.

Moser: Well, you said it on the call. You said that we're a technology company working to disrupt agriculture. I love that passion. I love your long-term focus. I think it's clear that investors should really be excited for the future of AgTech. We always talk about investing for the future because that's really what investing is all about. I like thinking about a future where AppHarvest and companies like you all are helping make our food supply not only here domestically, but really around the world better, more reliable, more transparent. Jonathan, thank you so much for taking the time out of your busy schedule to see just more about AppHarvest to talk about all the stuff that you're trying to accomplish there. I'm really excited to have you all as a recommendation in our service and hopefully, our members are too after talking with you today. I think they certainly will be.

Webb: Well, thank you and thank you for having me, and we've got a lot of work to do here, but I can assure you we're head down building and look forward to continuing the conversation another time.

Moser: That's going to do it for us this week, folks. To learn more about AppHarvest, you can visit appharvest.com. Remember, you can always reach out to us on Twitter at @MFIndustryFocus, or drop us an email at [email protected]. As always, people on the program may have interest in the stocks they talk about and The Motley Fool may have formal recommendations for or against, so don't buy or sell stocks based solely on what you hear. Thanks as always to Tim Sparks for putting the show together for us. I'm Jason Moser, thanks for listening, and we'll see you next week.