Adding AppHarvest (NOVS) to short bias list
Last week Gotham Greens raised $87M in a new equity series D round and debt capital, bringing the company’s total financing to $130M. Gotham Greens operates high tech greenhouses across the U.S. "Given increasing challenges facing centralized food supply chains, combined with rapidly shifting consumer preferences, Gotham Greens is focused on expanding its regional growing operations and distribution capabilities at one of the most critical periods for America," said Viraj Puri, Co-Founder, and CEO of Gotham Greens. The company’s revenues have doubled in the past year as it has opened greenhouses in Chicago, Providence, Baltimore, and Denver. The company grows leafy greens and herbs like the products below.
Indoor greenhouse companies continue to receive financing, but it’s difficult to see how they are profitable unless they are subsidized or sell high-value crops, preferably that have to be grown nearby like cannabis. Transportation costs are relatively inexpensive in the food supply chain (Our estimate is less than 25 cents to most of the US from Yuma, AZ, the winter lettuce capital). Two months ago, BrightFarms raised $100M in a Series E financing.
The AppHarvest (NOVS) IPO is expected soon, which will bring more investor attention to the emerging sector. Instead of lettuce, AppHarvest has targeted the tomato crop, to begin with. Tomato is the answer to the trivia question - what fruit is produced the most. (Botanically speaking, it is a fruit, but the Supreme Court ruled the tomato is a vegetable.) We are adding NOVS to our short bias list but do not have a firm view of how it will trade when the SPAC closes (expected by year-end or early Q1). In AppHarvest's case, the story sounds better than the business model. For our previous note on AppHarvest, Click Here.
Our updated position monitor is below:
Reyes expands in Indiana (STZ)
Reyes Beer Division closed on the acquisition of Monarch Beverage, Indiana’s largest beer distributor. Monarch distributes roughly 16.1M cases annually to 6,000 retail accounts. Monarch carries Molson Coors, Constellation Brands, Heineken, Mark Anthony, and Boston Beer, among others. Reyes Beer Division is the largest beer distributor in the U.S. We held a conversation with an executive of Reyes last week. He outlined why Constellation Brands has benefited from Reyes’ partnership. Click Here for a replay of our call. Reyes has been an important partner in Constellation Brands’ growth. Even though Monarch already distributed Constellation Brands’ beer, we expect its sales growth to accelerate under Reyes’ ownership in the state of Indiana.
Grocery sales rebound post-Thanksgiving (ACI)
For the week ended December 6, total CPG demand was up 14% YOY, rebounding from +6% for the prior week as seen in the chart below. The edible category was up 12%, up 5% from the previous week. Edibles were driven by the frozen category, which was up 18%. The frozen beverages sub-category was +23% and drove the growth in the frozen category. Beverage alcohol was up 12%, accelerating from +6% for the prior week. The fresh meat department was up 16% YOY and rebounded from +8% in the Thanksgiving week, which was the lowest level during the pandemic. Within non-edibles, health remedies were down 11% and have been lower YOY for the past two months.
