“7 Generations”–Sustainable Agriculture Investment Opportunity Offers Unique Business Model

A long-time colleague in the renewable energy space presented me with a wonderful concept in the burgeoning sustainable agriculture marketspace, aka “innovative agricultural technology.”  I thought I’d publish it here, along with a few remarks. 

 

What Does Amazon’s Acquisition of Whole Foods Mean?

Let’s begin by asking ourselves: What are the key implications of this much vaunted $13 billion deal?  Analysts say that it’s about data, but the reason there’s so much high-value data at stake is simple: the growing respect for and understanding the value of good nutrition.  There’s why 14.2 million well-educated Americans shop at Whole Foods at least once a week: the ever-growing demand for high-quality organic and natural food products.

 

7 Generations: The Name of the Company Itself Means “Sustainability”

The company is called “7 Generations, LLC,” honoring the Great Law of the Iroquois Nation, which mandates that every major tribal decision is made on the basis of the welfare of everyone living there now—and for a minimum of seven generations to come.

Before continuing to read here, please take a moment and consider how this is the very definition of one of the most important words in our vocabulary today: sustainability, i.e., fulfilling our needs today without preventing our descendants from fulfilling theirs.  Notice that this concept is almost entirely absent in our Western Civilization, where very few of our decisions take into consideration the well-being of anyone but ourselves and our immediate families, and are made with very little regard to the future viability of our planet and the people who live on it.

The concept of sustainability can only grow from here, as our civilization comes to understand that pushing for infinite growth on a finite planet has horrific consequences for everyone on Earth.

 

The Company and Its Operations

“7G,” as they affectionately call themselves, develops and manages indoor vertical farms. Its team of distinguished cross-disciplinary professionals utilizes hydroponic and LED lighting technology, renewable energy, and innovative building designs to grow vegetables without herbicides, pesticides or chemical fertilizers, and with substantially reduced water consumption as compared with conventional farming.  Their farms will meet the growing needs for such organic produce, and as detailed below, will operate at a lower cost, ultimately disrupting both the soil based-farming industry and the established food distribution chain.

 

Joint Ventures with Native American Tribes Provide a Huge Advantage

7G is currently building upon its established relationships with several different Native American tribes, forming joint ventures whereby the tribes will contribute existing industrial buildings, and 7G will assume the lead project development responsibilities.

Forming JVs with non-tax-paying tribes has advantageous financial impacts for the non-tribal partner, and 7G has established a pipeline of dozens of suitable buildings located throughout the US, with initial indoor farms in Alaska, California, Washington State, New Mexico, South Dakota and Texas.

 

Another Critical JV: The World’s Leading Manufacturer of Hydroponic Equipment

7G has agreed to enter into a favorable joint venture relationship with a best-in-class hydroponic equipment manufacturer: the leading vertical indoor farm developer in China, with an established track record of production and reliable performance over the past several years. The JV manufacturing partner is completing the construction of its 100,000 square foot demonstration farm in Las Vegas, NV, the largest vertical indoor farm in the U.S., which will be operational within the next 60 days.

7G is confident that the combination of its team’s multiple capabilities, operating in tandem with the expertise of this Chinese manufacturing partner, will enable them to scale rapidly, securing a major segment of the U.S. vertical indoor market within the next 18-24 months.

 

Strategic Partnering with Native Americans

The 7G team has several decades of experience with developing projects with Native American tribes. One of the company’s founders, Eugene Wilkie, is from the Turtle Mountain Chippewa Tribe, whose experience is widely respected by tribes throughout the US.

As a result of the team’s extensive knowledge and experience regarding tribal economic development initiatives, 7G’s team is aware that there are a substantial number of existing commercial and industrial buildings on tribal lands which are totally underutilized. Over the past six months, they have confirmed the availability of several dozen buildings, prime candidates for conversion into indoor farming operations, and cultivated a pipeline of over 40 tribes poised to embrace industrial indoor farming fully, which most leaders view as a welcomed alternative to gaming.

7G is currently in the process of solidifying relationships with established distribution and retail companies, which is expected to guarantee 7G favorable long-term premium pricing.

 

Market Overview

The demand for locally sourced fresh produce, free from pesticides, is surging worldwide. In 2014, the USDA estimated a $12B market for locally sourced foods, which is projected to grow to $20B in the US by 2020. In the next 10 years, 50 percent of leafy green production will originate from indoor farms, representing a $42B industry.

The projected runaway success of this industry results from the extremely efficient production associated with indoor vertical farming, such as 70% less water usage, no pesticides, herbicides, or chemical fertilizers, and year-round controlled growth cycles, with harvests numbering 12-18 per year. The comparative land-use economics of indoor vertical farming versus outdoor farming are also astounding, as demonstrated with lettuce production, in which outdoor production generates 30,000 lbs/acre versus indoor vertical production, which yields 340,000 lbs/acre.

In 2017, the worldwide indoor vertical farming market was estimated at $2B and is projected to grow to $13B by 2024, of which $6B will be in the US. The economic viability of indoor farms has been proven in Asia, especially China and Japan, where arable land is scarce. In the past five years, China has established a number of ‘plant factories’ to meet the acute issues of food security and food safety. The Chinese Agricultural Development Bank has pledged $437B in loans and other incentives, through 2020, to finance manufacturing and indoor farm project development both in China and internationally.

 

7G’s Unique Approach to Nutraceuticals

Hippocrates observed: “Let food be thy medicine and medicine be thy food.”  The nutraceutical market in the US in 2016 was $64B and is projected to grow to $102B by 2024, and the essential oils market is demonstrating comparable growth rates.

Utilizing an innovative combination of liquid nutrients, LED lighting configurations, and the expertise of our operations partners, 7G has confirmed that virtually all of the premium plant protein varietals can be grown indoors. Over the next year, they will diversify their production from traditional salad varietals, roasting herbs, and micro greens, to capture a large share of the lucrative markets for nutraceutical high protein plants.

Pharmaceutical and food production companies are locked in competition for this huge market. 7G feels confident that it can rapidly scale dozens of indoor farms designed to meet this need, resulting in a very profitable return on investment. The company expects to execute long-term supply agreements with tier-1 nutraceutical and supplement companies by the end of 2017.

 

The Competition

There have been several dozen first-generation indoor farming companies established in the US over the past five years. Most of these start-ups were hobby farms, with minimal potential for scalability. The potential for scalability for the others has not been established, primarily because of the preoccupation of the investment community in driving the technology components of these farms, rather than focusing upon essential foundational building blocks of successful farms, such as the most efficient building and energy envelope, and low cost production. The July 2017 $200M investment by the SoftBank investment company in the start-up indoor farming company, Plenty, has generated a buzz in the investment community. 7G firmly believes there are no other competitors as well positioned to scale indoor vertical farms and grab a dominant market share.

  

Market Traction

 Over the past six months, the 7G team met with dozens of representatives from tribes from throughout the US. We confirmed the availability of dozens of suitable industrial buildings, as well as the eagerness of these tribes to embrace industrial farming.

7G has entered into its first JV farm project with the Lakota Sioux Tribe located in Pine Ridge, South Dakota, which is contributing a newly constructed 15,000 SF building. 7G is in the final stages of completing site and financial feasibility, as well as the indoor system designs, and has a targeted start date in early 2018.

7G is also currently working on several near-term project opportunities in Albuquerque, New Mexico (100,000 SF 4-building assemblage); a 120,000 SF building 80 miles west of Dallas, Texas; a 30,000 SF building in the Tri-Cities area of Washington State; a 30,000 SF new metal building project opportunity in Sonoma County, CA; and a 32,000 SF building in Sitka, Alaska.

 

Revenue Model

7G will generate profits through three different revenue streams.

• Each indoor farm project will generate a substantial development fee.
• 7G will also generate asset management fees for its oversight of each performing farm.
• 7G will have an equity stake in each farm (often the majority interest) and will realize substantial capital gains as these farms are sold.

7G will also work with a real estate development partner, such as a REIT, to acquire empty buildings (not on tribal lands) and retrofit them to accommodate the indoor farming operations. Such retrofits will include installation of renewable energy generating systems, battery storage, and smart grid software and hardware components. Energy packages will generate very attractive tax benefits to the ownership group of the real estate asset. 7G will obtain an equity interest in the real estate assets and will share in the favorable tax benefits, as well as capital gains downstream as the real estate assets are sold.

 

The 7G Team

A key driver of 7G’s business success is the great breadth and professional experience of its team members.  Their five principals have a combined 200 years of in-depth strategy, execution and success in such diverse matters as renewable energy project development, sustainable project finance across agriculture, energy and water, financial analysis and expert modeling, investment banking, industrial engineering, deal structuring, mergers and acquisitions, legal strategy, real estate development, Native American project development, and Native American economic development program management. The team includes farm domain expertise, with over forty years of in-depth experience in agricultural project development, investment and risk analysis, and most important, control of the operations, production management, and production distribution.

 

Another Solid Cleantech Investment Opportunity

7G seeks to secure working capital to execute upon our existing book of business in the amount of $500,000, in exchange for a 10 percent interest in the company. This group of investors will receive a preferred seven (7) percent annual return, in addition to their equity interest.

7G will finance each indoor farm project separately and has identified multiple sources for such project finance. Additionally, our Chinese hydroponics technology partner, which is owned by a large Shanghai stock exchange traded company (with a $12B market cap), has committed to bringing project financing.

 

Follow Up

As usual, if you wish to speak directly with the deal principals, just hit the “contact” button and let me know the nature of your interest; I’ll get right back to you.