AppHarvest Goes Public in USD 1bn SPAC Listing –

Agtech Outlook – 22 April 2021

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Specialist:

Title:

Moderator: Nyree Hinton (NH), Third Bridge Sector Analyst

Robert Colangelo (RC)

Founding Farmer & CEO at Green Sense Farms Holdings Inc

Agenda:

1. AppHarvest’s (NASDAQ: APPH) business combination with SPAC (special purpose acquisition

company) Novus Capital

2. Agtech overview and competitive landscape

3. M&A opportunities

4. ESG (environmental, social and governance) innovation

Contents

Q: Could you start by defining CEA [controlled-environmental agriculture] and the investment and capital

allocation interest it has received relative to the wider agtech industry?

Q: Can you break down key innovations in CEA and the industry’s top players?

Q: Could you elaborate on innovation drivers and new opportunities in the CEA market?

Q: What were the key pre-coronavirus trends in CEA, and how have they evolved since March 2020?

Q: Could you share an overview of AppHarvest’s business and the various categories it operates in?

Q: How did you evaluate AppHarvest’s decision to go public via SPAC in February 2021? How should we assess

its USD 1bn valuation against a potential net revenue of USD 2.1m-2.6m in Q1 2021?

Q: What do you think differentiates AppHarvest from other CEA companies?

Q: Could you outline the environmental challenges within agriculture that AppHarvest is hoping to solve? 6

Q: How do the unique controlled indoor farming companies stack up against legacy field farm businesses?

You noted the different margin profile for CEA, with higher upfront costs facilitating lower operating costs. 6

Q: Which crops do you think represent the best opportunities for indoor CEA to utilise?

Q: Do you anticipate any headwinds to AppHarvest’s portfolio execution, innovation or partnerships? Which

of those areas could represent the biggest challenge, given its valuation and the new market entrants?

Q: How has CEA broadly evolved over the last five years?

Q: Can you elaborate on the supply-side constraints limiting farmers’ ability to meet growing food demand? 7

Q: There has been significant investment in CEA over the last five years, as you noted. Do you think investors

are realising a return on invested capital? Are they instead still in a stage of continuing to funnel money and

hoping for some substantial market-changing innovation down the line?

Q: Which of the structural goals that the CEA industry is targeting do you think is the most important, whether

in driving lower environmental impact, higher efficiency or resilience?

Q: How would you characterise farmers or start-ups’ adaptability or willingness to continue implementing

new technologies in their respective areas or companies? You referenced investments in software start-ups

where barriers to entry are high, and that they don’t necessarily need to manage it with high labour costs. 8

Q: Would you say the CEA industry is innovating as quickly as it is capable, in physical technology or food

products? With the latter, we’ve noted divergent innovation rates in plant-based meats vs plant-based

nutritional snacks and dairy products, for example. How quickly are innovations coming to light in CEA?

Q: What are typically the major cost buckets for vertical farms or CEA? How are these being mitigated?

Q: How hard is it for these players to establish new relationships with grocers to get their products sold?

Q: What are your thoughts on AppHarvest starting production with tomatoes?

Q: Which other high-margin crops do you think would be well-suited to AppHarvest’s strategy?

Q: Can you elaborate on AppHarvest’s competitor set of well-established peers and new entrants?

Q: What is your outlook for potential policy implications with more stringent quality requirements for large

traditional producers? Could such developments strengthen the opportunity for small-scale CEA farms?

Q: How is the CEA landscape developing in international markets? Is this very much a US trend, or has there

been an explosion of this farming type in Europe or Asia?

Q: What is your outlook on deal activity and potential M&A – particularly bigger players scooping up start-

ups and implementing their technology or resources at a far larger scale?

Q: Can you outline the opportunity between the cannabis and vegetable industries? Would you anticipate

some of these farmers with the right resources switching over to just producing cannabis, or are there high

barriers to entry given the regulatory environment?

Q: What are your best- and worst-case scenarios for AppHarvest and CEA over the next six months?

Q: How do you expect AppHarvest to utilise the USD 400m or USD 500m cash it has raised?

Q: Are there any commonly overlooked aspects of CEA that you think investors should be aware of?

AppHarvest Goes Public in USD 1bn SPAC Listing –

Agtech Outlook

Transcription begins at 00:00:00 of the recorded material

NH: Welcome to Third Bridge Forum’s Interview entitled AppHarvest Goes Public in USD 1bn SPAC Listing –

Agtech Outlook. I am Nyree Hinton and I will be facilitating today’s Interview with Mr Robert Colangelo,

Founding Farmer and CEO at Green Sense Farms Holding Inc.

Robert, before we get started with today’s Interview, please state I agree or I disagree to the following

statement: You understand the definition of material non-public information and agree not to disclose any

such information, or any other information which is confidential, during this Interview.

RC: I agree.

NH: Could you start with a brief overview of your background and your various roles across the industry?

RC: I have a master’s degree in hydrogeology. Started out at Argonne National Labs doing a wide range of

research. Went into environmental consulting cleaning up hazardous waste sites and groundwater and soil

cleanups. Went off onto my own as an entrepreneur, started several companies, all in the environmental field.

In 2010, started Green Sense Farms LLC. We were the first and largest indoor vertical farm that produced

commercial vegetables in the Chicago land area. In 2018, I founded Green Sense Farms Holdings, which is

focused on doing contract research on different cultivars to grow indoors. Also, we design and build

controlled-environment agriculture facilities which can be either a standalone greenhouse or a standalone

vertical farm, or a combined facility. I also have a radio show called Green Sense which focuses on

sustainability and eco-innovations.

[00:02:53]

Q: Could you start by defining CEA [controlled-environmental agriculture] and the investment and capital

allocation interest it has received relative to the wider agtech industry?

RC: CEA or controlled-environment agriculture is probably one of the hotter investment areas currently. If

you look at Wikipedia, its definition is controlled-environment agriculture is a technology-based approach

toward food production. The aim of CEA is to provide protection and maintain optimal growing conditions

throughout the development of the crop. Production takes place within an enclosed growing structure such as

a greenhouse, a warehouse or a vertical farm. The simple definition in my mind is controlled-environment

agriculture spans the spectrum from a simple hoop house to a complex vertical farm. Basically, what you’re

doing is creating an environment that is perfect for the plant to grow where it’s not impacted by outside

conditions. On the left side, when you’re looking at different types of greenhouses, they have less of a control

on the environment because they still rely on the sunlight and they still rely on the atmosphere when they have

to vent their facilities.

Vertical farms, on the other hand, are on the far right side. They’re totally controlled environments in which

the LED lights provide the light for photosynthesis and the structure is contained so that you can get optimum

growing conditions by achieving the right temperature and relative humidity as well as CO2 enrichment and

controlling the cleanliness of the facility. That gives you an idea of the spectrum, and it’s become very hot for

investors because, especially with COVID, everybody is looking to shorten the tail of the supply chain and grow

locally. With these enclosed facilities, you can grow locally and you could also conserve soil and water, which

Private and confidential 3

are precious resources as the population continues to grow.

[00:05:27]

Q: Can you break down key innovations in CEA and the industry’s top players?

RC: I’ll break it out. On the greenhouse side, there’s a lot of look at artificial intelligence to identify crop

deficiencies using cameras and AI to spot a problem before it becomes an outbreak in the facility. There’s a lot

of looking at robots for harvesting and moving, conveyance of young plants and finished produce out of the

farms. There is increased interest in climate control software so that you could have optimum growing

conditions at all times. On the vertical farming end, there is a big push for mechanical climate-control systems

that can regulate both temperature and relative humidity. There are many manufacturers looking at the LED

light segment since you don’t have sunlight, so you have to power these facilities with LED lights. Both

greenhouses and vertical farms are very concerned about energy conservation and being able to have less

impact on the environment through their energy use. That gives you a little bit of an idea this is a very broad

spectrum. There are lots of different sub-parts to the marketplace, so as a quick overview, that’s what I would

provide.

On the competitive side, if we look at greenhouses, just at tomatoes, you’ve got companies like Mastronardi or

Sunset Grown Produce, Bright Farms, MightyVine that are really focused on tomato production. On the

lettuce side, you have T&A and Hollandia and Taylor Farms that are focused on lettuce production. On the

vertical farm side, there are many players in the marketplace. Some of the better-capitalised players include

Plenty, Bowery and AeroFarms and they’re larger scale operations. The other ones are much smaller and

regional. That should give you a good overview of the landscape.

[00:07:58]

Q: Could you elaborate on innovation drivers and new opportunities in the CEA market?

RC: The drivers in the market are that this is a very competitive market space. This is a pennies business.

Most people in produce production are large scale and they’re making their dollars on volume. If you’re not a

large-scale producer, either you have to have a niche product or have a special technology that allows you to

grow efficiently and be cost-competitive. Everything in this industry is geared around OPEX and CAPEX, and

the typical rule of thumb in both a greenhouse and a vertical farm is if you spend more on your CAPEX, it

should reduce your OPEX. Either you spend more money upfront and you’ll spend less money on your

operations, or you’re going to spend less money on your upfront build-out and design, and then you’re going to

spend more money on your operations.

[00:09:13]

Q: What were the key pre-coronavirus trends in CEA, and how have they evolved since March 2020?

RC: There has been a lot of fame and spotlight on vertical farms and recently I’ve seen that shift more towards

greenhouses. Vertical farming has been around, on a commercial production basis, maybe 10 or 15 years.

Greenhouses are just shy of 200 years old and they’ve been around a long time, but they’ve never really gotten

the attention that they deserve. You started to see a lot more investment and attention to greenhouses. The

vertical farms are the new kid on the block with the shiny new technology and everybody is attracted to those,

but greenhouses have been around a long time and they’re maturing and getting a lot more sophisticated, so

they’re becoming good vehicles for production. Each one of those vertical farms and greenhouses have their

place in the marketplace. What I noticed, the other trend is that you’ve got a division, either a grower is very

big and is producing large volume, or they’re small and niche and regionally focused. There’s a big push for

Private and confidential 4

locally grown pesticide-free produce, so that is giving a lot of interest to the vertical farming because you can

build those anywhere. Greenhouses tend to take a lot of space.

The other thing we’ve seen post-COVID is that if you were supplying to the grocery stores, you did extremely

well. If you were providing produce to produce companies or institutional kitchens, your business was in deep

trouble. Because of COVID, everybody was staying home. A lot of the restaurants, the schools, the country

clubs, large institutional corporate kitchens, they just weren’t operational. I think a lot of growers are trying to

look at how to get diversified into their buyer mix.

[00:11:46]

Q: Could you share an overview of AppHarvest’s business and the various categories it operates in?

RC: This is just my opinion. I’ve never visited AppHarvest, but I talk to a lot of people in the industry and read

a lot of its literature. When you look at their website, AppHarvest is an applied technology company building

some of the world’s largest indoor farms in Appalachia. I know them more as a produce company that’s

currently focused on tomato production and marketing and sale of those tomatoes and trying to brand that

image.

[00:12:35]

Q: How did you evaluate AppHarvest’s decision to go public via SPAC in February 2021? How should we

assess its USD 1bn valuation against a potential net revenue of USD 2.1m-2.6m in Q1 2021?

RC: SPACs, or special purpose acquisition companies, have pros and cons. I would say, vs an IPO, there are

pros and cons. The pro is that it’s much quicker, you can raise capital through a SPAC in 2-3 months, and an

IPO could take as long as 2-3 years. They’re less expensive. The IPO process is very costly. The SPAC is much

less. It provides, I think, great opportunities to large hedge funds and institutional investors because if they get

in on the SPAC early, then they are typically given warrants that allow them to buy additional shares in the

future at a steep discount. I think the cons of a SPAC are that it quickly turns a company, since you could raise

capital very quickly, from a private company to a public company. When you go public, you have to have that

infrastructure in place, more finance and accounting procedures, corporate governance policies, internal

processes and controls and, potentially, you have more complex tax issues. I think there are pros and cons to

that.

I think one of the advantages for AppHarvest is that they don’t show a lot of revenue for their new company, so

I think this could be a great vehicle for them to get capital quickly, but they also now have to generate their

earnings and live up to their projections and financial performance. The valuation, God bless them, if they can

get it. It seems very high for a company with low revenue, but it also speaks to the marketplace. The stock

market is soaring, there’s a lot of interest in agriculture and people see food as a hedge against inflation and

economic uncertainty, so that’s where it is, in my opinion.

[00:15:07]

Q: What do you think differentiates AppHarvest from other CEA companies?

RC: I would say that AppHarvest, and, again, I haven’t worked there or been to their facility, is that they have

a real focus on their employees. I think they started out as a B corporation and they wanted to really put an

emphasis on employees first with the philosophy that if you have good, happy employees, you’re going to have

good, happy customers. They recently purchased in a robotic and AI company, so they’re looking to build that

robotic and AI efficiency into their operations. There are labour issues everywhere, shortages of qualified

Private and confidential 5

people. The more automated you could be, the more efficient and consistent you can be and, logically, it

should also reduce costs.

[00:16:13]

Q: Could you outline the environmental challenges within agriculture that AppHarvest is hoping to solve?

RC: I’m not sure what AppHarvest is looking to solve, but I can tell you in my opinion where some of the key

challenges are. One is packaging. Everybody is trying to reduce the use of plastic. A lot of produce is packaged

in plastic because it’s cheap and it works, so people are trying to look for alternatives. The four Rs, reduce,

reuse, recycle and rot, compost anything that you can’t do the first three Rs on is something that everybody is

looking at. Energy conservation is probably one of the top ones. Greenhouses and vertical farms use a lot of

water, gas and electricity, so when we build farms, the first thing we look at is how do you conserve those

resources and build your farms efficiently so they use the least amount of utilities? Then, secondly, how do you

get farms off the grid so that we’re not using coal-fired power? I think those are global concerns that everybody

in the greenhouse and the vertical farming or CEA industry is looking at. Then, the last is water. How do you

recycle your water? How do you purify that water so that there are no pathogens or viruses or disease in the

water and that it’s fresh so you can recirculate it? I think those are the general challenges and I assume

AppHarvest is also trying to deal with those.

[00:18:02]

Q: How do the unique controlled indoor farming companies stack up against legacy field farm businesses?

You noted the different margin profile for CEA, with higher upfront costs facilitating lower operating costs.

RC: The first thing you have to look at is your crop, the volume of production, the climate, and then your

budget. Then, you could start looking at the farm. For example, a banana will probably never be grown

indoors, it just doesn’t make sense. It takes too much energy, it’s too big, and it needs special climate control.

Field farms are very competitive on typical commodity crops, soy beans, corn, wheat, even tomatoes and

lettuces. Certain types can be grown well in the field, but they have to be transported and they can’t be grown

year round. The competitive advantage a greenhouse and a vertical farm has is that you can grow these crops

anywhere year round using less soil and less water. It’s not only just the price that you can produce it at, but

it’s the availability, it’s the quality and it’s the ability to be pesticide-free. A lot of farms, it’s difficult to grow

pesticide-free. Even when you’re organic, there are approved pesticides you can use, but when you’re in indoor

controlled environment conditions, whether it’s a greenhouse or a vertical farm, you can control your situation

much better so you don’t use pest. Those, I think, are some of the differences and the competitive advantages

of where you’re going to go. You first have to look at the crop, and so unless we’re speaking specifically about a

crop and then a very specific variety, it’s hard to give an accurate cost analysis.

[00:20:54]

Q: Which crops do you think represent the best opportunities for indoor CEA to utilise?

RC: For greenhouse, is you could grow a much wider variety of crops. They’re really well-suited to grow

tomatoes, peppers, cucumbers, a romaine lettuce, some of the herbs. You can grow squash, zucchini, some

melons but, again, it takes a lot of space. A lot of farmers focus on a few crops. They don’t have a wide diversity

crop, it’s a lot easier to manage and control. On vertical farms, they’re really best for propagation, creating

starter plants that can then be shipped to the field to grow to maturity or shipped to a greenhouse to grow to

maturity. They’re also good for lettuces, leafy greens like kale, arugula, Swiss chard. They’re good for herbs,

the basils, a wide variety of basils can be grown, cilantro, parsley, mint, dill, and they’re also good to grow

microgreens.

Private and confidential 6

[00:22:18]

Q: Do you anticipate any headwinds to AppHarvest’s portfolio execution, innovation or partnerships? Which

of those areas could represent the biggest challenge, given its valuation and the new market entrants?

RC: I think any new start-up, the first issues is branding. This is a very competitive landscape. They did not

invent vegetables. They are a new company with newer technology, but growing is just one part of it. They still

have to market, brand it, and sell it, and so I think that’s the biggest challenge, is how do you disrupt long-

standing players in the marketplace like a Mastronardi Produce or a Mucci, or a Bright or a MightyVine?

That’s number one. Number two is being able to get the right people. There is a shortage of qualified people in

the agricultural industry. A lot of that stems from the (audio cuts out 23.33) industry. They poached a lot of

people, so finding good people at a competitive price is a challenge. Then, like any new business, getting all

your operating procedures down quickly so that you get into production and produce crop consistently year

round and control any pests that may be inside the facility is a challenge. Then, lastly, it’s distribution, sales

and marketing. I think those are the key hurdles and when you have a big facility, you’ve really got to get your

processes down quickly, else you’re going to be making big errors.

[00:24:20]

Q: How has CEA broadly evolved over the last five years?

RC: In my opinion, vertical farms were super-hot five years ago. Everybody saw this as the shiny new

technology and wanted to invest in it, and there are companies like Plenty that raised USD 250m from

SoftBank. There are companies like AeroFarms who raised over USD 100m, and Bowery who was an Alphabet

spin-off that raised about USD 100m. A lot of money was going into this that was very public and vocal and, as

I said earlier, you are starting to see a shift and an additional focus on greenhouses. Even though they’re

mature and they’ve been around awhile, people are starting to see that the more crop it can grow indoors

preserves soil and water. There’s an increased interest in the last couple of years in greenhouses and all the

support technology that goes into operating greenhouses, as well as vertical farms.

[00:25:49]

Q: Can you elaborate on the supply-side constraints limiting farmers’ ability to meet growing food demand?

RC: In the US, I don’t think there’s a supply issue. There always seems to be enough produce out there, and I

also think there’s enough demand out there. When you go into a major market, there are usually produce

companies and produce brokers that you can sell your crop at. The question is, is how do you get the highest

value for it? Crop is perishable, so the closer you go to selling it to the expiration date, the less value it has. The

trick is to have your crop pre-sold at a good price, and I think that’s the challenge in the produce market right

now, is that there’s plenty of produce, a lot of it goes to waste, some of it doesn’t even get harvested because

there’s too much supply. The challenge is finding the right buyer early enough that will pay the highest price.

[00:27:04]

Q: There has been significant investment in CEA over the last five years, as you noted. Do you think investors

are realising a return on invested capital? Are they instead still in a stage of continuing to funnel money and

hoping for some substantial market-changing innovation down the line?

Private and confidential 7

RC: I think there’s a bit of a culture clash between capital and farming. A lot of capital from the West Coast

and maybe even on the East Coast is used to investing in high-tech ventures where you can have a small group

work on a piece of software for some period of time, and then once they launch that software, it doesn’t take a

lot of labour to generate sales. It can happen very quickly and it can be greater than a linear growth, maybe

logarithmic or exponential. In farming, everything takes a long time and there are a lot of risks. When you’re

outdoor, you have the most risks. In a greenhouse, there’s less risk, and in a vertical farm, there’s even less

risk. I think when you see people investing that used to invest in high-tech look at high-tech agriculture, what

they may not realise is the horizon and the patience you need for this industry. When you’re doing R&D, you

have to have a crop go through its whole cycle. Sometimes, that could take 90 days, 180 days, depending on

the crop, so it takes a long time to test and research things in this industry.

I think a lot of these investments have not panned out because the vertical farming market is still finding its

niche in the marketplace and it’s still perfecting the technology. The greenhouse investments, I think you have

a shorter horizon to profitability because they’re a more mature market, their production is much more

predictable as well as their costs. They have a lot of cost data, so that’s my thoughts on those two entities in the

marketplace.

[00:29:43]

Q: Which of the structural goals that the CEA industry is targeting do you think is the most important,

whether in driving lower environmental impact, higher efficiency or resilience?

RC: I think all three of those are the most important, but from what I see with this being a pennies business,

efficiency is probably number one. People are always striving to look at how to reduce their CAPEX in their

farm design and construction, and then how do they reduce their OPEX so that they can increase their

profitability.

[00:30:29]

Q: How would you characterise farmers or start-ups’ adaptability or willingness to continue implementing

new technologies in their respective areas or companies? You referenced investments in software start-ups

where barriers to entry are high, and that they don’t necessarily need to manage it with high labour costs.

RC: With greenhouses and vertical farms, once you’ve built them, that’s really where your major investment

in technology comes. Once you start operating them, you may make tweaks in your technology to improve

efficiencies, but you’ve made your large capital investment at that time, so the time to put money into a

technology is at the beginning, at that CAPEX phase. Less is put in in the OPEX phase because you’re focused

on operations at that point. One of the challenges in our industry is farmer fatigue. When capital met

agriculture, there’s been a rash of new innovation in the marketplace, but farmers are on a schedule, whether

you’re a field farm, a greenhouse or a vertical farm. You have to move that crop when the plant tells you to

move it, whether it’s from germination to the nursery, to the grow-out, to harvest, you don’t have a lot of time

not to react to those plants.

This has created a time sink for farmers. They get inundated with all these technologies and they don’t have

time to assess them because they’re focused on their crop production. That’s a challenge, and unless you have

a big enough farm to have a chief technology officer who could be dedicated to evaluating technologies that

they can deploy, it creates a challenge in the marketplace. Or unless you have such a wonderful technology

that’s robust, it’s reliable, it’s simple to understand and a farmer can see how it’s going to save them money

and reduce their labour, then you’ll get their attention quickly.

Private and confidential 8

[00:33:44]

Q: Would you say the CEA industry is innovating as quickly as it is capable, in physical technology or food

products? With the latter, we’ve noted divergent innovation rates in plant-based meats vs plant-based

nutritional snacks and dairy products, for example. How quickly are innovations coming to light in CEA?

RC: I could speak about design, construction and operation of greenhouses and vertical farms. I would say

that there is a rash of technology that’s been developed, and so there’s more technology out there than the

market could assimilate into their production at this time. I think we’ve seen an explosion of technology come

into the marketplace. I can tell you, when we first started building vertical farms, there wasn’t much of a

supply chain. We had to invent a lot of these things on our own. Now, it’s amazing how deep the supply chain

is, how there are tub manufacturers, valve manufacturers, pump manufacturers, fan manufacturers. It’s an

endless list now of suppliers that have gotten into the marketplace, which will also help advance the market

much quicker.

[00:36:19]

Q: What are typically the major cost buckets for vertical farms or CEA? How are these being mitigated?

RC: The three highest costs, I would say, for a greenhouse and a vertical farm are, (1) labour, (2) rent, and (3)

your utilities. Your growing inputs are a much smaller portion, and then your executive management and your

overhead. Smaller farms typically have much less overhead. Larger farms have much more but they could

amortise it over a larger revenue base.

NH: How has technology played a role in mitigating these costs, such as through automation of labour?

RC: On labour, automation and artificial intelligence and software are helping to address the labour issue.

Typically, that’s more at your lower end part of the labour market. On rent, people are getting more creative on

being able to grow a higher density crop on a smaller footprint so they’re getting more utilisation of a space.

On utilities, there’s a big push with micro grids and renewable energy to get lower utility costs, so I think

there’s a lot of technology in all those areas trying to drive those costs down.

[00:38:26]

Q: How hard is it for these players to establish new relationships with grocers to get their products sold? How

significant is the branding and marketing hurdle to getting that product to the end user after investing all the

technology to grow it in a cost-efficient, unique way?

RC: In my opinion, the agricultural industry is a challenging industry but it also attracts a large amount of

passionate people. The biggest challenge that I see in the marketplace… The winners and losers in this

business are differentiated by their business model and their ability to get their product to market at a high

level of quality. They want it to look the same way it left the farm as it does at their customer, so that’s a

challenge. Keeping a cold chain and keeping those products safe is very important, and giving them the right

climate. This is also a business that is built on relationships. Many of these long-standing players have been in

the marketplace for 20, 30, 40 years, so when you go into a grocery store and you disrupt them, unless you

have a new variety of tomato or lettuce or a new packaging or you’re organic or pestacide-free, you have to

have something that really differentiates you to displace this long-standing relationship, and so it’s very

competitive. Produce buyers are inundated with requests. It’s very hard to get their attention. It’s made it even

more difficult in COVID because you can’t meet face-to-face at trade shows and conventions, so I think it’s

extremely challenging to break into this marketplace with a new brand. It takes a high level of creativity. You

really have to have a high-quality product that’s somewhat different than your competitor.

Private and confidential 9

[00:41:35]

Q: What are your thoughts on AppHarvest starting production with tomatoes?

RC: Tomatoes is a market that can be highly profitable, so they’ve picked a high-value crop to start with, but

tomatoes are finicky, so you really need to have a very good grower and you have to have a good system that’s

specially designed to grow tomatoes. I think the good news is they’ve picked a high-quality crop where there

can be good margins. The bad news is that one of the big players, if they wanted to compete aggressively with

AppHarvest, they can come into a regional market and really sell their tomatoes at a very discounted price,

and they can do that for some long time. Since they’re national and they’re well-established, they can move

money in a market to buy market share. I think that’s the challenge facing AppHarvest, is can they get a high-

quality product to market? Can they brand it? Can they differentiate themselves and can they be cost-

competitive if they’re getting in a pricing war?

[00:42:56]

Q: Which other high-margin crops do you think would be well-suited to AppHarvest’s strategy?

RC: Potted herbs are a high-value crop. Certain lettuces and cut lettuces are high-value crops. Mushrooms are

high-value crops. Very difficult to grow, but saffron, turmeric, ginger, wasabi are other high-value crops.

[00:43:38]

Q: Can you elaborate on AppHarvest’s competitor set of well-established peers and new entrants?

RC: Mastronardi has been in the greenhouse business, I think, 40 or 50 years. They’re out of Leamington,

Ontario, which is tomato capital for indoor growing in North America. They command a large percentage of

the tomato market share. They’re, I’d say, in the top 20 major retail stores, Walmarts, Costco, Meijers,

Krogers, they’re just well-established in the marketplace. Newer entrants on the tomato end would be

MightyVine out of Illinois and Bright Farms. You’re seeing their products in the marketplace. They’re branded,

they’re known and all these companies produce high-quality tomatoes.

[00:45:17]

Q: What is your outlook for potential policy implications with more stringent quality requirements for large

traditional producers? Could such developments strengthen the opportunity for small-scale CEA farms?

RC: Where I see a lot of regulations coming in is in food safety, traceability of your product, management of

your water and your waste. Sometimes, it’s better for the bigger companies because the bigger companies can

have staff that’s dedicated to those issues. Smaller companies are trying to do everything and some of these

regulatory and policy issues get complex, and so, in my mind, I see that being a barrier to market entry that

could be advantageous to larger companies.

[00:46:46]

Q: How is the CEA landscape developing in international markets? Is this very much a US trend, or has there

been an explosion of this farming type in Europe or Asia?

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RC: This is clearly a global landscape. The Dutch have long been leaders in indoor greenhouses. You’re

starting to now see that expertise transferred around the world. The US is becoming very competitive with the

Dutch on greenhouse technologies. Vertical farming, in my opinion, is really a US-born technology and we’re

seeing lots of interest globally around the world, Asia specifically, Indonesia, any areas where there are large

populations and where there are issues with water or soil, so it’s clearly a global market.

[00:48:32]

Q: What is your outlook on deal activity and potential M&A – particularly bigger players scooping up start-ups

and implementing their technology or resources at a far larger scale?

RC: I think the indoor vertical farming technology market is still to nascent for mergers, there’s just not

enough revenue and profitability in these companies. On the greenhouse end, there’s a lot of potential activity.

There are a lot of manufacturers of greenhouse technologies that have been established that are seeing record

earnings, partially because of the marijuana industry, and partially because just the vegetable industry, if

you’re supplying to grocery stores, as I said earlier, you’re doing a bang-up business.

[00:49:30]

Q: Can you outline the opportunity between the cannabis and vegetable industries? Would you anticipate

some of these farmers with the right resources switching over to just producing cannabis, or are there high

barriers to entry given the regulatory environment?

RC: I would break the cannabis market into two. There’s hemp and there is marijuana, same plant, just

differentiated by the amount of THC that’s present. Hemp is federally legal and each state has the ability to

create a hemp plan that is submitted to the federal government to get approved. Most states right now are

allowing hemp to be grown and a number of farmers have rushed into the hemp market. There’s a severe price

erosion that’s not been very profitable. There has been an overproduction of supply and a decrease in demand.

The marijuana market is highly regulated. It’s very competitive to get a state licence. It is not federally legal. I

think half the states have legalised marijuana and if you have the political contacts and the capital within your

state, you can get a licence. Licences typically are limited and expensive to get, in excess, sometimes, of USD

1m to complete that process, and it takes real skill to grow hemp or marijuana. You can have capital, you can

have political contacts, you can have a licence, but then you’ve got to get the staff that is knowledgeable to

grow marijuana and be able to get your processes in place.

The good news is, the crop is such high value, in the high hundreds to thousands of dollars a pound, but you

can make a lot of mistakes and still be very profitable in the marijuana business, so the growers that can will

grow it. One more thing I should add is that a lot of states mandate that you have to be vertically integrated.

You can’t just grow it. You also have to be able to process it, deliver it and sell it, and so that’s where growers

tend to not play in this marketplace. They may be subcontracted to grow, but they have to be part of a

vertically-integrated operation.

[00:52:54]

Q: What are your best- and worst-case scenarios for AppHarvest and CEA over the next six months?

RC: AppHarvest, again, I’ve not been to their facilities. In my opinion, they’re a start-up. Their challenges are

they really have to get their crop growing consistently. They have to get their operating procedures in place.

They’ve got to get their staff trained and educated on their culture and their environment and their processes.

Then, they really have to get their branding, marketing and sales up. They’ve got a lot to do in a short time

because once the Spac goes through and they’re a public company, there’s going to be a lot of pressure for

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quarterly reporting and they’re going to have start showing some correlation to their projections. The

controlled-environment ag industry is going to remain very hot, both globally and domestically. There’s just an

increased interest from COVID to shorten the tail of the supply chain. The public really is demanding locally-

grown produce that’s pestacide-free and growing that in greenhouses and vertical farms is one way to achieve

that.

[00:54:33]

Q: How do you expect AppHarvest to utilise the USD 400m or USD 500m cash it has raised?

RC: To build a high-tech greenhouse with glass and supplemental lighting so you can grow consistently year

round costs somewhere between USD 1m to USD 2m depending on where you’re located and what your land

cost is, and that would be to design, engineer and build it. If you have a 100-acre greenhouse, that’s

somewhere between USD 100m to USD 200m. If they’re going to deploy capital into structures, it doesn’t buy

them a lot of growing space. The large growers have hundreds of thousands of acres under roof, so for them to

be competitive on a large scale, they’re going to have to build out facilities or, like a lot of the other growers do,

they’ll grow small percentages internally, and then they’ll subcontract growers to grow under their brand. I’m

not sure which way AppHarvest will go. Will they become a marketing and branding company that builds a

niche like Dole or Del Monte or Sunset Grown Produce and they grow a small amount, develop quality

standards and growing processes and procedures, and then contract growers, or will they try to do that all

internally?

[00:56:25]

Q: Are there any commonly overlooked aspects of CEA that you think investors should be aware of?

RC: I think it’s (audio cuts out 56.39-56.48) logical production. You’re not making shoes or cars where you

stamp every car out and it’s consistent. These are biologicals. Things happen and pests occur. You never

eliminate pests, you can only control those. Everything takes longer to produce and to generate revenues and

profits to get your systems down, to get your plants growing well. I think that’s an area that’s overlooked. The

other area is genetics. Many of these seeds are bred for field farming and possibly greenhouse. Only recently

have geneticists been focused on breeding seeds that can be grown indoors under LED lights, so I think you’re

going to see a fantastic explosion of opportunity from some of these new genetics that are coming out.

[00:57:52]

NH: That’s a really interesting point, and a great place to conclude today’s Interview. Let me close by saying

thank you, Robert, for your input. It’s a really interesting market and a complex topic. Thank you, clients, for

joining Third Bridge Forum’s Interview today. If you would like to speak to Robert in a private call or meeting,

please let your relationship manager know. Thank you all again for joining.

Transcription ends at 00:58:09 of the recorded material

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