Horticultural SSL business: Vegetable sector escalates, some cannabis soars

Approaching the end of a very shaky 2020 from a general business perspective, we went looking for horticultural market data that might show that sector to have overperformed relative to business in general and that might portend positive opportunity for players in horticultural lighting and AgTech. S2G Ventures has published one such report that projects leafy greens grown in vertical farms, which are dependent on LED lighting, will soon be a $1B (billion) market in the US. The 2020 Global CEA Census Report from Autogrow and Agritecture Consulting reported that 20% of respondents of its survey founded their controlled environment agriculture (CEA)-focused companies during the pandemic year of 2020, and 95% have an excellent or good outlook on their business for the next year. In the cannabis sector, legal sales in Oregon have surpassed $1B for the first time in 2020.

The clear message is that there is significant opportunity in the horticulture space, and particularly for manufacturers in the solid-state lighting (SSL) and broader AgTech sectors. But that doesn’t mean it will be easy, because new vendors have flooded into the space in part driven by what we called the greenrush at the start of 2020. Many were motivated by legalized cannabis, although vegetables will remain a larger market long term. For either, manufacturers will need solid science and high-quality products on their side to succeed.

Let’s review some details of the market projects we led with. S2G Ventures is a multi-stage, venture-investment fund focused on food and agriculture and what the firm has described as a “healthy and humane planet.” For example, the fund is invested in AppHarvest, a Kentucky tomato greenhouse operation we have written about.

In the new report “Growing beyond the hype: Controlled environment agriculture,” S2G said it believes that CEA can grow by 5× in market share over the coming decade including greenhouse, vertical farm, and shipping-container settings. The firm acknowledges cost challenges and technology obstacles but sees a bright future.

To make a point about the potential, S2G focused just on leafy greens. It said that in 2020, CEA will account for around $100M (million) in leafy green revenue based on supplying a bit over 1% of the market in the US. If the CEA share could grow to 10% by, say, 2025, that would represent a $1B market. And of course there are inherent and intertwined side benefits of the environmental, social, and governance (ESG) type. The report said that if CEA share could hit 13% in 2025, the US would save 330B gallons of water and 1.3B lb of rotten produce. At the same time, localization of farms would add 2.3B lb of capacity and a 15% reduction in imported vegetables.

Want additional horticultural and AgTech business, technology, and application insights? Catch the on-demand HortiCann Light + Tech conference presentations on demand before the archive expires in January.

Census report

Moving to the census report, Autogrow is a New Zealand-based manufacturer of autonomous growing AgTech products and systems. Agritecture Consulting works globally with CEA growers helping the businesses solve challenges involving AgTech, logistics, and operations. Their census research went to participants across the globe in 58 countries and there were 371 respondents. The respondents work at farms ranging from $10,000 to $3M in revenue.

The 2020 research, in addition to the positive news on new farms, revealed significant growth in vertical farms. Of those new farmers in 2020, 81% are focused on a vertical farm configuration. And 100% have an excellent or good outlook for the next 12 months.

Over the full universe, 60% of the respondents work on vertical farms. The research shows 71% of the farm founders are under 40. And half of them have no prior agricultural experience. We know from prior stories we have published that there has been a movement of tech-focused professionals to AgTech and the same is true in the investment community.

The census also surveyed the technology being used in farms. Artificial lighting topped the list at 80%. Vertical farms use almost exclusively LEDs, whereas greenhouses often use a mix of LED and high-intensity discharge (HID) sources, including many in a hybrid configuration. But AgTech is an unmistakable movement going forward. More than 50% of the respondents said their farms used both sensors and controllers that operate based on the sensors to automate operations.

Cannabis

The census research only reported 4% of respondents focused on cannabis. Of course, that cultivar is still not legal in many places globally or in the US. As we mentioned relative to the linked article near the start of this article, many in the US and Canada have perceived incredible profit potential in that cultivar. Recently, though, we have reported on more investment action in tomatoes.

Cannabis, however, is adding to tax revenue in jurisdictions where it is legal. Moreover, the entire supply chain is moving through the transition from backroom operation to modern processing facility. And the transition to LED-based lighting for cannabis is still in the very early stages. So opportunities do abound.

Oregon was an early state to legalize recreational sales. And like each state that goes through the process, it had to weather a period where illegal suppliers undercut the evolving legal supply chain. Indeed, we had heard a year back about oversupply in Oregon and dropping prices. But the state is proof that jurisdictions can safely navigate the transition to a regulated environment.

The Portland Business Journal has reported that state cannabis sales have already crossed $1B for 2020 with a month of the year remaining. The gain was 40% over the same period in 2019. Now some of that increase may be attributable to the pandemic limiting normal recreational activities. But the impact is real. Moreover, the state and local municipalities that both tax sales could realize upwards of $200M in tax revenue for 2020.

For up-to-the-minute LED and SSL updates, why not follow us on Twitter? You’ll find curated content and commentary, as well as information on industry events, webcasts, and surveys on our LinkedIn Company Page and our Facebook page.