As one of the most innovative food tech companies in New Jersey, AeroFarms has led the field in indoor vertical farming, from developing groundbreaking large-scale commercial grow facilities to creating community-based initiatives to improve fresh food access in underserved areas.

So, when the Newark-based venture filed for voluntary bankruptcy protection in June, the news served as a reminder of the challenges that the emerging industry faces when it comes to becoming a sustainable, yet profitable, business.

Now, as AeroFarms prepares to exit Chapter 11 in September, co-founder and Chief Marketing Officer Marc Oshima is confident the company will be better positioned for success. “We’re moving forward and it has been going very orderly,” he told NJBIZ. “We had envisioned an approximately 90-day process and everything’s on that timeline.”

Oshima admitted it “has been challenging,” explaining, “We’ve had to streamline, so we’ve had to let some really talented people go, which has been, without question, not easy.”

Along with a change to its leadership that included co-founder David Rosenberg stepping down as chief executive officer, AeroFarms announced earlier this year it would be relocating commercial growing to its indoor vertical farm in Virginia so its New Jersey-based facilities can work on research and development, a move that would affect 82 employees.

“But the core parts of the business have been very healthy and we’ll get a chance to really just focus on that right now and on how the work has been building and how it’ll continue,” Oshima continued. “The exhilarating part is the fact that we are expanding and that we can continue to think about how we bring our mission of growing the best plants possible for the betterment of humanity to life and really nurture that.”

While the restructuring plays out, AeroFarms has said it will operate as normal, servicing its customer base and key selling partners.

The company also moved forward with several retailer expansions over the past two months, announcing distribution deals with Walmart locations in the Mid-Atlantic, Stop & Shop supermarkets in the Northeast and Asian grocery chain H Mart.

Oshima said, “We have more launches we’ll be announcing in September that are industry-defining types of relationships. So, we’re in an exciting place based on our sales performance, our history and operating performance.

“Right now, we’re making sure we have the right focus – which is to be really hyper-focused on the commercial side of the business,” Oshima explained.

As part of the reorganization, AeroFarms secured $10 million in debtor-in-possession financing from some previous investors to stay up and running. At the same time, the company’s board of directors began searching for financing options that would “maximize the value of the company and recovery to creditors.”

In July, AeroFarms announced plans to sell its Danville, Va., indoor vertical commercial farm and related assets under Section 363 of the U.S. Bankruptcy Code to AF NewCo Inc., a newly formed entity owned by a group of existing investors, including Grosvenor Food & AgTech, INGKA Investments Ventures US BV, Cibus Fund and ACEG GmbH. As part of the asset purchase agreement, AF NewCo was designated as stalking horse bidder.

According to filings with the U.S. Bankruptcy Court for the District of Delaware, AF NewCo’s $42.5 million bid includes $500,000 cash and eliminates $32 million in pre-bankruptcy debt. The lenders would also forgive the remaining balance on a $10 million bankruptcy loan as part of the deal.

After AeroFarms didn’t receive any other qualified bids, the auction was cancelled and the results of the 363 sale were approved by the court Aug. 23.

Seeking bankruptcy “was a last resort,” but Oshima said it is ultimately “a mechanism to be able to bring in this additional capital.”

“While there will be a new company, it will be like AeroFarms 1.1. The idea will be that AeroFarms will continue, with just more in the background,” he said.

Proprietary aeroponics

Founded in 2004 by Oshima along with Rosenberg and Edward Harwood, AeroFarms has revolutionized traditional farming operations via controlled environment agriculture.

Through the use of proprietary aeroponics, AeroFarms is able to grow plants locally and safely, year-round, in fully controlled environments with no soil or pesticides and 95% less water.

With large commercial farms in Newark and Danville, AeroFarms became a leader in smart, indoor vertical farming and its sustainably grown, award-winning leafy greens could be found at retailers such as Whole Foods Market, Walmart, The Fresh Market and Amazon Fresh.

Oshima said, “What’s been really exciting for us has been how do we build an entirely new category at retail – taking what had traditionally been available for fine dining and now making it available for home dining. We’re creating all these meal occasions and usage and that’s what’s been exciting to see – how the consumers and our selling partners have embraced this.”

“We’re leading the industry within packaged sales by a significant amount. That’s something we’ve tracked over time and we’ve increased as the industry has gone down and even as other indoor growers have gone down,” said Oshima.

“The value proposition of what we’re doing and creating a very differentiated product and experience has been really connecting and resonating with the consumer. And, so we’ve had great sales velocity and as a result, we’re the No. 1 microgreen at retail nationwide,” Oshima stated.

He continued: “There’s a lot of positive momentum, but at the same time, obviously the Chapter 11 is in the backdrop here. The idea is that it’s definitely in the rearview mirror and we’re looking out ahead to the horizon and what’s ahead of us.”

As a global company, AeroFarms has been cognizant of the fact that outside of the U.S. bankruptcy protection “is even less understood or appreciated as a very viable financial vehicle,” Oshima said.

“That’s why we continue to share positive news about what we’re doing or where we’ve had expansion. Because the fact is, we’re growing product every day and shipping product every day,” he said. “We’re getting the message out that this is not a liquidation and we’re not closing up.

“This is about laying that foundation for further work that we have ahead of us. We’re at an exciting juncture of further expansion … All the good work that we’ve invested will continue and we continue to be equally passionate about our mission … and the broader impact we can have on changing business and changing communities,” Oshima stated.

From scaling farming operations to advancing collaborations in agriculture research and development to creating community-based farms, AeroFarms believes its work plays an important role in reimagining the food system for the better. As a result, it has been recognized as a change-the-world company for the steps it has taken to address food deserts, create jobs, reduce food miles and decrease carbon emissions.

It’s also the first indoor farm to become a Certified B Corporation, a designation given to businesses that meet standards related to performance, accountability and transparency based on factors like charitable giving, input materials and employee benefits.

Cooling climate

In recent years, billions of dollars have flowed into vertical farming ventures to help produce and distribute fresh food closer to urban markets. Now, faced with a pullback in venture capital funding, the already costly venture of indoor vertical farming is experiencing growing pains.

The sector’s challenges – which include high energy costs, technological limitations and the ability to scale production to keep expenses down – have made it tough for these companies to achieve true sustainability, both environmentally and financially.

Because the fact is, we’re growing product every day and shipping product every day. We’re getting the message out that this is not a liquidation and we’re not closing up.
– Marc Oshima, AeroFarms co-founder and CMO

In October 2021, AeroFarms and Spring Valley Acquisition Corp., a publicly traded special purpose acquisition company, called off their planned merger. Had the deal gone through, the new entity would have been valued at $1.2 billion.

While the companies didn’t say why they decided to nix the deal, Rosenberg – who would have led the new venture – said AeroFarms determined the move was “not in the best interests of our shareholders.” At the time, Rosenberg said the decision was made “to ensure AeroFarms is in an optimal position to pursue our growth strategy and to deliver on our mission to grow the best plants possible for the betterment of humanity.”

In a July 10 court filing, Guy Blanchard, who was named interim president after Rosenberg’s exit as CEO, wrote, “While I believe that the controlled environment agriculture business will be a crucial, profitable part of the industry over time, the initial expenditures in starting an indoor vertical farming operation are high, and capital flows have become less accessible as interest rates rise and access to equity capital for growth stage companies has diminished.”

“Further, the debtors’ aeroponic technology differentiates the debtors’ business from most other vertical hydroponic farms and the debtors’ technology to be used in many different global regions that suffer from scarce water supplies,” said Blanchard, who has served as AeroFarms’ chief financial officer since 2016.

“Prior to the commencement of these Chapter 11 cases, the debtors were engaged in extensive negotiations toward locating third-party financing that was critical for the company’s on-going operations. These efforts involved potential financing from the United States, Asia and the Middle East. In the end, however, none of these financing sources were able to complete financing in advance of the company hitting a liquidity wall in early June,” he said.

While Oshima said scalability and financing are “without question” the biggest obstacles for a food tech startup, he believes there are a few reasons why AeroFarms will clear those hurdles. “When we think about the new farm we built in Virginia, that represents what we call our ‘Model Five’ technology – it’s our fifth generation,” he explained. “At each step, we’ve had different size commercial farms that have each brought different learnings, insights, understanding and appreciation.

“It’s one thing to do at a certain size, but then to do it truly at a larger scale than our latest facility is really end-to-end automation of the entire process,” he said. “It’s a different throughput and different scalability. So, that scalability is demonstrated at multiple different farms and multiple different sizes is really key to any investor in terms of understanding: ‘OK, can this be replicated? And what’s the operating history here with that?’” Oshima said.

“It’s also just the core fundamentals: Is there uniqueness, is there differentiation, are the economics there? Those fundamentals are there no matter if it’s patient capital or venture capital. You need to be able to demonstrate this,” he added.

Success also comes down to “a shared vision” with investors when it comes to the short-term and long-term planning, he said. Without that, the misalignment can “definitely put some pressure” on an early-stage business, Oshima added.

“In terms of the financial, we’re fortunate. We have a solid group of inside investors,” said Oshima. “I think that for us, that’s been a very telling commentary on how the inside investors who know us well have been with us and understand the business and how these farms are profitable. They wouldn’t, at this point, be investing more dollars in us if they didn’t. I think that’s a real vote of confidence and validation.”

Looking east

Since leafy greens remain the company’s core, AeroFarms is continuing to scale the Danville farm, an operation it has described as critical for meeting retail growth and category expansion.

Oshima said, “We’ve been shipping product for almost a year there and expect to have full ramp up by the end of this year … That’s all been part of a very sort of methodical plan and focus on what we’re doing and how we’re scaling. That’s why we’ve been able to announce these additional launches because we’re bringing on additional capacity.”

Once fully operational, the 140,000-square-foot indoor vertical farm – the largest in the world – will output millions of pounds annually, according to AeroFarms.

“It’s game changing just from the throughput and the productivity, so that’s what is allowing us to think differently in terms of how do we support a national rollout with some key accounts,” Oshima explained.

Within the last few years, more and more vertical farming companies – including AeroFarms – have either relocated or expanded operations in the Middle East, where they are finding lower energy costs and a more business-friendly environment.

Besides opening a cutting-edge research and development facility in Abu Dhabi in February, AeroFarms also signed a joint venture agreement with Saudi Arabia’s Public Investment Fund to establish a company to build and operate commercial indoor vertical farms in the country, as well as the wider Middle East and North Africa region.

Additionally, the company forged a partnership with the Qatar Free Zones Authority and Doha Venture Capital to build a facility designed to decrease the country’s reliance on imports by making high-quality food products more readily available throughout the year.

Oshima said the company’s efforts to expand further into the Middle East are being evaluated. “With our current facility that we have in Abu Dhabi, that has been focused on R&D. So, again, is that something that we’re going to leverage just for leafy greens or are we going to think about how we best utilize an asset like that and focus like that?

“But we had announced expansion plans working with some other areas in the region for commercial farms and as of right now that pipeline of activity is still very much alive,” he said.

As a challenging sector evolves, Oshima stressed the importance of companies working together. “That’s one of the things that AeroFarms has been very conscious of — how do we move the industry forward,” he said. “We did get help from something called the Controlled Environment Agriculture Alliance, which encompasses not only indoor vertical farms but also high-tech greenhouses.”

The four-year-old trade organization aims to develop industrywide food safety standards for indoor-grown produce, as well as advocate for sustainable and climate-smart agriculture.

“We very much work on things that unite us,” said Oshima, who serves on the alliance’s board of directors. “We have such a huge opportunity ahead of us in terms of the macro pressures we’re seeing with climate change and drought.

“We have the biggest companies and biggest parties involved, so they appreciate that there’s more power collectively here. We need a lot of people at the table. Our food system’s more challenged than ever before. We need to celebrate the work that’s happening and we need to be able to foster that spirit of innovation and help be a catalyst to help people reimagine,” he said.

For consumers, Oshima hopes to encourage them to “make greater connections” with their food and become better educated on “where it’s coming from, where it’s grown and how it’s grown.”

“An informed consumer will make the better choices,” he said.