Local Bounti Investors Increase Their Position With Bullish Bets Risking Disappointments

Sepehr Achard

Dec 10, 2021

Local Bounti (NYSE: LOCL) has recently gone public through a SPAC after successfully closing its approximately $1.1Bn business combination with Leo Holdings III Corp (NYSE: III).

The Hamilton-based company is an indoor agricultural business that is growing sustainable produce in their facility and looks to serve the entire north-western part of the United States with healthy, fresh, and long-lasting leafy greens. Now, the company offers only 7 different types of leafy greens, and they expect to expand their production by opening 8 large facilities by Q1 2025 of which they claim 7 will be up and running by 2023.

They, however, do not plan on expanding their product offering with various crops such as tomatoes, berries or other crops that can be grown using their technology.

In addition, the company claims to be able to reach $462m by 2025 despite having “just” realized a $1m revenue for this fiscal year.

The fact that the investors have consolidated their position by buying into more shares in the company shows the level of trust the shareholders have in the company, which is encouraging. What’s more, they have bought these shares at higher prices (US$ 6.48) than the current share price of LOCL (US$ 5.98 at closing on Dec 8) proving that the shareholders are bullish about the company.

Why could they be disappointed with their positions?

First of all, Local bounti, though being ground-breaking compared to other more conventional methods of farming, are not as competitive when compared with companies involved in their sector. For instance, Infarm, a German giant and perhaps one of the leading companies in the world offers modulable farms all around the globe and have recently signed many deals in North America which they plan to concentrate their investments on for the upcoming months.

The German company already is selling its produce in more than 50 stores in the northwestern part of the United States where Local Bounti is supposed to be leading the market. Moreover, other companies such as Aerofarms, AppHarvest, though not present at the moment in this region of the country, are expected to expand within the next 3-5 years thus increasing the competition and pressure on Local Bounti.

Then, how will they be able to hold their plans with the current state of the global supply chain? They are already falling behind on their schedule as they have finished the transaction of their second facility which was supposed to start being constructed on the 30th June 2021 and their third facility though expected to be commissioned by July 2022, is not under contract yet even though they have three finalists for the project.

Presently, there are bottlenecks experienced across supplies of all components used in the construction of a Greenhouse (And across all industries) and the bottlenecks are expected to continue until 2023-2034. This had (amongst other points) led companies such as AppHarvest to review their earnings expectation from a prior range of $20-$25 million to $7-$9 million and increased their EBITDA losses by a staggering $22-$30 million.

Finally, Local Bounti offer only 7 different varieties of crops (all of them being leafy greens) whilst their competitors have expanded their product offering to other, more lucrative, crops such as tomatoes, peppers, and various kinds of berries.

In conclusion, I still wonder how Local Bounti will meet its target despite all the disruptions the entire planet is experiencing?