Executive Summary

1. The current market potential for crops that can ideally be grown in indoor, vertical farming systems is estimated at $252 million, broken down into the following categories:
1. Pharma Crops: $120 million, growing at 10% annually
2. Medical cannabis: $112 million in Canada, growing at 23% annually
3. Food crops: $30-$40 million, growing at 5% annually
2. Based on publicly-available figures, vertical farms will total approximately 1 million square feet by the end of 2016. This is approximately 4 percent of the growth in the larger protected agriculture industry in North America
3. Many trends favor vertically-farmed products of all types – local identification, short supply chains, and direct marketing of producers to consumers

Food Crops

4. Key markets in NYC and Chicago already have high barriers to entry, with incumbent businesses expanding and real estate costs preventing some ventures from getting established. Due to scale requirements of the model and competitive pressures from open field production, each market is likely to have a very limited number of profitable operations.
5. Secondary markets may be as attractive (or even more so, if startup costs are lower) as the major markets already targeted by the industry.

Pharma Crops

6. In the pharma crop space, Contract Manufacturing Organizations (CMOs) are the likeliest entry point for a new producer
7. There continues to be a strong and growing market for natural products, particularly products derived from plants or using botanical ingredients
8. Flavor houses, which supply natural and artificial ingredients to the food sector, may also be able to purchase large amounts of indoor-farmed products
9. The key advantage of vertically-farmed produce is food safety and purity

Medical Cannabis

10. While the medical industry in Canada grew substantially in 2016, and will likely grow substantially in 2017, there are some signs that caution may be warranted.
11. While quantity demanded is increasing at an impressive pace, this rate must be sustained for several years in order to meet long-term projections.
12. Optimistic growth projections have spurred tremendous investment, with leading players buying facilities far too large for current demand. Some of this space (such as half-empty greenhouses) should be used in other productive activities while their owners wait to license this new capacity, but it is not clear whether this is being done.
13. Given the full legalization process expected in 2017, this may be the last good opportunity for new suppliers to enter the market before a shakeout/wave of consolidation occurs.