Edible Garden (NASDAQ: EDBL) Will be joining the NASDAQ index with an IPO scheduled for Friday 29 April. The business is hoping that it will grow as well as its products do, but we’re here to delve into whether you should consider the company as an investment.
The company’s shares are set to go on sale for between $6 and $8, with 2.1 million units being sold in all. This represents a discount from the original plans for the price falling between $10 and $12, with just 1.4 million units initially on offer.
Maxim Group is acting as the underwriter for Edible Garden’s IPO.
What is Edible Garden?
Edible Garden is a next generation controlled environment agriculture (CEA) farming company. It operates a flagship facility in New Jersey following its formation in March 2020, though a predecessor business named Edible Garden Corp was started back in 2013.
The company uses traditional agricultural growing techniques together with technology to grow fresh, organic food, sustainably and safely while improving traceability. Its products are grown sustainably so Edible Garden avoids depleting natural resources in order to maintain an ecological balance, such as by renewing, reusing and recycling materials in order to lower the overall one-time use of materials.
Controlled greenhouse facilities allow the company to grow consistent quality herbs and lettuces year-round, first by eliminating some of the variability of outdoor farming with CEA techniques, and second by leveraging its proprietary software, GreenThumb. This patented software assists in tracking plants through the business’ supply chain, helping Edible Gardens to better manage the day-to-day operations of its business.
How Does Edible Garden Make Money?
The company’s business model is to grow local produce near high population density centres, allowing it to provide fresh produce to existing supermarket partners. The plan is to then co-opt the supermarkets’ wider network, allowing the business to theoretically create organic growth through existing relationships with retailers.
The company believes its focus on brand “Edible Garden” is a significant differentiator. It aims to attract customers to the brand with its focus on sustainability, traceability, and social contribution, which it defines as an ongoing effort to improve employee relations, working conditions, and local communities.
The company believes that the power of its brand together with the quality, innovative packaging and traceability of its products will result in customers associating Edible Garden with locally grown and sustainably sourced packaged herbs and vegetables. With this strategy, the company wants to drive local grass roots brand awareness and expand to become a national brand.
Reason for IPO
When it comes to the proceeds, Edible Garden has said it will use part of the money to strengthen its existing operations. Additionally, the company acknowledged that its auditors have issued an opinion that there is a substantial doubt about its ability to continue as a going concern if it is unable to complete this offering.
The company also noted that the actual allocation of proceeds realized from this offering would depend upon its operating revenues, cash position and working capital requirements. Pending its use of the net proceeds, Edible Gardens said it intended to invest them in a variety of capital preservation investments, including short-term, investment-grade, interest-bearing instruments and US government securities.
Investment Risks
EBDL has consistently operated at a significant loss in the short period since its inception, with the business registering a loss of $2.35m in the six months ended June 30, 2021. Reaching profitability appears to be largely contingent on attracting new customers and expanding production capacity.
During the six months ended June 30, 2021, the company earned approximately 58% of its revenue from just two customers. While this shows a strong relationship with those two businesses, it is also a worrying situation.
If one of these heavy hitting customers goes out of business or relations sour then EDBL could suddenly have a huge hole in its sales figures. The company is aware of this issue and wants to reduce this reliance on few customers by expanding its production capacity. This could work, but at present, the business is not in the safest position.
In addition, given the necessity for the public listing, the company may be required to raise further capital beyond the IPO, which could dilute shareholdings or otherwise damage the business’ share price.
Is EDBL a Good Investment?
The company’s proposition might be interesting and fairly unique, but that doesn’t necessarily make its shares a good investment. The business has itself acknowledged that this IPO is not about funding growth so much as it is about ensuring the survival of the company in its current state.
Even so, there are positives to EDBL. The business does have ambitions for growth and is just about as ethical an equity as an investor could wish for.
It’s worth acknowledging that the share price has been reduced, dropping significantly from Edible Garden’s initial pricing. This does not exactly inspire confidence in the stock, but the discount could mean an opportunity to pick up the stock at a cheap price.
Even so, this looks like an investment to be cautious with. The fact that the company is going public as a means of survival sets some alarm bells blaring, so this stock looks like quite a gamble. There is a lot of room for the company to grow into though, so if it does succeed in keeping its head above water then this could provide a win for investors.