A Funding Double Feature And Vertical Farming Follies

0:05Welcome to the CPG Week podcast by BevNet and Nosh, your source for the latest food and beverage industry news. I'm Monica Watrous, Managing Editor of NOSH, here with my co-hosts Brad Avery and Lucas Southard. If you're enjoying the show, please subscribe on your listening platform of choice. On the podcast today, we are discussing a tale of two funding rounds and vertical farming's fumbles. But first, guys, I don't think this has ever happened before, but did you realize that Easter is on 420 this year? I did. Yes. everyone's been talking about. No, but I guess it just gives people an excuse to eat more chocolate eggs than they might normally do.

0:48Either of you planning to celebrate either occasion? I think you could mix weed chocolate with the chocolate eggs or the chocolate bunny and have in your Easter basket start the morning off. Or actual grass instead of the fake grass that people put in Easter. Well, yeah, there you go. That'd be very expensive. Yeah. But it would be for the occasion. It only comes once a year. Well, 420 Easter comes once, you know, who knows, decade. I've never seen it before. This is, you have to think about it like the Gregorian calendar has to align with the moon cycle in order for the, actually, I have no idea how that works.

1:30I mean, I will point out that you are talking to two Jewish men. So we probably are not personally. I will speak for myself. But at least one weed enthusiast. Yeah. I mean, I will celebrate one of the two holidays. I'll let you decide which one. But it will actually probably be a nice holiday because my family's going out of town and I will be home alone for like the first time ever. So I will probably crack a nice THC beverage and maybe I'll shotgun and just see what kind of weird stuff happens at night. All right. The next time it will be Easter 420 again is in 2087. Yeah, we're all going to be dead.

2:09But I think, you know, I might be celebrating in the same way, Lucas, with I just got a shipment of Winx, new 10 milligram THC lemonades. And they're delicious, but they are powerful. They're strong. Yeah, I have some of those, too. And they're not to be trifled with for those of us who are not your everyday cannabis consumers. Which I am not. While not weed drinks, there were two canned beverage brands that started this week with some fresh cash. What happened and what does it mean for the category? Lucas, can you tell us about Culture Pop's funding round? By most metrics, Culture Pop is kind of the third most popular of the gut health soda, modern soda set.

3:00And what they have done slightly differently than a lot of other brands is they've kind of kept a lower profile than the Olipops or Poppies that we've talked about a lot on the show. That's not to say that they don't have a lot of funding and a lot of support behind them. So last week they filed a SEC Form D that announced that they'd raised a little over$15 million. And this is coming off the back of a separate funding round they did last February. So February 2024, where they raised$21 million. What's interesting about CulturePop is it does have a bit of a pedigree. Tom First is the founder and he is probably most well known for being the co-founder of Nantucket Nectars.

3:49So he's been in the beverage game for a long time. And Culture Pop is slightly different than Olipop or Poppy in that it is a probiotic soda. And they've taken a little bit more of like a fruit forward approach. They don't have a cola. They don't have a root beer yet, that is to say, in their lineup. but they have a lot more of kind of fruit flavors that are part of their portfolio. And it's a New England-based, a Massachusetts-based brand. They've built out a really strong distribution network here in the Northeast and have been steadily spreading out. And just this week, they announced they went nationwide in Target.

4:26And last year, they went nationwide in Walmart. So they have some pretty good distribution. They're just not as flashy, maybe, as Poppy or Olipop. But this new funding is definitely going to go towards increasing their marketing spend and investing more in sales team because they're moving deeper into DSD as their main avenue of distribution. But Lucas, did you know that there's only one traffic light on the island of Nantucket? I didn't know that. I learned that from a Nantucket Nectars bottle cap. Oh, there you go. Oh, I mean, I love Nantucket Nectars. Something very unique. Then you should have known that.

5:10I know, but it's like the Snapple, like all the little fun facts they used to have on the Snapples. You read it and you're like, oh my God, that's really interesting. And then it's... Culture Pop's a really interesting brand though. And I think being in Boston, there's strong distribution locally. I see it sold in a lot of places around here. So they've done a very good job at penetrating both chains and independents in their own backyard. I'm not sure what the distribution looks like in the rest of the country, but it's worth remembering. This is a strong number three behind Poppy and Olipop in this functional Better For You soda set.

5:45And coming right off of Poppy's big exit to Pepsi and a lot of buzz around what's going to happen next with Olipop, this is Culture Pop's chance to start closing the gap, as they said and as they told you. So I think it's the right time for this brand to really be making a push and differentiating itself further from the now strategic-led competition. They have a pretty strong footprint here in the Northeast. And that was something I brought up with Tom when I talked to him this week. And he said they've done a great job, especially in a place like New York City. They've partnered with Big Geyser.

6:25um yeah and they've done a he said an unbelievable job finding ways into that really complex grocery and independency store channels that that exists there in new york city but what they want to do with this this new funding is to really take that same approach to dsd into some of these other big metro areas and put some ad spend on on you know building up some brand awareness for culture pop in places that they you know they might be in a couple stores but they want to be they really want to be a competitor to Poppy and Ollipop. You know, there is an important question I've been meaning to ask Tom first that I forgot the last time I had a chance to talk to him.

7:03And I wonder if you asked him this, but is Derek White nice in real life? You know, I didn't bring up the Derek White partnership, but I would guess, yeah, he seems nice. He seems like a really nice guy. This is, of course, Boston Celtics star Derek White, who is a brand ambassador now for Culture pop for anyone listening who doesn't follow the NBA. And the person also in this podcast who had no clue what you were talking about. Well, once again, we're entering NBA playoffs. Of course. And so, you know, this is an important topic. You're going to hear a lot about NBA talk from me and Brad. So, you know, start studying up, Monica.

7:40Yeah, I know. There's a lot of, you got to bridge that gap. I got to do something when it's not football season. Yeah, yeah. Well, there you go. Well, moving on from CulturePop to the real company, Brad, you talked to the founder and CEO about its$15 million fundraise this week. Can you tell us more? Yes, time for some real news. So this is RYL, the maker of Real Tea. I spoke with Bloda Nukella, who is the founder and CEO of the brand that started in 2022. So it's entering now its third year in the market. And they also raised$15 million in a Series B round that they say is now going to accelerate the brand into hyper growth, which is their term.

8:22and they're looking to go from 10 ,000 doors at the end of 2024 to 40 ,000 by the end of this year. The brand, kind of like Culture Pop, also raised a little bit of money last year in a 7.5 million Series A that they were a little quiet about. And this is now really coming out the gate. If you'll remember, if you're aware, the brand, Reel has Morgan Wallen, the country music star, as an investor and partner, and he re-upped as part of this round and is continuing to be pretty active in the brand and will be helping to open doors to get them onto the ground at festivals to do promotion. But really, the big drive for why this brand is going to grow, so says Bloat and Ukela, is that they've really invested in their DSD network.

9:12They also have Big Geyser. They have some other key partners across the country. Polar Beverage up here in the Northeast they have. And so they are looking to supercharge. They're going to be doing LTOs to try and build awareness. They're focusing a lot on digital marketing. And it's a lot about just getting into those accounts now, getting into stores and supporting it, hiring. They're looking to go from just under 40 employees to over 100 by, again, the end of the year. It's a pretty tight turnaround for what their ambitions are, but they think they can do it. Did you say 40 ,000 retail doors?

9:50Yes, 4-0-0-0-0. So the part about Reel that's interesting to me is it is part of this new class of emerging T startups that are looking to really upset the category with better for you products. We've seen a lot of attempts at that over the years. Some have tried and failed, but there's now some room being made with products like Liquid Death or even a long-time player like Yerba Mate brand Guaya Key, charging growth in a category that has otherwise been a little sleepy, as a lot of people have called it. But alongside Real, you've got Just Ice Tea, you've got Half Day, you've got St. James. There's a lot of brands now that are making a serious push to disrupt the set, get some fresh faces in there, get some better-for-you organic, clean-label product in there.

10:38And that's what we're seeing and what I think this investment really shows is some strength for that. Yeah, Brad, and you named a couple of brands that I've been following as well. And they've all kind of taken slightly different approaches, which is what's interesting about it. So most recently, St. James just relaunched under a completely new packaging. They were using Tetra Pak cartons. Now they're doing aluminum, resealable aluminum bottles for theirs. So really kind of leaning into that sustainability and organic ingredients. And then you named Half Day, which was a brand that also did a packaging refresh recently.

11:17And they tried to kind of update their look and revamp kind of their image. But also part of that was they're a prebiotic iced tea brand. So they're kind of leaning into that modern soda set a little bit too, saying like, hey, this has some functional benefits. or this is a good-for-you version, low sugar, and has some inulin or other types of prebiotic elements to be good for your gut. So it's funny how this iced tea category has started to grow up in an interesting way because there's a lot of different approaches that seem to be trying to hit on a lot of different trends in beverage. There's another brand that you didn't name called Viable Energy Tea, which infuses its iced tea, its bottled brand, but includes L-theanine and some other nootropics and adaptogens for mental clarity and cognitive benefits.

12:15It's funny you mentioned the connection, though, to the functional, better-for-you sodas, because that is something Bloda and I talked about briefly. When I asked him about all these other tea brands, he started talking about poppy and how that's validation that Better For You is still growing and still representing the future. Another interesting point you brought up, Lucas, is St. James rebranded into aluminum bottles. So Real, Liquid Death, Just, Half Day, Seven Teas is another. All of these brands have cans. some of them are only in cans just has glass as well but all these products are going into a canned or aluminum format which i think also shows a bit of how the disruption is looking because otherwise what arizona is the main can t brand but you've got pure leaf and others in plastic and pet that I think aluminum is really selling the convenience factor, but also selling the sustainability factor as well.

13:22Insiders can read more on BevNet about both of those deals. The stories are called Culture Pop lands$15 million to close the gap in modern soda, and Real Tea plans for 4X hypergrowth fueled by a$15 million funding round. Turning now to another well-capitalized sector, vertical farming. Lucas, you wrote about some of the struggles this industry has faced in recent years after raking in some significant capital. Can you tell us more? It's been an uphill climb for food tech at large. So one of the main points of contention for the broader food tech category has been overinvestment and underperformance.

14:01So a lot of big claims about changing the broken food system or doing away with the meat industry and replacing it with alternatives that taste just the same and look just the same and cost the same. But for the most part, that really hasn't come to fruition. So I posted a feature last week using vertical and innovative indoor farming businesses as a case study for the struggle of scaling in food tech. And similar to what we have seen in alt-meat innovations like cell cultured or precision fermentation-based proteins. So agri-tech solutions to conventional agriculture have received a lot of early interest from VC and private equity groups in kind of the mid-2010s up through the pandemic.

14:54So total food tech investment peaked in 2021 at $61.2 billion. This was according to a report from Forward Fooding's Food Tech 500 report. Now, over the last four years, however, food tech funding has declined severely, dropping to about$16.1 billion in 2024. Now, agri-tech, or more specifically, vertical farming, was one of the hardest hit with this decline in investment. So among the many companies operating in this space, there are a number of startups that were heavily funded and have either since shuttered or had to restructure their businesses under Chapter 11. One company, Plenty, is probably one of the most recent and glaring examples of this issue.

15:42So since launching in 2014, the vertical farming company, Plenty, raised nearly$1 billion. But they announced last month that they were going to have to restructure under bankruptcy protections and close down a facility and kind of reframe how they're going to continue to do business. One reason many vertical farming startups like Plenty haven't really met the initial expectations for growth and success is based on the fact that these are capital-intensive technologies. One source I talked to described opening and operating an indoor growing facility was like playing whack-a-mole. Once you figured out one solution, there were a couple new issues that popped up and they were never the same issues.

16:30So even though you might've figured it out in your first facility, you open up your second or third and you're going to have new problems because you're dealing with a living thing. You're dealing with an agricultural product. It's not something that can be reproduced as easily as you can other packaged food. Another big problem has been that most of these operations have kind of picked the lowest hanging fruit, or in this case vegetable, to grow. So many indoor operations have chosen to grow leafy greens and herbs, which are relatively easy to produce and grow indoors. But they also have to compete in a grocery store with commodity and conventionally grown options, which are also very easy and cheap to produce.

17:17and don't have the same scaling issues that a vertical farming operation has. So there is a lot of headwinds. And even though there was a lot of promises made and a lot of investment, it hasn't been as quick to scale as everyone would have hoped, I guess. That's not to say there haven't been some success stories. So Oishi is a vertically farmed berry company that started by making these kind of$50, like a 12-pack of strawberries. Now, they've brought that price down significantly, and they've been able to not only garner new investment, but also do some acquisitions of smaller food tech, mostly software companies and robotics companies to kind of streamline their automation and streamline their production to not only bring that price down, but also expand their distribution into different regions.

18:16And this is something that a lot of the sources talked about is that focusing on products like a strawberry or even some of these commodities that are facing pretty tough headwinds from climate change like coffee or cocoa or vanilla beans are actually places where vertical farming or indoor farming could really do well because it's stuff that isn't easily produced year round. but they can also be grown and fit a demand and a need that is a lot harder to meet. And so that's where a lot of the sources I talk to kind of see the future of vertical farming, but they also hedge those expectations by saying we're still a little bit a ways off.

19:03And so there's still a long way to go for us to be growing even a majority or a portion of our agriculture indoors and in a vertical farming type of technology. Nosh Insiders can read that special feature. It's called Vertical Farming's Fumbles, How Indoor Operations Are Rebounding from Early Struggles. And here are some other notable bits of news from the week. Spring and Mulberry refines its omni-channel approach. How Fly By Jing is navigating staggering tariffs. And Molson Coors CEO Gavin Hattersley is set to retire. For these stories and more, become an insider at BevNet and Nosh. That wraps up this edition of CPG Week by BevNet and Nosh.

19:52Thank you to our audio engineer, Joshua Pratt. Our director is Mike Schneider. And our designer is Aaron Willett. If you enjoyed the podcast, please subscribe on your listening platform of choice. and we will see you next time.