The Future of Indoor Growing with Chad Sykes of Indoor Harvest

Chad Sykes

In this episode you’ll get a glimpse of what indoor growing will look like in the years ahead. Where water, nutrients, are delivered to plants on demand without the need for soil, the sun, or much growing space. Chad Sykes is the founder and CEO of Indoor Harvest, Indoor Harvest is traded under the symbol: INQD

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Key Takeaways:
[1:22] – Chad’s background
[2:43] – What is Indoor Harvest
[4:27] – What is aeroponics
[8:29] – Chad explains his ideal way of indoor cultivation
[10:52] – How to reduce cultivation costs 70%
[13:18] – Chad explains where his ideas come from
[14:27] – Chad talks about the study being performed with Tweed
[18:35] – Chad talks about MIT’s City Farm
[20:55] – Produce that grows well using aeroponics
[23:20] – Indoor Harvest signs LOI with PUE 1.0
[28:05] – Lighting used for indoor farming
[29:11] – Chad’s final thoughts
[32:34] – Contact details for Indoor Harvest

Read Full Transcript

Matthew: Hi, I’m Matthew Kind. Every Monday and Wednesday look for a fresh episode where I’ll take you behind the scenes and interview the leaders of the rapidly evolving cannabis industry. Learn more at www.cannainsider.com. That’s www.cannainsider.com. Do you know that feeling when you sense opportunity, when you see something before most people and you just know it will be successful, then you're ready. Ready for CannaInsider Consulting. Learn more at www.canninsider.com/consulting. Now here's your program.

As more capital flows into cannabis cultivation business owners are looking for ways to drive automation and yield for their plants. That’s why I’ve invited Chad Sykes CEO of Indoor Harvest to help us understand the latest in terms of technology and indoor growing. Welcome to CannaInsider Chad.

Chad: Thanks Matt.

Matthew: To give listeners a sense of geography can you tell us where you are in the world today?

Chad: Yeah we’re based in Houston, Texas about five/ten minutes from downtown Houston over here in the historic 5th Ward.

Matthew: Okay. I want to jump into everything you’re doing with Indoor Harvest, but before we do, can you tell us a little bit about your background and how you got in to indoor cultivation?

Chad: Yeah so originally I spent about ten years in the mechanical trade industry primarily on the plumbing side, but I did do some work on medical gas and HVAC. I worked for a number of mechanical contractors as a project manager and a superintendent. So I had quite a bit of experience in working on large mechanical projects, mainly hospitals. I did some breweries, dairy operations and things like that. I initially started my career out in the construction industry in mechanical trades and then served in the military and then got into doing investor relations once I got out of the military.

What basically got me into vertical farming was back in 2008 I was helping one of the first indoor farms in the United States, Angel Eyes Produce which is also the first to get organic certified vertical farming. Basically went in and was helping them raise money and that was when I was initially introduced to indoor vertical farming, and basically just followed the industry since now and been following ever since. And in 2011 I felt that there was an opportunity here so I quit my IR job and started Indoor Harvest.

Matthew: Now tell us exactly what Indoor Harvest does.

Chad: Okay so basically what we did was having followed the vertical farming industry since 2008, basically what I did was followed it and identified some key issues with how people were approaching the industry. There’s been a lot of large failures in the industry, VertiCrop, TerraSphere, companies like that. And basically what they all had in common was they were designing a large pre-engineered system. So you would franchise the system or license the system. The problem with that though is in vertical farming how you sell your crops, your business plan itself, you know, and the building, the infrastructure of local markets, everything all really dictates how the facility should be build. And so a one size fits all solution just really isn’t the future of vertical farming.

So we’ve spent all of our time since 2011 developing individual fixture components that we can basically combine in a number of variety of ways to build a variety of system types. So I guess the big differentiator between us and other people in the industry is that we’re setting up to be a mechanical contractor. What that means is we can be hired and do all the design and build work from process flow to automation, the system itself. Everything is completely designed from the ground up specific to that client’s needs. So we’ve basically developed all these fixtures, we just basically combine them using standard mechanical construction techniques.

Matthew: So to understand indoor farming it’s probably helpful to understand what aeroponics are. Can you explain briefly what that means, that term?

Chad: Yeah so aeroponics is the one discipline of cultivation that we’ve decided to focus on, but we do offer hydroponic methods and things like that. They’re a little more less complex than aeroponics, but the primary benefit of aeroponics itself is a dramatic reduction in water usage. You typically see about a 60 percent decrease in fertilizer usage. You can typically run an aeroponics system drain to waste and use the same amount of water as you would typically see in a recirculating hydroponic system. So you eliminate a lot of the controls and risk factors that go along with recirculating the system. You also see higher yields, faster growth, sometimes in the neighborhood of 30 to 40 percent faster. And you see higher photochemicals in the plants. So one of the reasons we chose to focus on high pressure aero, and not necessarily for produce production, I personally believe that for the most part hydroponics is going to be the indoor method primarily used to cultivate the low margin crops.

Our primary target market with the high pressure aero system is actually what we call bio-manufacturing or for plant based expression where crops are grown indoors primarily for their chemical content which is used in the pharmaceutical industry quite a bit to grow a variety of vaccines and various proteins. Yeah the big issue is, you know, the big issues looming right now are going to be, for example, antibiotics. We’re going to have a huge issue with antibiotics and new antibiotics which was recently discussed in a Vice News program on HBO that you know, most of these new antibiotics are going to probably most likely be plant based dry. So we’re going to you know extract the chemicals from these new found plants deep in the Amazon and you know they’ll have to be cultivated in order to express the plant or pull the chemicals out. That’s primarily what we’re developing on the high pressure aero side is a pharmaceutical based type production platform.

Matthew: So I understand this correctly, so aeroponics is kind of using a mist to nurture a plant to drive some compound out of the plant, but maybe not use the whole plant itself. Whereas hydroponics it’s some sort of soilless medium where you actually do want the full plant. Is that accurate?

Chad: Close. I mean basically the big difference is in the response of the plant. So with aeroponics, especially if you’re doing research, you can make changes to the inputs of the plant, both the climate environment and the nutrients and water amounts. And what you see is an immediate change in the plant. So when you’re using hydroponics you don’t typically see an immediate change in the plant. So you know it takes a couple of days to see changes once you’ve changed your formula. Whereas with the aeroponics because the plant is feeding so efficiently you can make very precision changes and then identify what that’s done to the plant itself.

The primary reason for this is because since the roots are being fed about a 50 micron mist, the water molecules and the nutrients and the atoms and all that kind of good stuff are more readily available to the plants, especially if you’re using an inorganic fertilizer. So the plants basically feed very very efficiently as opposed to hydroponics.

Matthew: Now when you look at indoor cannabis cultivation, I’m sure you don’t see it with the same lens as the average person. Can you just kind of walk us through how you think about cannabis cultivation done indoors? There’s the typical, traditional way that it’s done and the way that you would see it as an ideal. Can you just kind of walk us through that?

Chad: Yeah so the primary way most commercial facilities are cultivating cannabis are either in pots like coco or soil or their using like flood and drain system with rockwool. Basically the methods that are being used today in the cannabis are pretty much what the elicit growers were using for the last several decades. You know there’s been some advances in lighting technology. There’s been advances in HVAC and things of that nature, but there really hasn’t been any change in how the crops themselves are cultivated.

So the difference between a platform like ours is basically with cannabis you could expect as much as a 70 to 80 percent reduction in cost of goods using a platform like ours. You know, this is mainly the reduction in fertilizer usage, the reduction in labor because you eliminate all the labor associated with managing the medium. So if you got a grow with thousands of pots of soil or rockwool, that has to be disposed of and managed. So you eliminate all of that. The faster production rate, you’re going to get a faster production rate with aeroponics, and you have more precision control over the photochemical makeup. So you can dial the system in. You can purposely stress the plants to produce higher levels of photochemicals. So it’s an all around better platform. It’s basically like comparing a Pinto to a Porsche.

I believe the reason these technologies haven’t been adopted yet is just primarily because they haven’t been developed yet. To my knowledge we’re the first company actively doing controlled research and development to bring aeroponics into the cannabis cultivation.

Matthew: So I really want to dig into that 70 percent reduction, and I’m sure that’s probably an estimate, but it’s fascinating. Cultivators out there or business owners want to know, hey what exactly is the 70 percent. So you’re not lugging around huge bags of soil for one, so you need less space. It’s entirely more efficient and you’re delivering right to the root system exactly what it needs when it needs it. But what else, I mean what else makes up that 70 cost reduction?

Chad: It’s primarily just the operation itself. I mean for example I personally believe over the next decade or so you’ll start to see cannabis flowers becoming more of a connoisseur type product. I think that eventually the market will move more towards extracts and that’s only because of the labor involved in drying and curing and packaging raw flowers. I can envision in the future, you know, a large automated platform where there’s very minimal human input. You know a situation like aeroponics I mean if you’re dealing with any kind of a medium, that’s going to complicate the automation process. But if you’re working with a system that has no medium, you know, you can more readily automate that process.

So I would imagine future cannabis cultivation is going to be very strain specific or specific strains will be developed based on their growing qualities. You know for example you could see large scale sea of green type automated facilities that would go straight to extraction. So there’s minimal waste and ease of manufacturing. Basically long story short I mean the cannabis industry when I look at, you know, it’s about where the 8 track cassette player was. And we’re basically right now wrapping up development on the CD-ROM. I guess that’s a good way to kind of explain as we’re really working on the high tech side of the industry, you know, capex costs for these types of equipments are higher. I think due to the huge price, you know, of cannabis because it’s still technically in parity with the illicit market and things like that. There really hasn’t been no incentive for growers to use more advance technology, but I think that’s going to change. I think price pressures, you know, as the market started to become saturated and your supply and demand starts to come in parity with each other, I think what you’ll end up seeing is a move towards more higher automation just to be able to compete.

Matthew: Now where do you get your ideas for automation? I mean do they come to you in a dream? Do you take them from other industries? I mean do you go over to Holland because I’ve heard they’re way ahead of us, ten years ahead of us in their cultivation practices. Where do you get them? Is it necessity is the mother of invention? Where do your ideas come from?

Chad: You know I had no background in horticulture before I started this company. You know I just basically looked at it from a mechanical process. And for me when I was introduced to aeroponics everybody sort of displayed it as being some really high tech method and to me it was just a high pressure nozzle system that you would typically see in dust suppression in a mine or any sort of chemical process. So you know from a mechanical point of view I just looked at what people were doing and decided I can do that better. I can do it easier. And so we got started playing around with it and so that’s where we’re at today. And I guess it’s just a knowledge of mechanical processes. Whether you’re doing a dairy facility or a meat processing facility or a large hospital medical gas system. These are all large mechanical systems that require a certain level of automation and that’s my background.

Matthew: Now we’ve had the CEO of Tweed, Bruce Lenten, on CannaInsider in the past. I understand you’re doing a pilot study with them. Can you tell us a little bit about that?

Chad: Yeah so we needed, we had already developed our high pressure platform. We had already filed patents on the particular design that we developed, but what we needed for cannabis was to do additional R and D to be able to develop the platform for cannabis specifically. And each plant is a little different based on how its root structure develops and things like that.

So what we did with Tweed was we wanted to find a grower outside of the United States because of all the federal issues and you know we ended up setting on working with Tweed. And the purpose of this whole relationship with Tweed was to do the R and D that we needed to finish out developing this platform to bring to market. So we set up a pilot at Tweed’s facility and basically that pilot is underway right now. It started about a week ago. And we’ll start to get feedback based on how the plants are growing. And what that feedback will allow us to do is basically develop IP for the process, for specific to cannabis. And then what would happen is Tweed would have the rights to that IP outside of the United States and we would have the rights for the IP inside the United States, and we would have the exclusive manufacturing of all systems for period of ten years. So if Tweed likes the pilot, if they like the results, then they would have access to the IP for use in their facilities.

Matthew: So to give listeners a sense of context here, I believe health Canada has awarded somewhere in the neighborhood of 25 cannabis cultivation licenses. Tweed has one of them. And to compete in this market in Canada, you have to raise a lot of capital and it’s legal to raise capital on a national level. So Tweed is a publically traded company that’s raised a lot of money and they can really invest in their best cultivation practices. How large is the, roughly is the size of Tweed’s grow there in Canada, Chad.

Chad: I mean it’s pretty sizable. I’m not sure the exact space that they have. Having been in their facility they definitely have a lot of room to grow. I believe the facility they’re currently in, the indoor facility is I think roughly 400,000 square feet. I may be wrong about that.

Matthew: Yeah it’s enourmous.

Chad: What I can say, I’ve been in the facility and they’ve definitely got tons of room to expand.

Matthew: That’s good. Is there one aspect of the pilot that excites you the most that you think Tweed will see the most benefit from.

Chad: I think ultimately it will just be the data, the data that we pull out. You know the question will be whether it makes sense to their capex plans to you know to retrofit it or to do it slowly or whatever. You know I don’t know whether or not Tweed will end up using the equipment, but for us you know the relationship, the data that we get will allow us to develop the platform out regardless.

To back up a little bit, I mean, we’re not doing this to prove aeroponics works. We know it works. We’ve used the system. We’ve grown a number of in house technology pilots ourselves and then MIT has been using a platform we built for them for over a year and a half now, and they’ve grown a wide range of cultivars. They’ve grown everything from lettuce to cotton. And the numbers are pretty much average. I mean you pretty much see the same benefits regardless of the crop. So I don’t suspect this will be any different with cannabis.

Matthew: Yeah let’s talk about MIT a little bit. So they have a program called City Farm where they’re looking to help metro areas grow food vertically I believe in a kind of metropolitan environment versus a rural environment. Is that accurate?

Chad: For the most part yes. Basically MIT City Farm is developing the sort of brain or the software infrastructure which would be open source. So what they’re developing is a open source automation platform that will be able to collect a wide range of data and then share that data across the network basically for research purposes and hobbyists could use it to share lighting recipes and things like that. But also what City Farm is working on right now is developing a software platform that would be open source that would allow developers to develop a wide range of technologies for indoor farming upon that platform. It’s real similar a parallel to 3D printing. I mean that was basically designed out of MIT as well. You seen how well the 3D printing open source makers movement has really exploded because of that.

I think that openly what MIT is wanting to do is make the data and the platforms available to researchers and developers to help speed up development of vertical farming. Because the thing to understand is you know, even though cannabis growers have been growing indoors for years only recently has the produce role started to grow indoors. And there’s more money, you know, being invested into research in that area because of interest in food security and things like that. You’re not seeing that research being done in cannabis. I think that’s primarily because again there’s been no incentive for growers to really invest in new technology because the profit margins are so high or the cost of cannabis is so high. I mean compare that to a produce product like lettuce. I mean there’s no reason cannabis should be $2,000 a pound basically. So I think that ultimately that’s what, MIT is basically working towards developing open source platforms.

Matthew: So is there certain produce that lends itself to really doing well in the indoor growing environment with aeroponics. You mentioned lettuce. Is there any others?

Chad: Aeroponics will grow just about anything. I mean you can even take hardwood cuttings off of a shrub or a tree and you know for many strains or many types of hard woods you can actually propagate the hard wood from a cutting just like you would clone a tomato or a cannabis plant. So there’s a huge range of applications for aeroponics not just for what we consider crop production. There’s ornamental production, there’s mass production, there’s seedlings for forestry and things like that. So the applications are quite wide and vary dramatically.

There’s still actually, to be quite honest, a ton of R and D left to do. We’ve been approached to look at things like, you know, developing platforms to grow ginger, to grow saffron. So there’s definitely interest out there in the markets for very specific niche platforms. This R and D just has to be done. I mean nobody’s doing it really so somebody has to.

Matthew: Now there’s some large players like Aero Farms who have not gotten involved in cannabis. Why do you think that is?

Chad: Well I’m not specific to why Aero Farms has not. My gut reaction is that it’s just probably simply that the platform’s just not really designed to grow cannabis. The other issue I think for many or most people in our industry, in the vertical farming industry, the reason they have not crossed over to cannabis is that many of them are research heavy. So they’re being funded typically through colleges or research grants or things like that. And I think just simply being involved in cannabis is a concern for those groups because they could possibly lose their grant and research funding. All of our research has been privately funded. We have not attempted to gain any funding, but we could easily probably get it, but you know it is a sensitive topic. It’s a political topic and vertical farming is an industry that is moving towards government subsidies and research grants and things like that. So I think for a lot of these companies they just don’t want associate for that particular reason.

Matthew: Now Indoor Harvest recently signed a LOI with PUE 1.0, can you tell us more about that?

Chad: Yeah so PUE approached us, saw our news release about what we were working on in the vertical farming industry and they were looking to bring their HVAC system that is used in the data center industry to the vertical farming industry because there’s a lot of great technological features that would benefit indoor farming with PUE’s platform. And it’s a little different than your standard chill water or DX system. They include a heat well which is from a Koyoto. And long story short they basically have really really a high level of efficiency compared to other systems especially in cooler climates.

So the vertical farming for produce for example is going to be prevalent in areas where their water resources are going to be an issue or where climate such as cold weather or lack of sun or minimal sun like Canada and places like that, that’s where you’re going to really see vertical farms develop out. And in the colder climates these systems that PUE makes are in incredibly incredibly efficient. They’re able to take in outside air up to 60 or they can take 90, I think it’s 94 degree temperature inside facility temperatures and reduce that to 72 degrees with no compressor runs as long as the ambient temperature outside is 68 degrees. So it’s a very highly efficient system. And when we did our due diligence you know we found that there was a good fit. And so the letter of intent we signed with PUE is basically the first step in a collaboration with them to bring or develop their platform to work with indoor farming.

Matthew: Now you mentioned that indoor farming lends itself well to some place where water is scarce. You recently signed another LOI with the city of Pasadena. Can you tell us about that?

Chad: Yeah so the city of Pasadena Project is something we’re probably the most excited about. It is a public… if we can get everything set with the city, it would be a public/private partnership. So there would be a commercial aspect to what we’re doing as well as a nonprofit aspect. The primary purpose for us with the facility is to just basically develop a large scale demonstration farm. So something we can number one do long term R and D in. The other thing is to season our team, you know, it’s not like you can go out and hire somebody with experience in indoor farming. It’s a very very young industry. So there’s only a handful of people that are out there that have the knowledge.

So one of the benefits of this project is it’s going to include an academic aspect. So the city is trying to tie that into the academics that are local in Pasadena and Houston so that the facility would both serve not only as our demonstration facility and long term R and D facility, but it would also serve as a facility to educate and train the next generation of indoor farmers, especially managers and operators and things like that. So it’s a pretty broad project and it’s also part of Pasadena’s redevelopment plan for the North Pasadena area. So it’s going to be for the most part a show piece of that area. The facility itself is just really a big CSR R and D type of situation where we’re being subsidized by the city to provide fresh food and education and all the good stuff that comes with the nonprofit side of the project.

Matthew: Do you have any ideas on what kind of food is going to be grown there?

Chad: At present no. We actually have a project meeting May 4th and in that project meeting we’re going to start discussing the terms of the MOU which would be the final proposal that would then go in front of the city, the city council. And so I’m not exactly sure how that’s all going to work out just yet. Ultimately what we have to do is bring in some specialists here in the city of Houston and Pasadena to determine what the market is for particular crops. And ultimately the business, the commercial side of the business or the for profit side of the business will be based solely on what we think would be the most effective solution for the Pasadena area. But that will take place in the next month or so once we start doing that R and D.

Matthew: What kind of lighting do you typically use on the projects you work on? Is it traditional, LEDs, something else?

Chad: I mean as a mechanical contractor, for the most part we’re agnostics to lighting. We typically provide the client with information and let them decide. We do work closely with Illumintex which is an LED company. They’re sort of our default light system because it integrates well into our framing platform. But in terms of lighting, you know, like I said we are a mechanical contractor so we’ll use any lighting system that meets the client’s specifications. So it’s just really basically we just provide the client with information and allow them to make an informed decision on their own.

Matthew: Now Chad in closing do you have any final thoughts on how commercial cannabis cultivators should start to evolve their thinking around become more efficient because I feel the way you’re going is kind of inevitability here in the next five or ten years. And if there’s some cultivators listening now that can make some of these changes or tweaks that you’re talking about, adjust their thinking and process, they can have a real advantage. Is there anything you can share?

Chad: Again it’s just really about automation. You know, creating consistency in your crop. I’ve been in a lot of cannabis grows, and you know a good percentage of them didn’t have adequate integrated test management. You know, it has a lot to do with facility design I think. The best thing I can tell growers out there right now is don’t rush into setting up the cheapest grow you can because your more heavily funded competitor is going to develop a more advanced, more efficient platform and ultimately produce the product cheaper. So that’s the best thing I can tell growers is to look at what are the advanced technologies. Don’t assume you know rockwool and coco is the state of the art because it’s currently not. So that would be my best advice to growers is to just look out there and see what technologies are available, and there’s a lot of really interesting new technologies being developed on the produce side.

Matthew: Yeah. And a lot of cultivators that are on the fence about how to use this new technology might take a small portion of their grow and dedicate it to trying new things to see how it works and you know how they can evolve.

Chad: Definitely, like I said, it’s ultimately going to come down to technology is going to evolve in the space to make operations more efficient. If that’s changing from high pressure sodium to LEDs, that alone is a pretty good drop. I know that some growers don’t like LEDs because they see generally a 20 to 30 percent reduction in their production output, but I think that if they looked at their grams per watt of their actual cost of goods, they would see that they actually have a higher margin. So as long as they can increase their production to meet whatever production they’re looking for, they would have a higher margin. Ultimately technology in this space is moving very quickly. It’s another reason why we have not focused on a pre-engineered system like companies like AeroFarms and other companies out there is that the technology is moving so quickly in the space it’s just better for us to focus on what are the new technologies and then adapt those to our current construction methods.

Matthew: Fascinating stuff. What I hear you saying is like don’t have a technology religion. You know, you said be agnostic. I think let the data speak for itself, try new things.

Chad: Exactly and there’s a lot of companies out there that say they have the next greatest best thing and ultimately for us as a mechanical contractor you know building out this Pasadena facility will provide us a location to test out these products and see if they actually, you know, can be integrated into our construction methodology. It really is. The technology is moving very quickly. This whole indoor farming space is truly at its infancy. And I think that if investors in the market were to closely look at our company they would find that we are probably one of the few companies positioned to be a design, build, engineer for the space.

Matthew: Now Chad where can investors learn more about Indoor Harvest and then people that are interested in becoming clients perhaps learn more?

Chad: Well the first thing they can go to our website which www.indoorharvest.com. We’re also pretty active on Twitter and that’s at www.twitter.com/indoorharvest. We also blog pretty regularly about our operations on our Facebook page which is also www.facebook.com/indoorharvest. You can reach us through any of those mediums. You can also go to our website and email us through our contact form. For our aeroponics platform we’re probably still at least another six to eight months out to wrap up development there, but if growers are interested, they can contact us. We are about to release our shallow raft system. So we’re hopefully going to get sales started on that either later this month or early next month.

Matthew: Okay. And is there a ticker symbol associated with Indoor Harvest?

Chad: Yeah the ticker symbol is INQD and we trade over the counter, actually OTC markets, OTCQB and we were one of the few companies that went public through an S1 directly as opposed to a reverse merger.

Matthew: Okay great. Well Chad thanks so much for coming on CannaInsider and educating us about indoor growing. This is a fascinating topic and I know a lot of people are going to be interested in learning how they can update their grows to get somewhere near the Star Trek utopia you’re talking about here.

Chad: The Star Trek utopia is not that far away.

Matthew: Cool. Thanks for being on CannaInsider Chad.

Chad: Thank you Matt.

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