AppHarvest is in a lease dispute with its exclusive distributor Mastronardi Produce.
As Louisville Business First reported in December, AppHarvest (Nasdaq: APPH) sold its 15-acre Berea, Kentucky, farm to Mastronardi Berea LLC, a joint venture between Mastronardi Produce and COFRA Holding, for $127 million. The sale-leaseback transaction included the indoor farm itself and surrounding property totaling 40 acres.
Last week, AppHarvest received a notice of default and termination from Mastronardi Berea LLC in regard to the lease agreement, according to a filing with the U.S. Securities and Exchange Commission. Mastronardi claims AppHarvest is in violation of the lease with respect to minimum production volumes, and it demands AppHarvest vacate the property.
According to the lease agreement, AppHarvest is required to grow leafy greens in volumes of at least 75% of the volume consistent with the forecast as outlined in its marketing agreement with Mastronardi.
AppHarvest maintains it is meeting those requirements.
"AppHarvest believes it has met the terms of its lease agreement for the Berea farm and recognizes that such notices from creditors are not uncommon as a strategy for firms attempting to push their way to the front of the line in case of an actual default," the company said in a statement. "AppHarvest will defend its position with counterclaims should any damages result from Mastronardi’s attempted termination of the lease."
AppHarvest is working with Mastronardi on a resolution, the SEC filing states, but if it is unable to resolve the alleged defaults under the lease, it would have a material adverse effect on the its liquidity, financial condition and results of operations, and could cause the company to become bankrupt or insolvent.
Meanwhile, operations continue as usual.
The lease dispute comes roughly a month after AppHarvest disclosed one of its creditors, Equilibrium Sustainable Foods LLC, is seeking the immediate repayment of a $66.7 million loan that was used to construct AppHarvest's 60-acre tomato farm in Richmond, Kentucky. That could trigger a default on another $69.4 million loan from Rabo AgriFinance for the same facility.
In the same SEC filing that detailed the lease dispute, AppHarvest noted its board of directors chose to elect to defer an approximately $455,720 interest payment on its Equilibrium loan. The company said it is "continuing dialogue" with Equilibrium, but a resolution has not been met.
Earlier this year, AppHarvest secured $46 million from an underwritten public offering. It spent $21.2 million on capital expenditures in the first quarter alone, and expects to incur approximately $40 million to $45 million more in capital expenditures over the next 12 months for final project details at Berea, Richmond and Somerset facilities, according to its latest earnings report released in May.
In spite of growing revenue, AppHarvest is anticipating a loss of $67 million to $76 million for 2023.
