Traditional greenhouses have been the dominant format in CEA, supplying fresh produce in the U.S. for more than 30 years. Currently, traditional greenhouse growers drive 80 - 90 percent of the total CEA sales. However, there has been significant growth in the number of CEA start-ups focusing on both greenhouse and vertical farm growing formats in the last decade. Incumbent traditional greenhouse growers have focused on vine and fruiting crops, like tomatoes, peppers and cucumbers whereas new start-ups, both greenhouses and vertical farms, are primarily focusing on offering lettuces or variants of leafy greens, herbs and microgreens. The clear distinction around the offerings can be attributed to two key factors: growing requirements and growing economics. In terms of growing requirements, leafy greens in traditional greenhouses are not able to achieve the same high yields as vertical farms due to inability to utilize the vertical space. Fruit and vine crops fit well to traditional greenhouse operations by utilizing vertical and horizontal space, resulting in the dominance of such crops in traditional greenhouses. From an economics perspective too, lettuce or leafy greens are more expensive to grow in a greenhouse as compared to fruit and vine crops. For example, building a lettuce greenhouse is approximately 70 percent more expensive per acre than building a tomato greenhouse as lettuce require more climate control technology to increase yield. 10 Almost all greenhouse start-ups on the other hand are focused on lettuce or leafy

greens mostly because growing a “non-traditional greenhouse crop” enables them to differentiate from a product offering perspective and with the supplemental lights and climate control technology they can grow lettuce at a much higher density (kg/ acre) than traditional greenhouses. Start-up CEA players in both greenhouses and vertical farms are developing “touch-less”, highly automated farms that use supplemental light to drive higher annual yield. Since electricity is a major part of their cost structure, leafy greens are a more suitable crop since vine crops like tomatoes use 60 percent more electricity to grow than lettuce. 11 A requirement to have higher revenue generation per surface area also favors leafy greens, as almost all parts of a lettuce plant can be sold and they grow at a higher density per square foot as compared to vine and fruiting crops. Next to crop selection, the source of financing and funding differs between traditional greenhouses and CEA start-ups. Historically, traditional greenhouses have had access to more patient capital in the form of conventional farm loans, helping them achieve steady growth over decades. However, the possibility to develop high-tech farms supplying high-quality, fresh food all year-round has led to unprecedented fundraising through aggressive growth capital, such as venture capital or private equity, with more than $1.6 billion raised annually in North America in 2021 and 2022 (see Figure 3). Nearly 60 percent of this investment has gone to vertical farm start-ups.

10 Behind the greens: Why greenhouse lettuce is not competitive yet |, January 2021 11 Vertical farms expand as demand for year-round produce grows | The New York Times, April 2022

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