Biologicals specialist Locus Fermentation Solutions has raised $30 million in new debt financing this year following a restructuring last fall, AgFunderNews understands.
The Ohio-based firm, which makes products from ag biologicals to biosurfactants for the mining and bioenergy industries, secured $117 million in IP-insurance backed debt financing last April, bringing its cumulative funding to over $250 million.
In Q1 2024, it secured a further $30 million in debt financing, confirmed director of marketing and PR Teresa DeJohn, who did not disclose financial backers or terms.
She would not say how many employees had been laid off last fall or comment on the performance of the business, but told us that, “Through a strategic restructuring we parted ways with some former team members, and hired Kade Haas as SVP [at subsidiary Locus AG], who brought in six new sales team members with strong backgrounds in agricultural biologicals and distribution relationships.”
She added: “The decision was made to align with business strategy based on the evolution and growth plans of the company. As part of those growth plans, in Q1 2024 we’ve received another $30 million in funding, launched six new biological products and enhanced our CarbonNOW program with new revenue-sharing on carbon credit sales for growers.”
Ag biologicals sales: ‘A complete 360’
Kade Haas, who joined Locus AG in September 2023 after almost six years at Lesaffre’s Agrauxine ag biologicals division, told AgFunderNews that the new sales team at Locus AG had prioritized selling to large ag distributors and retailers rather than selling direct to farmers.
He added: “We now have a well-respected and extremely knowledgeable [new sales] team, and as a result, we’ve picked up some of the top distributors in the US over the past few months. We’ve done a complete 360. We’re in a very good spot now, and sales are coming in daily. The team is doing an outstanding job.”
Ag biologicals and efficacy
Haas acknowledged that there’s still a lot of skepticism in the market about the cost, consistency, performance and reliability of ag biologicals, but said Locus AG also had strict protocols around the transport and storage of its products, noting the particular fragility of Locus’ Rhizobia strains [diazotrophic bacteria that fix nitrogen].
“We’re very cautious about when we ship products, we don’t want products sit sitting at a truck stop over the weekend with hot temperatures. Making sure that our customers get products in the form they’re supposed to be in with the CFUs [colony forming units] that we guarantee is a top priority.”
As for efficacy, 2023 growing season data from contract research organizations and university trials (107 trials in 18 states) shows meaningful yield increases in US row and specialty crops using biologicals from Locus AG, with statistically significant results in eight crops (alfalfa +9%, canola +14.5%, corn +4.5%, cotton +5.7%, potato +13.8%, rice +26%, soybean +5%, and wheat +5.3%), he claimed.
According to Haas, outcomes were consistent across diverse agricultural conditions, regardless of region, climate or soil type, but there will always be some variation.
“Biologicals aren’t silver bullets, but we’re not selling unicorn piss and fairy dust. We know what these products are and how they work in the plant, so that the combination of our proprietary Trichoderma [fungi] and Bacillus (bacteria) strains are enhancing nutrient uptake, impacting the root structure of the plant, making the roots get down deeper, and making larger leaves, which is [where the] photosynthetic gathering [takes place].
“All this helps protect yields when an abiotic stress event happens [heat, drought etc]. You’re not going to be protected from a season-long drought, but it gives you that added assurance if and when a stress event happens. So in my previous company the trial average [increase in yield] on corn [following the application of biologicals] was around six bushels per acre whereas with the addition of the Bacillus [to the Trichoderma] strains at Locus AG we’re getting more than eight extra bushels per acre across all trials. It’s just adding that extra layer of abiotic stress mitigation.”
CarbonNOW restructuring
Meanwhile, Locus AG’s CarbonNOW carbon farming scheme has been restructured such that farmers using its products (which are claimed to boost carbon sequestration in the soil) will continue to be paid an annual fee per acre for participating in the scheme, but will also receive a percentage of the value of carbon credits generated through the program.
DeJohn explained: “We’ve changed the model so that farmers will have a greater incentive to participate because they will also get a share of the [sales of the carbon] credits. We’ve also taken on more of the ownership of the program. The differentiator here [vs other carbon farming programs] is our biologicals’ ability to improve carbon sequestration. Most carbon programs out there right now don’t use a biological to get farmers in. As part of the new program, farmers will get up to a 20% revenue share of those carbon credits when they’re sold.”
Asked how the program’s management structure had changed, she said: “Before, we were working with [carbon project developer] Anew directly on the program and Greenstar [Royalties] was funding the program through Anew.
“Now, Greenstar is directly partnered with us. We’re still working with Anew, which helps with carbon credit sales, but we’ve taken on more ownership of the management of the CarbonNOW program. The carbon credits are verified through Verra. The project is listed on Verra and credits will be listed as we start turning in our data.”
Pre-sale agreement for the first 500,000 carbon credits
Chief commercial officer Vic Peroni added: “We wanted to make sure that we were the ones pulling the levers, and since we were having so much interaction with the growers anyway it made more sense to take on the entire project ownership and have one point of contact with the growers. But Anew is still working closely with us and when carbon credits get issued, they’re going to be out there selling them on behalf of Locus AG.
He confirmed that no credits have yet been generated through the CarbonNOW scheme, which has been in operation since January 2020, but said his expectation is that credits will be generated later this year or early next. He added: “I can’t disclose the partner, but we have a pre-sale agreement for the first 500,000 credits in our program.”
‘We kissed a lot of frogs’
So how will credits from CarbonNOW compare to those generated from other schemes from direct air capture to enhanced rock weathering?
Locus AG SVP carbon strategy Karthik Karathur explained that CarbonNOW credits offer a dual benefit by featuring a carbon removal element (as Locus AG’s products are claimed to help farmers sequester more carbon in the soil) and an emissions reduction element (Locus AG’s products are claimed to deliver higher yields with the same inputs).
According to Karathur: “In many cases the [wildly variable] pricing you see in the market for carbon credits reflects the maturity of the technology. Certain buyers are prepared to pay large sums for credits generated by newer technologies such as direct air capture because they want to incentivize big changes. But no one just buys just one type of credit.”
As for reputational risk, he said, companies will always want to spread their bets in case the credits they buy in a given sector end up failing to deliver the promised benefits: “Sometimes projects go belly up, or things get misstated, so you’ve claimed the benefit and declared it to the world, and five years from now it turns out that the project wasn’t real.”
When it comes to carbon removal, he said, “Right now current technologies are immature or super expensive, so we’re offering a scalable way of bringing carbon removal technology to the world.”
Asked why Locus AG—which launched its carbon farming program in January 2020—is only now in a position where it expects to generate credits this year or next, he said: “We knew this was a big deal from the start, but we didn’t know how to monetize it, so we kissed a lot of frogs as we learned about the best way to manage this process and set up partnerships, and we learned that we needed to be part of something that is scientifically sound.”
Litigation
Locus AG says it has biological products registered in 47 states and is in the process of expanding to two more.
It declined to comment on a lawsuit filed early last year by a former sales executive in Florida alleging he was fired for raising concerns about the firm’s alleged violations of state agricultural laws (2:23-cv-14009, Newberry v. Locus Agricultural Solutions LLC.).
According to court filings, James Newberry (hired as sales director on May 9, 2022 and terminated in August 25, 2022) alleged that “Locus was selling fertilizers, soil treatments and other agricultural products in several states in which Locus lacked requisite registration to do so.” He further alleged that a “large distributor called Locus out for not having, or showing, accurate data related to Locus’ products.”
When he brought this to the attention of management, he claims, he was told to “just sell,” and when he persisted, was terminated with immediate effect.
In a counterclaim, Locus said Newberry was “terminated for reasons that had nothing to do with any alleged whistleblowing” and said he had breached a non-disparagement clause in his contract by making “public and repeated disparaging comments about the company” at a trade event.
According to court filings, the litigation was settled in July 2023.
Financing
Locus AG would not share revenues or any details about its financial performance or confirm the source of its latest $30m round.
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