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Plant pest and quarantine regulations present a constant challenge for the horticulture supply chain. And when things go wrong, it means headaches, liability and financial losses that can be devastating, not to mention a black mark on your company’s good name.

By offering a way for retailers, growers, regulatory agencies and end consumers to avoid those problems, Plant Sentry is poised to change the way plant products are shipped.

“We were worried that retail outlets and online businesses were going to spread pests, diseases and invasive plants nationwide,”says Jeff Dinslage, president of Nature Hills Nursery and NatureHills.com. “It is a very quick pathway for this to happen.”

Plant Sentry is a software-as-a-service (SaaS) program pioneered by Nature Hills Nursery. This software makes it possible to meet the stringent growing, inspection and audit requirements for plants in every state—protecting against plant diseases, plant pests, invasive plants and other threats to plant health and environmental safety.

The Omaha, Neb., nursery was founded in 2001, and expanded its business from selling plants to a small geographic area by creating NatureHills.com, an online plant source that offers trees, shrubs and perennials nationwide. The company evolved to become the first national e-commerce provider to utilize a 100-percent drop-ship model to sell and deliver plants. Nature Hills uses 20 nurseries nationwide to grow healthy plants.

The right side of the law

“When shipping live plants, the United States is not a single nation—it’s a collection of 50 independent states,” Dinslage says. “Each state has its own set of rules and regulations that prevent diseased plants, pest-infested plants and invasive plants from being shipped into each respective state. In addition, there are federally quarantined pests that are governed by specific federal regulations that manage interstate movement.”

This is a tough enough challenge for nurseries, rewholesalers, garden centers and landscapers to handle. But there are also a growing number of consumers buying plants online directly from e-commerce vendors. Most of those consumers are unaware of the complex plant regulation system designed to protect against the spread of insect pests, plant diseases and invasive plants. They simply don’t know that unscrupulous growers and e-commerce vendors who do not follow the rules and regulations can sell plants that can ultimately increase the spread of harmful pests and diseases.

Some nurseries are adding voluntary audit-based programs, like the Systems Approach for Nursery Certification, to provide proof that their plants meet the highest standards of quality and are produced in a pest-and-disease-free environment. SANC was developed under the guidance of the National Plant Board, AmericanHort, the USDA/APHIS and other green industry leaders.

Tom Buechel is the president of Buechel Horticulture Solutions, LLC, and serves as compliance officer for Nature Hills Nursery. He’s also a SANC veteran, having implemented the certification procedures two years ago at McKay Nursery in Wisconsin.

Editor’s note: Learn how McKay became SANC-certified and how it’s changed the business in our October 2016 cover story. http://bit.ly/McKaySANC

SANC played an integral part in the development of Plant Sentry. Buechel sees Plant Sentry as the evolution of SANC, a way to spread the risk management best practices from the grower to the other stakeholders in the supply chain.

“The SANC model helped us develop a standard for e-commerce plants that aims to minimize, reduce, and eliminate the risk of shipping insect, disease or invasive species problems by identifying and enforcing state restrictions on the front end,” Buechel says. “Plant Sentry is the next step in creating a responsible industry solution that holds all parties to the highest level of awareness and accountability.”

The company has a goal of SANC-certified growers providing plants for Nature Hills. Currently, there are two SANC-certified nurseries using the program.

“Plant Sentry allows the grower to focus on what they do best—produce healthy plants,” Buechel says. “The Plant Sentry system will also back its growers so that no grower will be left behind to blame. The result is the education and support that nurseries need to grow healthy plants—and eventually to achieve SANC certification status.”

Plant Sentry is poised to change the way plant products are shipped across the U.S.”

How it works

The ever-changing nature of live plant regulations makes it nearly impossible for companies, whether large or small, to ship only approved and compliant plants—especially when there is a different set of rules for every state.

There are three parts to Plant Sentry’s system approach to compliance. First is the regularly-maintained national compliance database. State and Federal laws are continually examined for plants that cannot be sold in each specific state, and updates are entered into the database. Grower agreements between Plant Sentry and each nursery ensure that all rules and regulations are being followed at all times.

Second is the shipment certification. Plant Sentry’s proprietary e-commerce software prevents the shipment of any restricted plant to a state in which it’s restricted. Each online order is automatically reviewed by the Plant Sentry rules engine to remove restricted plants from any order, based on the customer’s zip code. This guarantees that only compliant plants are shipped.

Third is the reclamation process. Plant Sentry has incorporated an emergency response system, to be used in the unlikely event that the wrong plant gets shipped. The state and customer are notified so that proper procedures can be followed for the return or destruction of the non-compliant plant material.

Buechel says millions of plants are projected to be shipped via online for years to come many by companies that have little to no experience with plants and do not understand that pests, diseases and invasive species cause millions of dollars of damage. New plants, along with new regulation and additional invasive regulated plants, would make it impossible for an individual company to remain fully compliant unless staffed with a team to keep up with the regulatory changes. Severely understaffed regulatory agencies have a difficult time keeping up with the vast amount of inspections.

Plant Sentry pits grower compliance against inventory that would be supplied to the 50 (currently active in lower 48) states. At the time of transaction, plant data is submitted, and the transaction is either approved or blocked based on regulatory data housed within the system. The software cross-references inventory and compliance agreements against the comprehensive database. It then uses this data to determine whether a plant is legal or not to ship. Invasive plant species are outright blocked from consumer purchase.

Buechel says the system defaults to a conservative view, preferring to err on the side of blocking any questionable plants to eliminate the possibility of a pest or disease outbreak.

“When in doubt, sit them out,” he says.

In the meantime, if a grower wants to ship that plant, it needs to jump through the right hoops to earn compliance. If a plant is blocked, in some cases there may be a pathway to still ship it. If so, the software generates a suggested compliance list of pest and diseases for the grower to take to their state or federal official. From there, growers will need to work with their state or the USDA/APHIS to obtain the right agreements to ship plants across state lines.

Reducing risk

Dave Cox is the general manager of L.E. Cooke Co., a Visalia, Calif., nursery that closed its bareroot wholesale operations this spring. The nursery is still growing grafted liners for the landscape and the wholesale trade, and has gotten involved with Nature Hills’ e-commerce business. As a Nature Hills supplier, L.E. Cooke has been using the Plant Sentry program for nearly a year. When he started exploring the e-commerce business, Cox was concerned about compliance.

“I wouldn't have done it without having some sort of mechanism like this in place because it put me at risk as a shipper,” he says. “This gives me a level of confidence that I'm not putting something someplace it should not be.”

Cox is no stranger to the regulatory world. He lobbied for his own nursery, as well as others at the state and federal level, for 20-plus years. He’s a member of the California Department of Food and Agriculture’s Nursery Advisory Board that advises the Secretary of Agriculture on industry issues. He’s also on the National Plant Board’s SANC pilot program committee. Typically, a grower would have to canvas the National Plant Board’s website to check each state’s set of regulations, find out the requirements and try to meet them. But with different rules across 50 different states, written in different formats in documents ranging from three to 30 pages, there are plenty of ways to make a mistake.

“That’s a lot you’ve got to wade through to get all this information, and Plant Sentry has consolidated it all so I don’t have think about it, which is a godsend,” he says. “They're really doing the legwork for me so I don't have to go through the headache of dealing with all those individual states.”

Cox believes that type of service is going to be necessary going forward as compliance requirements become more complicated. Other grower partners who have been trialing the system for Nature Hills agree.

Josh Zielinski of Alpha Nursery began using Plant Sentry when his family’s growing operation began doing business with Nature Hills as a supplier. The Salem, Ore., wholesale nursery sells trees and shrubs to licensed retail, re-wholesale and landscape operations. Zielinski saw the value of the database, when it was discovered that the Alpha Nursery team wasn’t keenly dialed in on a few of the more obscure restrictions.

“We have been shipping across the country for a long time but found some small holes in our compliance efforts, and Plant Sentry helped us see them and fill them,” Zielinski says. “A few products can now be shipped to markets we thought were off limits because we didn’t understand the compliance requirements.”

With most nursery operations feeling the squeeze for labor, assigning an employee to monitor regulatory changes just isn’t feasible.

“As a small to midsize operation where there isn’t necessarily a full time, yet alone part time, compliance position it can be hard to keep up with all them,” Zielinski says. “The national database helps clarify things so that when it comes time for compliance, we can easily identify what we need to work on to be able to serve all markets.”

Protecting the future

From the beginning, Nature Hills saw the potential for Plant Sentry to work universally throughout the green industry supply chain. The next step is making Plant Sentry available to other companies. Currently, the Plant Sentry team is fine-tuning compliance variables, refining its technology and incorporating feedback from growers like Cox, who are participating in the software’s trial phase.

Nature Hills plans to add users to the program for additional testing, including a couple of e-commerce sites in California. That testing will be ongoing throughout the Spring of 2019.

A date for a complete roll-out has not been determined.

As a SaaS application, Plant Sentry pricing will be based on a monthly subscription fee and a per/transaction charge for each programmatic call to the source compliance data. The pricing model will be flexible based on company size and number of monthly transactions required. This allows other companies the opportunity to purchase the program based on units of inventory that would be measured in real time.

A project of this magnitude takes a lot of time and work. Cox has been impressed with the proactive role Buechel and Nature Hills has taken to keep up with all the regulatory changes and help their clients avoid problems.

“I would imagine it's expensive to set up and maintain, but I think it's worth it in the end because their reputation will be intact long after some of these other guys are dead and gone, in my opinion,” he says. “And frankly that's what should be done. Everything should go through a proper channel. The e-commerce business is the last frontier in that. It's evolving very rapidly and you've got to get a handle on the regulatory side, because if the regulators get hold of you, they could shut you down real quick.”

Stakeholders all along the supply chain can benefit. No grower or retailer wants the fines and image issues associated with spreading a disease, pest or plant to a state where it’s considered invasive.

“It's better to start off right, which Nature Hills is doing, than it is to play catch up,” Cox says. “Because regulators, once you burn them, they don't trust you for a long time. Trust me, I've known nurseries that had that problem.”

For more: www.naturehills.com; www.plantsentry.com

With a nod from the Perennial Plant Association (PPA) as its 2019 Perennial Plant of the Year, make sure you add Stachys officinalis ‘Hummelo’ to your production schedule. This stalwart perennial looks stunning en masse and is as trouble-free and dependable as it is eye-catching, according to the PPA.

Tiny, two-lipped, rose-lavender flowers appear in dense spikes atop mostly leafless flowering stems, rising well above the foliage to 1½ to 2 feet tall in summer.

It’s hardy in USDA Hardiness Zones 4-8, and foliage may remain evergreen in warmer climates. In the landscape, it grows best in full sun to part shade. Use in the perennial border or in combination with ornamental grasses, Echinacea purpurea and Asclepias tuberosa (the 2018 Perennial Plant of the Year). Its wiry stems make for a great cut flower, as well. It’s considered deer resistant.

Selected and introduced by German grower Ernst Pagels in the late 1990s, this perennial gained popularity as it was used by renowned designer and plantsman Piet Oudolf in some of his signature works. “Hummel” means bumblebee in German, which is appropriate as Pagels observed many pollinators visiting the flowers. The cultivar name also honored Pagels’ close connection to Piet and his nursery and home at Hummelo, The Netherlands.

'Hummelo' was the highest rated Stachys in the Chicago Botanic Garden Evaluation Trials for its strong flower production, vigor, habit, quality and winter hardiness.

“We first planted [Stachys officinalis] in our Scottish garden where it has thrived in part shade,” says Mark Dwyer, director of horticulture at Rotary Botanical Gardens in Janesville, Wisc.

He calls it “an entirely underused perennial” that is “really is a tough and durable plant with plenty of visual appeal.”

In the trade, ‘Hummelo’ is sometimes sold as Stachys monieri.

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Mergers and acquisitions (M&As) have played an important role in the life cycle of many nursery businesses. An M&A transaction can help an operation expand, move into new areas and become more efficient with one simple transaction. For many businesses an M&A is a proven strategy for cutting overhead costs, increasing efficiency or battling a larger competitor.

Whether the recent spate of M&As within the industry is attributable to last December’s Tax Cuts and Jobs Act (TCJA), the cash it freed up or the new lower corporate tax rate, M&As are on the upswing with a great deal of the action involving smaller deals.

Viva la difference

While often synonymous, the terms “merger” and “acquisition” are separate transactions. A merger occurs when two separate entities combine forces to create a new, joint organization in which both (theoretically) are equal partners.

An acquisition refers to the purchase of one entity by another. A new nursery does not emerge from an acquisition, rather, the acquired business, or “target,” is usually consumed and ceases to exist with its assets becoming part of the acquiring business.

M&As can include other transactions, including:

• Consolidation: This creates a new entity where shareholders in both entities approve the consolidation, after which they receive equity shares in the new firm.
• Tender offer: One business offers to purchase the outstanding stock of the other business for a specific price. The acquiring business communicates the offer directly to the other business’s shareholders, bypassing the management and board of directors. This usually involves larger, often-publicly-traded businesses.
• Acquisition of assets: One business acquires only the assets of another firm. Asset purchases are common during bankruptcy proceedings, where other businesses bid for various assets of the bankrupt business, which is liquidated after the final transfer of assets to the acquiring business.

Paying for it all

Because M&As are expensive, adequate funding is a necessity. Fortunately, financing and M&A transaction with stock is both safe and relatively inexpensive option since both parties sharing the risk. In a typical share-exchange transaction, buyers exchange shares in their own business for shares in the selling business. Paying with stock is advantageous for a buyer, especially if their shares are overvalued.

In a merger, shareholders on both sides can reap long-term benefits from a stock swap as they usually receive an equal amount of stock in the newly-formed operation, rather than simply receiving cash for their shares.

Paying with cash is the most obvious alternative. Cash transactions are instant and relatively mess-free and usually don’t require the same kind of complicated management as stock would. Unfortunately, smaller nurseries, without large cash reserves, must usually seek alternative financing options in order to fund their transaction. One popular alternative to paying for an M&A with stock or cash involves agreeing to take on the debt owed by a seller.

Assuming the burden of debt

For many nursery operators, debt is the reason for the sale. Debt all-too-frequently reduces a seller’s value, often to the point of worthlessness. From a buyer’s point of view, this strategy offers a relatively cheap means of acquiring needed, additional assets.

Being in control of a large quantity of an operation’s debt means an increased management role in the event of a liquidation since owners of debt have priority over shareholders. This can be another incentive for would-be creditors who may wish to restructure the new business or simply take control of its assets.

Mezzanine financing

Mezzanine financing is a hybrid of debt and equity financing involving senior debt such as loans from sources such as banks, secured by liens on specific assets of the nursery or growing business. Equity is usually in the form of preferred stock, but buyers aren’t usually required to give up as much control to lenders.

The size of the mezzanine finance industry has grown in recent years. In fact, quite a few mezzanine groups have been sponsored by the SBA. But, that’s not the only way the SBA can help in an M&A transaction.

The SBA

Many M&As and owner buyouts of private, rather than publicly-traded businesses, qualify for SBA loan guarantees. The SBA’s 7(a) program is the most popular loan program, providing up to $5 million for refinancing, working capital or to buy a business. Even larger transactions are possible with so-called “mezzanine” financing or when real estate is included.

The large component of goodwill and the lack of tangible assets so common in smaller M&A transactions isn’t a deterrent. The SBA’s programs focus on lenders where minimal collateral is acceptable, especially when there is strong cash flow and mitigating factors such as management expertise involved.

SBA M&A financing is generally through the SBA Preferred Lender program, often with additional working capital loans and lines of credit for financing packages in excess of $5 million. Since the SBA has eliminated its personal resource limitations, borrowers and investor groups with high net worth and liquidity are now usually eligible.

Insurance

Much of the risk normally associated with M&A transactions can be eliminated with an often-overlooked type of insurance. First introduced in the 1970s, Warranty and Indemnity (W&I) insurance has evolved into a popular and sophisticated tool for protecting buyers and sellers from financial losses in M&As.

W&I insurance essentially removes the risk, in whole or in part, with the promise that insurance underwriters will be standing behind the warranty claim. However, by offering more protection against downside risk, W&I insurance also negates the requirement for the use of escrow or indemnities, providing certainty and finality to both parties.

With a seller’s W&I policy, the seller gives warranties and indemnities as is customary, but then insures its own risk of a claim. Sellers remain liable to the buyer, but they are indemnified by the insurance underwriter. Thus, should a claim occur, the buyer would usually claim against the seller for breach of warranty, but the seller would look to the insurance company to write a check for all, or at least part, of the damages being sought.

A buyer’s W&I policy covers damages following breaches and/or fraud as well as defense costs. With a buyer policy, if the seller commits fraud, the policy would still payout. Because the buyer is the insured party and it has not been fraudulent, nor has it fallen afoul of its disclosure obligation to the insurers, W&I insurance provides an extra layer of protection for buyers.

Taxing the M&A

Despite the new, lower 21-percent corporate tax rate, many nurseries are likely to continue pursuing tax-free M&A transactions. Tax-free M&A transactions are considered “reorganizations” and similar to taxable deals except that in a reorganization, the buyer uses its stock for a significant portion of the sale price rather than cash or debt.

Reorganizations, while not usually taxable at the entity level, are not completely tax-free to the seller. A reorganization is immediately taxable to the target’s shareholders for any “boot” received. Boot is any consideration received by shareholders in the target entity other than the buyer’s stock.

Other provisions of the TCJA, such as the full-expensing of asset costs, may cause many to weigh their effects on any transaction. The ability to do a taxable asset transaction and take advantage of front-loaded deductions may encourage growers to complete a taxable deal instead of a tax-free transaction.

Consider a situation where a seller really wants cash while the buyer is pushing for a tax-free acquisition. The tax law’s Section 338 permits a nursery to make a “qualified stock purchase” of another business and choose to treat the acquisition as an asset rather than a share acquisition. The stepped-up basis in the qualifying assets can be immediately expensed and written off, dramatically changing the bidding dynamic on the transaction.

Recent trends involve more cash-ready buyers, but with more aversion to risk. Buyers are generally unwilling to enter into transactions if the warranty package is too limited or there are concerns over enforceability of those warranties.

These challenges are not insurmountable, and deals continue to emerge with and without tax breaks, alternative financing and risk insurance. But every nursery owner would be well advised to perform their due diligence and seek professional advice.

Mark’s tax and financial features have appeared in leading business magazines and trade journals for more than 25 years.

There are many insecticides and miticides on the market and more new products are delivered each year. Each new product may offer improved efficacy, lower human toxicity or both as selling points compared to older products. Increasingly, new insecticides and miticides also strive for compatibility with biological control programs by combining efficacy against pests with safety for natural enemies.

These are great strides and most products arriving on the market lately are much safer for everyone and everything involved than the old organophosphates, organochlorines and other products they replace. However, the rapid introduction of these advanced insecticides and miticides should not overshadow horticultural oils and insecticidal soaps that have always been, and continue to be, essential tools in an IPM program.

Horticultural oils and insecticidal soaps have been used for decades, even centuries, to manage pests in all sorts of crops. Horticultural oils are refined petroleum products. If you have been in the business for a while you may recall learning about dormant oils, which were only applied to dormant plants in winter, and summer oils which were lighter weight and applied during the growing season. This is not the case anymore. Today, most horticultural oils are highly refined to improve mixing and application, and to reduce phytotoxicity. The same horticultural oil can be applied to dormant plants and growing plants, just at a higher rate to dormant plants.

Insecticidal soaps are potassium salts of fatty acids. I don’t know what that means either, but I know they are different from soap you use to wash your face or your dishes. Yes, there are many recipes online to make your own insecticidal soap, but to have confidence in the efficacy and crop safety of what you are spraying, it is worth purchasing the real thing. An advantage of insecticidal soaps and horticultural oils is that they are relatively inexpensive. So, spring for a reputable product.

The process

We have come to rely on systemic or translaminar, long-lasting, pesticides for managing insect pests like aphids, whiteflies and mealybugs. Horticultural oils and insecticidal soaps are not systemic or long-lasting. In fact, once oil or soap dries on a plant it has no killing power. So why use them?

The advantages of horticultural oils and soaps comes from their low cost, safety for people and natural enemies, and, in many cases, good efficacy. The human safety of these products means that restricted entry intervals (REI) can be four hours or less, depending on the product and label, so you can get back to work sooner. Another advantage of their safety is that they can be integrated into biological control programs. They do not leave a toxic residue on plants so natural enemies can be released the day after an application is made. This allows you to reduce pest populations and start clean to give natural enemies the best chance to perform. In addition, many natural enemies are less susceptible to oils and soaps than the pests you target. So even spot applications with natural enemies present should kill more pests than predators.

Targeted pests

Every pesticide has disadvantages. Horticultural oils and soaps are primarily effective against small, soft and slow arthropods. Luckily this includes a lot of the key pests you battle including aphids, whiteflies, mealybugs, thrips, spider mites and scales. Horticultural oils and soaps are less effective against large or hard-bodies pests like beetles and caterpillars. However, even for the ideal soft and slow pest like aphids, timing is important. This is because it is easier to reduce small populations than large populations and easier to kill small young pests than older ones that may be less susceptible (this applies to all pesticides). For example, horticultural oil or soap will be better at killing young spider mites than older ones. Even though young and old mites are both relatively soft and slow, young mites have a softer exoskeleton and less hair to block the product and are easier to suffocate because they are smaller. Think about mealybugs. They get waxier as they get older and are thus better protected. Not mention that heavy mealybug infestations contain so many bugs that they are layered on top of each other and have found their way into every hidden spot on the plant so more of them are protected from your application.

Horticultural oils and insecticidal soaps are effective against a similar array of pests. Remember small, soft and slow. Scale insects are a unique group of pests that are frequent targets of oil and soap applications but even though they are small and slow may be covered in tough armor. Recent research from Cliff Sadof’s lab at Purdue University shows that the type of scale insect matters when choosing between horticultural oil or insecticidal soap. The reason has to do with scale insect morphology which we should cover very quickly.

Scale insects are common pests that feed on plant fluids. The most common types are armored scales that have a hard, waxy cover and soft scales that have, you guessed it, a softer cover. Scale insects do not move much. Armored scales move once in their life as newly hatched nymphs called crawlers. These tiny scales crawl from beneath their mother’s armor, with no cover at all, to find a place to feed. Then they settle, insert their mouthparts into the plant, and start sucking out juices. Many soft scales can move a little as adults, but they still have tiny unprotected crawlers that hatch from eggs and have to find a place to settle and feed.

What does this mean for management? Armored scales like euonymus scale, pine needle scale, false oleander scale and many others have a cover with a high percentage of wax. Wax repels water. Thus, horticultural oil is more effective against armored scales than soap which does not cling to or penetrate armored scales’ waxy covers. In contrast, insecticidal soaps often perform better on soft scales. Their covers contain less wax and more sugars from the honeydew they produce. Thus, the water and soap solution can coat and penetrate them better than an oil solution that would be repelled by the water content of soft scale covers.

IPM toolbox

The critical thing for managing scale insects and most pests is classic IPM techniques of scouting, monitoring, and record keeping to determine when pests are present and in susceptible life stages. So even though armored and soft scales have different susceptibility to horticultural oils and insecticidal soaps they both have tiny unprotected crawlers. These can be killed by anything. In the wild, rain is one of the greatest causes of scale crawler mortality. So, if you are monitoring for scales and notice when eggs are hatching any product will do. Then you may want to follow up with another application in a week or two to reduce the abundance of those that hatched after your first application.

Horticultural oils and insecticidal soaps can be valuable tools in your IPM toolbox. They may not be as effective or long lasting as other more toxic pesticides, but the price is right. Oils and soaps have important roles to play in reducing pest pressure and lower risks for you and your workers and your biological control program.

Steve Frank is Professor and Extension Specialist in the Department Entomology and Plant Pathology at North Carolina State University. You can reach him at sdfrank@ncsu.edu. For more information on nursery and landscape IPM visit http://ecoipm.org.