Plant-based stocks overview

Challenger brands have taken to the stock market and shrewd investors are tapping the alternative food space with SPAC mergers. However, the sway of stocks prompted by social media influencers overshadows the otherwise positive sentiment in the market

By Murielle Gonzalez

Investor appetite for stocks in food, drink and nutrition is on an upward trend, and this dynamic is evident in the volume and the type of IPOs in the past 12 months. Research and market analysis firm PitchBook recorded 34 IPOs in this period from companies in these sectors globally. Exit deals totalled $27.3 billion – a 253.8% increase in value and 17% up in volume compared with 2019. Europe poured $23.6 billion into 19 IPOs last year – up from three in 2019. Exit flow in the US was lacklustre, yet the handful of deals that happened raised 66% more capital than the seven IPOs of the previous period. See the graphics below for details.

Investment bank executives and financial advisors in the UK, Switzerland, Canada, and the US canvassed for this report agree that investors’ sentiment in the public market is positive. Some players, however, call for caution. The high valuation climate seen in the venture capital space is also present in the stock market and investment metrics are set on the potential sales of five to 10 years down the road.

Notably, stocks are fluctuating not necessarily by the dynamics of economic fundamentals but swayed by impressions on social media – as the GameStop short squeeze demonstrated. 

“Investing in the public market is very hard today because there’s a lot of unsophisticated retail investors out there, buying stocks following trends, and listening to YouTubers rather than economic fundamentals,” a former investment banker told NutritionInvestor. “You can see companies with a market capitalisation in the hundred million with sales in the thousand and not profitable – that’s insane,” he said.

Beyond Meat’s $240 million IPO – which valued the company at $1.2 million in May 2019 – set the tone of growth CPG brands in the sector and the ever-growing uptick of sales in the plant-based category has become a beacon of hope for many. US retail sales alone grew 11.4% in 2019 to a record $5 billion, according to a 2020 Spins report.

“Retail investors in the US are generally searching for emerging, growth-oriented food and nutrition companies to invest in,” says Farzad Mukhi, investment banking director at Duff & Phelps. He notes that investors typically seek stocks that allow them to capitalise on new eating trends, whether it be plant-based, keto or immunity.

“In general, we are seeing retail investors prioritise growth over many of the fundamental valuation metrics that have dictated investment allocation in the past. As long as this dynamic remains in place, we do not anticipate a bursting of this bubble,” Mukhi added.

In London, David Huggins, co-manager of BlackRock Nutrition Fund, also perceives a positive sentiment in the public market. “There are pockets of exuberance in the sector, particularly in areas where sustainability is the driving force behind companies’ growth. This is leading to increased valuations for these scarce assets,” he says.

Public market overview

Beyond Meat’s $240 million IPO had been the only stock in the market to sate investor appetite for alternative protein. The Nasdaq-listed shares nearly tripled on the first day of trading, going from $25 to $65.75. At the time of writing, stocks were trading at $168.92 at a market capitalisation of $10.58 billion.

While Beyond Meat went public as a loss-making business – today the company’s financials are robust. In November, it reported net revenue of $94.4 million, an increase of 2.7% year-on-year.

Today, the stock’s swinging motion is partly driven by the retail price competition from challenger brands. Impossible Foods, for example, announced plans for a 20% price reduction, bringing the Impossible patty to $5.49 in the US. A similar move is planned for other markets, including Canada and Hong Kong.

Competition is building up, hot on the heels of the traction that Canadian plant-based meat makers are gaining in the market – two of which went public last year with ambitious plans to tap into the US market.

Four challenger brands in the plant-based food category took their businesses public, but they were not the only newcomers in the market – special acquisition purpose companies (SPAC) emerged with the ambition to snap up CPG food brands in the ‘better-for-you’ category and with a sustainability ethos.

Mukhi says SPACs have gained traction because a SPAC merger is considered a more efficient process than a traditional IPO. “Many SPACs have been formed to identify assets in the food and nutrition verticals,” he says. “The SPAC activity is accelerating, which underscores a meaningful and viable alternative to going public into 2021 and beyond.”

US-based and century-old family business Utz Brands was the first mover in the SPAC trend with its merger with blank cheque NSYE-listed company Collier Creek Holdings in June. The deal gave the snacks manufacturer a $488 million cash injection, which Utz has used to fuel its expansion through several acquisitions. It acquired Truco Enterprises, a manufacturer of tortilla chips, salsa and queso; the Vitner’s snack brand from Snak-King Corp; and H.K. Anderson, a brand of peanut butter filled pretzels.

Newcomers in the stock market

Two SPACs emerged last year worth keeping an eye on. Natural Order raised $230 million in its November Nasdaq debut, seeking a strategic business combination with a company in the plant-based or alternative protein space. The company was co-founded by vegan advocate and veteran investor Sebastiano Cossia Castiglioni.

Euronext-listed 2MX Organic, the SPAC co-founded by French telecoms billionaire Xavier Niel, raised $363 million and its focus is on organic food companies.

Vancouver-based fund Eat Beyond is a new player in the market with a whole new approach to investing. It began trading on the CSE in November and has built a portfolio of public and private companies producing alternative protein products.

Eat Beyond’s portfolio includes privately-held Eat Just, SingCell, Nabati Foods, TurtleTree Labs, and Above Foods, whose IPO is in the works. TSX Venture Exchange-listed Good Natured and CSE-listed The Very Good Food Company are also portfolio companies.

On the stock front, Canada’s The Very Good Food Company entered the Canadian Securities Exchange (CSE) with a C$4 million IPO in June, and a month later Modern Meat followed suit. In September, US-based alternative drinks maker Lair Superfood, a Danone Manifesto Ventures portfolio company, entered the New York Stock Exchange in a $58.3 million IPO that valued the company at $184.3 million. And Israeli 3D-printed plant-based burger maker SavorEat raised $13 million in its IPO on the Tel Aviv Stock Exchange.

Laird stocks almost doubled during the first week of trading, and went from $22 a share to $46, raising the company’s valuation to $400 million. At the time of writing, shares were trading at $58.88 at a market capitalisation of $468.3 million.

The company reported that net sales in Q3 last year increased 118% year-on-year to $7.6 million. Management believes that profitability would be reached once sales top $70 million.

The Very stock remained flat for about four months after its CSE debut. Shares began trading at C$0.25, but climbed to C$4.10 in November, and a month later jumped to C$9.08. At the time of writing, shares were trading at C$6.84 at a market capitalisation of C$659.97 million.

The company reported C$2.8 million in revenues for the nine months ending 30 September and a net loss of C$7.3 million.

Mitchell Scott, co-founder and chief executive of Very, explains that a few factors contributed to the stock’s spike. “The first is the large community we’ve built up over the years. Many people invested in our FrontFundr campaign and then reinvested (or told their friends) when we went public. I think the lack of pure-play plant-based meat alternatives also contributed to the spike. We were the second plant-based meat IPO after Beyond Meat.”

But Very was in the firing line for unusual trading activity in November, and investors watching the stock have blamed social media influencers as partly responsible for the bounce. Management explained in a statement that it had engaged a third-party investor relations provider, Future Money Trends, to increase awareness of its publicly traded shares, but it has not paid for the distribution of promotional material.

Like it or not, YouTube – and the internet in general – has become a playing field for amateur investors, raising concerns about the influence they have on the stock market. Search on YouTube for The Very Good Food Company, and you’ll get a never-ending list of videos about the Very stock. 

There’s a video from Luke Lango from InvestorPlace who in a blog post published on 12 November said: “I alerted my Daily 10X Stock Report subscribers about VRYYF stock back in early October. Since then, VRYYF stock has soared as much as 250%.”

Beacon of the trend: The Very Good Food Company

Trained chefs Mitchell Scott and James Davison co-founded plant-based food business The Very Good Food Company in 2016. The Victoria, British Columbia-headquartered company designs, develops, produces, and distributes a variety of plant-based meat products under the Very Good Butchers brand.

The company has created 12 SKUs, which are sold online and in 275 retail stores in British Columbia – 6% of the total number of outlets in Canada. The product range comprises sausages, bacon, salmon, mince, burger and whole cut of beef – all made with plant-based ingredients.

The company owns and operate a manufacturing facility in Mount Pleasant, Victoria, and has invested in ramping up manufacturing to cope with demand. It took a lease on a 45,000 square-foot, pre-built production facility in Vancouver, the so-called Rupert plant.

Expansion to the US market is already planned with a production site under construction in Patterson, California. Once plants are in operation, Very expects to reach an annual product output of at least 37 million pounds. Currently, the annual output of its Victoria location is 1,375,000 pounds.

“Going public hasn’t accelerated our sales or market penetration, but it has allowed us to raise capital with minimal dilution, which we can then put towards scaling up our production capabilities,” says Scott, noting that once that’s done, the company will be able to increase sales and market penetration. “We’ll be opening our Rupert facility shortly, and are very excited to be expanding further.”

Positive outlook

Cary Pinkowski, portfolio manager at Canaccord Genuity Wealth Management Canada, is optimistic about the outlook for food, drink and nutrition companies in the public market. “In Canada, there is a huge appetite for investments that are socially responsible and good for the environment,” he says, noting there is massive demand, mainly from retail, for anything in the foodtech.

Pinkowski says that the CSE stands as an attractive marketplace because of the speed of going public. “If a company has audited financials, they could be public in approximately four-to-six months,” he explains. 

He adds that the CSE has a very liquid platform with a large retail following. “Our team and Canaccord Genuity led the Very Good Foods IPO, and since then demand has been strong for foodtech listings. Very Good Food was the top-performing IPO globally, according to Bloomberg stats in 2020, with a gain of 2,384%.”

For Pinkowski, the market is not going through an investment bubble because at the moment, there is only a handful of companies. “I feel there will be a few hundred companies a few years out,” he notes, adding the IPO landscape looks strong, and the group has signed up a number of companies for launch this year. 

The sentiment in Europe is also bullish. BlackRock’s Huggins notes that companies servicing the upstream part of the global food chain are receiving a renewed level of interest from investors. “Crop prices have recently rallied to near-decade highs, and companies helping growers maximise yields are expecting windfall profits in 2021 as a result of it.”

Huggins anticipates several high-profile IPOs in the nutrition space this year. “In particular, we expect to see some exciting new listings in the food delivery and plant-based beverage arenas. These companies are offering attractive top-line growth, and often a sustainable messaging on top.”

For many, Swedish plant-based milk brand Oatly is in pole position for a public listing this year. On the agrifoodtech front, AppHarvest has just completed the previously announced SPAC merger with Nasdaq-listed Novus Capital. Whatever happens next, the stock market in food, drink and nutrition is buoyant and more dynamic than ever.