Forward View
Pleather and Phony Bologna
After twenty-year surge in organic everything, the next big trend might be "science food."

I'm seeing just so many things happening in how we automate food production... from vertical farming, hydroponics, autonomous tractors, and aquaculture, to finding new uses for seaweed, mushrooms, and hemp.

One hot recent trend has been plant-based meats, with cultured meats not too far behind.

There are lots of reasons to go vegetarian... from increased longevity, and weight-loss, to environment impact and animal ethics. Hamburgers are particularly resource intensive. Over 660 gallons of fresh water is needed for a single burger.

When my wife and I were pure vegetarians in the late 1990's and early 2000's, we made our own black bean burgers. We'd use tofu instead of chicken. And the vegetarian alternatives were mostly found at the health food store.

So when the Beyond Burger and the Impossible Burger came out in 2019, it was revolutionary. They figured out the chemistry needed to carefully replicate the taste of beef, with none of the guilt. This was HUGE. Burgers are as American, as well, apple pie.

Pretty soon, the "burger wars" were on, and plant based options showing up EVERYWHERE, from Burger King, McDonalds, and White Castle to Applebee's and TGI Fridays. Since then, the number of vegans in the U.S. has more than tripled.

So, what is the best way to capitalize on a hot trend?

I've found the Gartner Hype Cycle to be a remarkably useful roadmap for both investing and trading.

Huge money can be made by trading the first leg of the Hype Cycle. This is when the media "buzz" is the loudest. In many cases, hype gets ahead of reality, and disappointment follows.
Beyond Meat (ticker: BYND) followed the Hype Cycle almost perfectly when it went public. The share price quintupled from $50 to $250 in just 3 months - this was a full-blown mania! Since then, the stock has moved sideways for two years.
It looks to me like Beyond Meat is no longer a good trade, but in the "trough of disillusionment." The reality has yet to catch up with hype. At the peak, BYND was trading at astronomical 80x annual revenues per share. Today, that multiple is merely atmospheric at 20x revenues.

The company might reach break-even profitability next year.

If we apply the Hype Cycle as a template, Beyond Meat is in the category of being both "too late" to trade, and "too early" to invest. There's no momentum and there is no value.

Trading is lackluster, and a falling Accumulation/Distribution ratio suggests that BYND isn't going to break-out to the upside anytime soon (red line, above).

But meanwhile, that initial 5x surge in three months... wow, let's do that again!

So, I was excited when a client sent me a note last week asking about plant-based leathers. Could this be the new, new thing?

My first step was to search through all the available articles in the LexisNexis database, along with shareholder reports. I did this on Sentieo, which ranks companies based on how often they are referenced.

Mentions of plant-based leathers has been accelerating over the past year (blue line, below).
At the top of the list, H&M recently launched a vegan leather collection made from wine waste and cactus pulp. They are also looking to have 65% of their fashions from recycled/renewable sources in the next five years. This is interesting....

Others are promoting plant-based leathers, but not doing a ton of it (Ralph Lauren, Allbirds, Caleres/Famous Footwear, Nike, Adidas). It's also a favorite for "greenwashing" press releases and shareholder reports (Canadian Tire Corp, Tesla, Hyundai, Apple).

The key here is finding a "pure play". This is a company that is 100% focused on the trend.

So, we dig a little deeper and find out who the suppliers are. Almost all of them small and privately-held.

Ecovative makes packaging and and synthetic bacon from mushroom mycelia. Adidas-backed Mylo uses a similar technology. Meanwhile, Allbirds has made an investment in Natural Fiber Welding, which uses natural rubber sap, along with vegetable oil, citric acid and fillers from cork and rice husks

There is Prota Fiori, which makes synthetic leather from upcycled grape and apple skins. Pinatex, focuses on vegan pineapple leather. Desserto is a Mexican supplier using native cactuses. And then, there is Orange Fiber, which makes silk from citrus plants.

Clearly, there is a lot of experimentation happening right now and significant interest.

Modern Meadow seems to be in the lead on this trend and may be the most scalable. They have developed a fundamentally new approach to bio-manufacturing. This involves recruiting yeast bacteria for growing collagen - a key part of making a soft yet flexible alterative to leather.

So, I'd watch out for an IPO at some point. The company has raised $180 million in funding.
StratFI/Jim Lee Quoted in the News
Disclosure: Information contained herein is for educational purposes only and is not to be considered a recommendation to buy or sell any security or investment advice. Securities listed herein are for illustrative purposes only and are not to be considered a recommendation. The author may personally hold positions in securities mentioned.

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