Let's face the facts - if there is one thing Millenials can be proud of, it is the fact that they have opened the eyes of the world to the harmful effects of GMO food production and the toxic chemicals peddled by the multi-billion-dollar conglomerates used to grow our food crops.
For the past 20 years, consumer activists have been demanding that their food be produced with safe, sustainable, and humane inputs. This activism has been instrumental in changing the food industry and in refocusing companies that were more concerned with driving profits than they were with the damage their production methods were causing the Earth’s ecosystems, its people, and its food animals. The health-conscious, earth-friendly impact of the millennials is extending to the next generational cohort, GenZ. There is a reason why 57 major companies (such as Costco (NASDAQ:COST), McDonald’s (NYSE:MCD), and Applebee’s, have committed to using only cage-free eggs, or why leading food manufacturers like General Mills (NYSE:GIS), Del Monte, Nestlé, and Dannon are dropping GMO ingredients from some or all of their products, and the reason isn’t altruism. The idea is that they have done the research, and the handwriting is on the wall. Research by Acosta Sales and Marketing (a $1.85B a sales and marketing company for consumer packaged goods), for example states: “Gen Z shoppers show high awareness of, and desire for, healthy food, with more than one-third of their grocery basket considered organic products on a typical trip,” (see: Gen Z will demand more organic, better-for-you and globally-inspired food & beverage, Acosta says, 24-Jan-2018 By Elizabeth Crawford). However, rather than rail on the large agro-giants, perhaps it would be healthier to remain positive and to focus on the emergence of at least one company that is taking advantage of a changing landscape in the agricultural business: Vegalab, Inc. (OTCQB: VEGL)
Vegalab is An Emerging Millenial Favorite
Okay, perhaps it's not appropriate to credit a single generation with dragging the food industry kicking and screaming in a new direction, but, it is fair to note that the business model of VEGL aligns well with the changing attitudes and expectations of consumers worldwide.
Following a strategy of offering products that will not harm people or the environment, VEGL is emerging as a reliable supplier of biological pesticides, natural fertilizers, and specialty biological agents that are highly effective against targeted organisms. Unlike market leaders like Roundup®, for instance, VEGL’s products actually support soil health. Their products are so entirely different that it would take pages to explain. Moreover, beyond the explanation, readers would still be left with the unpleasant reality that products like Roundup®, which have generated billions in revenue, are leaving a legacy of potential environmental ruin in their path. However, with new companies like VEGL entering the market, there is hope for healthier food, and believe it or not, they are starting to take noticeable market share from the billion-dollar companies while at the same time helping to repair a damaged agricultural ecosystem.
Rather than using poisonous or toxic chemicals to treat and protect crops from unwanted critters, VEGL is combining proprietary micronization and nano-encapsulation technologies with plant oil extracts, allowing the company to create compelling, cost-competitive products that support a healthier environment and help to preserve fertile agricultural ground.
Sure, it sounds a bit fanciful, but it's true. VEGL is genuinely making a difference in the way agricultural markets are evolving, and despite the fact that the company is still relatively small, they are on the cusp of breaking out to much higher levels of market penetration.VEGL Is Growing Up
VEGL's primary office sits in Palm Beach, Florida, but the company has additional interests in Minden, NV, where they operate a 24,000 sq. ft. office/warehouse, as well as owning a fruit packing plant in Visalia, CA. Currently, the company reported having just 23.8 million shares outstanding, but essential to that number is that insider ownership amounts to roughly 75% of all outstanding shares, leaving approximately 989K shares available for trade in the public float. Shares traded at $4.30 as of February 1st, which provides the company with a market cap of roughly $101 million.
Vegalab, Inc. emerged as the surviving business entity after David Selakovic, CEO of Vegalab, took control of the company through a series of well-orchestrated, disciplined, and strategic business plan. The rewards from his foresight provided him the means to acquire and bring to market a significant number of products that directly address the changing tide of consumer sentiment. Mr. Selakovic focused on a strategic mission to serve the developing and socially conscious market and is catering to a class of consumers that are highly attuned to what they eat, how it's grown, and who pay specific attention to the short and long-term impact that their decisions have on the environment. What VEGL Has Done
Starting the evolution, HPC Acquisitions, then majority owned by David Selakovic, raised funds in a private placement around March of 2016, which spearheaded the growth and marketing of Vegalab products. Since that time, and on a cumulative basis, the growth has been quite impressive and 2018 is setting up to be the year that kicks off a future of revenue growth and partnership opportunities.
A timeline from 2017 indicates that the growth trajectory from the past two years is gaining momentum in 2018. Around March of 2017, Vegalab US performed a grassroots marketing campaign in California to advertise Nematode Control. Then, in April the company started to see the fruits of its vision come together, with large farms like Dulcich and Grimmway purchasing VEGL products. The growth continued in June, when Buttonwillow Warehouse and Mid Valley Agricultural Services began distributing VEGL products.
The momentum of accretive activity continued in October, with Vegalab US purchasing a citrus packing facility in California with annual revenue of approximately $8.6 million. VEGL proceeded to make immediate improvements with the goal of doubling the capacity. Then, November saw the company's transition to Vegalab, Inc., with the company changing its name and stock ticker symbol to VEGL. Additionally, on January 7, VEGL entered into a Master Distribution Agreement with Stanislaus Farm Supply for the purchase of $13 million of agrochemical products in 2018 alone. In January, Vegalab announced its intention to acquire The Agronomy Group, which was Vegalab's Californian distributor and a manufacturer of agricultural products. The completed acquisition was announced on March 5, 2018.
Vegalab Inc. Is Earth Friendly
VEGL products are nothing like conventional agrochemicals that degrade the environment, are harmful to humans, and face significant regulatory hurdles. In fact, the VEGL line of products are just the opposite - they are beneficial to the environment, completely safe to humans, proven to enhance crop values, and best of all, encounter very few regulatory hurdles.
Vegalab's agro-products are developed to attack targeted organisms only, and at the same time enrich the soil by bolstering beneficial insects, bacteria, fungi, and microbes. In addition to helping the soil and enhancing crop value, VEGL's all-natural biocides are food grade quality and can be applied right up until harvest. Even better for the farmer, treated fields can be re-entered and worked immediately after application.
Perhaps the most significant advantage for VEGL, though, is that the challenges faced by billion-dollar conglomerates that bring toxic chemicals to the field tend to disappear for VEGL. The Vegalab products enjoy classification as a "Minimum Risk Pesticide" and "Ingredients of Minimal Concern" which, allow VEGL's biological ingredients to get regulated at the state level. Not only does this save both time and considerable amounts of money, but it also clears a path away from the bureaucracy of the federal government. Astoundingly, data shows that on average it will take a synthetic pesticide roughly 11 years to develop, and account for an average R&D investment of more than $286 million - and that's for a single product. However, those issues are not a concern for VEGL.
The VEGL Market Advantage
VEGL sits well positioned in a market that is growing exponentially on a global scale. Current growth projections in the organic food market are expected to maintain a 14% growth rate through the year 2021. In just the past nine years, organic food production increased by more than 240%, in stark contrast to the non-organic food production rate that dropped to an anemic 3%.
The secret is out - customers want foods produced with natural, non-synthetic, and sustainable inputs. However, it's not only the consumers that are bringing change. Regulatory attitudes are changing as well, and natural substances are regularly getting fast-tracked for approval and marketing registration. In turn, the barriers to entry are getting lowered, and that equates to VEGL having the ability to get their products approved and into the market quickly.
And, being quick will have its advantages. The projected global market for biopesticides is expected to eclipse $3.8 billion by the year 2022, primarily driven by market pressures to reduce chemical residues in food, the regulatory restrictions curbing the use of chemical pesticides, and the active and growing demand for organic food. Another emerging advantage is that insects are building a tolerance to synthetic chemicals, and farmers are taking the opportunity to not only respond to changing market sentiment, but to use better products to protect their investments.
For the products VEGL sells, advanced technologies are applied to natural ingredients to increase their potency and create highly effective products. Not only are the products safe and effective, but they can also be produced and brought to market at dramatically less cost and time than synthetic products. From a competitive perspective, the VEGL products enjoy the designation of being "minimum risk pesticides" under section 25(b) of the Federal Insecticide and Rodenticide Act which, provides the company with an exemption from federal registration and may lead to expedited product registrations on the state level.
To date, VEGL has registered 35 products in the United States, including eight pesticides that are comprised of biocontrol agents, insecticides, and fungicides. In addition to those 35, VEGL is expected to bring several additional products to the registration phase, having completed R&D and testing phases that demonstrated competitive results to that of synthetic products on the market.
VEGL Products Are Different
The VEGL line of products is different and designed to specifically address the multi-billion-dollar opportunity. Vegalab uses unique ingredients and proprietary processes that allow them to utilize specific compounds that have been long known for their beneficial effects but were used sparingly in prior products due to cost variables. Vegalab gets beyond that obstacle with processes that can maximize efficacy in concentrations unique to the VEGL commercial product line.
By using only food-grade ingredients, the VEGL line of fertilizers provides plants instant access to elements necessary for optimal growth. Beyond plant health, the VEGL products are safe and promote the health of beneficial microorganisms and pollinators as well. These beneficial effects can occur because unique to VEGL products; they incorporate amino acids, organic acids, and other chelating and complexing agents such as glycine, betaine, and citric acid into their products, which then enable plants to absorb the minerals in their products more quickly.
A Race Toward Competitive Advantage
The competitive landscape is in its infancy, with no real dominant player controlling the market. This is good news for VEGL, especially with the most recent announcement of the $13 million contract in 2018. This provides them with the capital needed to separate themselves from the nearest competitor. Vegalab is looking to add even more revenue by securing distributors from other regions within the US.
One of those companies is Marrone Bio Innovations, a business founded in 2006 that has only six products in the market. Marrone reported revenue of $14 million in 2016 and accounted for a negative EPS of ($1.16). Additional competitors include Certis USA, which has 34 products in the market and reported $16.6 million in 2016 revenue, and Andermatt Biocontrol, a company founded in 1988 that has 33 products for sale and an income of roughly $45 million in 2016.
The opportunity is ripe for VEGL, and they are well situated to take advantage of their product portfolio that is targeting the growing market demand. Vegalab's top-selling products may undoubtedly gain a competitive edge on other market participants, with Nematode Control, Spider Mite Control, and Mosquito BioControl leading the sales. Additional contributions by Mildew Control, Pollen Boost, and Spore Control will strengthen the revenue stream in 2018 and continue the trend for what is expected to be a breakout year for VEGL.
Vegalab Sets The Table For A Strong 2018
Now that 2018 is on track to provide record revenues to VEGL, company management has set expectations to strengthen the company's market position further. First, VEGL management is looking to acquire companies that can profitably fuel its revenue growth by adding accretive earnings power. Next, the company plans to contract with new distributors outside of the United States to increase their global presence. And, finally, the company intends to hire additional sales support to grow consolidated sales revenue in 2018.
Taking the current market position into consideration, along with the fact that the organic foods market is growing faster than most farmers expected, the need for safe, effective, and alternative products to the current offering of synthetically produced products has never been higher.
Farmers can't serve an organic market while at the same time using synthetic pesticides. With millions of dollars to be made, along with the potential for family farms to win or lose the race to meet the changing consumer demands, a decision to use products like the ones offered by VEGL not only makes financial sense, but it can create a wealth of opportunities. Although VEGL is not yet the most significant player in the organic pesticide sector, they are well on their way to becoming one. Hence, from an investment perspective, the opportunity to invest at current levels may offer an enticing risk/reward profile to the upside for investors.
This article was originally featured on CNA Finance.