Dr. Michael Burry, who you may have seen portrayed by Christian Bale in the Oscar-nominated film The Big Short as one of the first/only people to spot the 2006 housing bubble's imminent collapse (and make a billion dollars in doing so), doesn't bet on real estate anymore.
He's investing in water.
And he's investing in water, more specifically, by investing in food.
“Fresh, clean water cannot be taken for granted,” he told The New Yorker last year.
“Water is political, and litigious,” he added. “Transporting water is impractical for both political and physical reasons, so buying up water rights did not make a lot of sense to me, unless I was pursuing a 'greater fool' theory of investment – which was not my intention. What became clear to me is that food is the way to invest in water. That is, grow food in water-rich areas and transport it for sale in water-poor areas.”
The transport of water is already a big deal. Bottled water companies pay pennies per million litres to pull their raw product out of our local water tables, then sell it back to us in handy bottles at a markup that is much more profitable than oil. Saudi Arabia, in turn, sends us oil by the barrel, and then ships barrels of water back the other way. Venezuela, since the cost of oil dropped through the floor last year, has been largely unable to feed its people, with food riots ensuing.
Food security is a big deal, not just in terms of staying alive, but also in terms of investment opportunities. As populations grow, it becomes harder and harder to provide everybody with the basics of life, let alone the luxuries they demand as they climb the economic ladder.
And that means there's profit potential in any company that can help feed us in newer, cleaner, better ways.
Of course, the pursuit of profit can screw food up just as easily as it can anything else. The mislabeling of not-so-organic food as organic brings retailers much bigger margins, so companies like Wal-Mart have long been pushing to lower the requirements of what 'organic' consists of. A few years back, when ethanol looked like it might supplant oil, millions of hectares of fields previously used for growing food were suddenly used to grow corn for cars instead. Monsanto infamously used GMO tech to create seeds that are resistant to their Round-Up weed killer, even if they strip some foods of their nutrients in the process. The incredible growth of quinoa as a food in the western world has seen third world growers selling their formerly staple crops to us, while feeding themselves on the sort of cheap fast food we're trying to get away from.
There are two sides to making profit out of food; there's the profit you make in squeezing it 'til it breaks, and then there's the profit you make through innovation, so that squeezing isn't necessary.
Last week in this column, I mentioned a local Vancouver company called Avivagen, which has been developing a beta-carotene product, just a heaped spoonful of which could turn a ton of livestock feed into a product brimming with the sort of health potential that could actually end food producers' dependence on antibiotics.
That company is working with food producers currently, running animal trials to prove out their tech in a real world setting, and working to lock down contracts that would be worth millions overnight.
Other companies are focused on vertical farming, which brings 90% more yield than open air farms by stacking crops in large indoor greenhouses, tracking their vitals with sophisticated sensor electronics, lowering the need for energy use with cutting edge LED lighting geared toward the spectrum specific plants need, and lowering transport costs by actually growing where the people are, rather than shipping containers of vegetables from Argentina.
[youtube https://www.youtube.com/watch?v=-_tvJtUHnmU]
Then there are companies developing food products out of things we haven't traditionally thought of as food, such as hemp, or using cannabis oil as an additive to boost the health of the end user, or using vegetables such as peas and potatoes to create 'milk'.
There are companies growing Asian seafood delicacies in large vats on Vancouver Island rather than hauling them in with nets from the ocean, and others using algae to develop products brimming with health benefits so we don't have to kill all the krill. A company in California has put out a powdered product called Soylent, which it says has all the vitamins and minerals and nutrients and components that a human body needs to thrive, to the point where you can avoid actual food altogether and just drink their product for each meal, at $2 a throw.
[youtube https://www.youtube.com/watch?v=7fU87vCCylo]
To be sure, the returns on your investment would have been far better in 2016 if you invested in gold mines instead of food. But they'd have been a whole lot worse if you'd invested in pharmaceuticals, or Monsanto, or oil.
Our children will find it harder to keep themselves fed than we did. In fact, you can already see at the supermarket checkout that the squeeze on food has begun to take effect. We pay twice as much for bread today than we did four years ago. We buy bananas that are grown in Ecuador and sprayed with a chemical to stop them ripening, then shipped on boats to North America, where see spray them with another chemical to make them ripen, which they do in a few days, going rotten before we can eat them. Perhaps you've only ever known tomatoes that are light pink in colour, as big as a fist, and taste like water, but it was only a generation ago that they were deep red, small, and bursting with flavour, and we're increasingly determined to get back to that point.
[youtube https://www.youtube.com/watch?v=llZ5GMYeQBM]
Food innovation is going to be huge, both because we increasingly know we're getting suckered by large agri companies feeding us sub-standard product currently, and because we can see what it's doing to our health to accept that as the norm.
So what's the solution? Well, if you've got a few hundred bucks socked away that you're doing nothing with, maybe take a look at these local companies that are trying to buck the trend and, if you like what you see, put your money where your mouth is.
Literally.
HEMP FOR THE MASSES, STOCK DUMPED BY ASSES
COMPANY: NATURALLY SPLENDID
TICKER: NSP.V
[youtube https://www.youtube.com/watch?v=cEP08EOO9rM]
Value: $17.2 million
Price at time of writing: $0.31
Price at start of 2016: $0.27
Investor return: 14.8%
What they do: Naturally Splendid is in the hemp business, having developed a line of hemp protein powder drinks (Natera) which are found on supermarket shelves, a hemp seed product that has taken South Korea's home shopping networks by storm, and they're working on a dog treat product that is doing well at pet product conferences.
Why I like it: It's right on trend and stupidly undervalued. They're shipping the absolute maximum product that their suppliers can process right now in that South Korea deal, with hemp de-hullers working around the clock. They just broke into profit for the first time, and they're already booked $700k in sales for the next quarter.
What's cool about it: They did $100k of revenue in the entire of 2015, when the stock price averaged out at around $0.45. Then, in the first quarter of 2016 (with the stock at around $0.35), the company earned $1.4 million. The quarter just ended? $3.66 million, with and you could have bought it at $0.25. This is a complete and utter Moneyball stock, where the market has passed it by for no good reason, which means you get it super cheap.
What's not so cool about it: The problem with a Moneyball stock is, by its definition, the market hasn't clued in yet, and you don't make money until they do. NSP in particular has suffered from a number of daytraders being in the stock, so whenever they put out good news and the stock goes up, those daytraders take their profits and leave for a bit, which brings it back down again.
But stocks like this, which are bringing in strong profits in the real world that haven't yet been realized on paper, invariably do not stay undervalued for long. As the good news continues to emerge, I believe the anchor will begin to be removed.
Investor presentation: HERE
Any conflicts: None, though I have previously been an advisor to this company and have owned the stock in the past.
STACKING ORGANICS WITH A CANNABIS TWIST
COMPANY: ARCTURUS GROWTHSTAR TECHNOLOGIES
TICKER: AGS.C
[youtube https://www.youtube.com/watch?v=z_ZwCpPLoBw]
Value: $1.2 million
Price at time of writing: $0.09
Price at time of listing (Aug 3): $0.05
Investor return: 80%
Why I like it: Arcturus is a player in the constantly hot vertical farming space, which is undeniably where future food production is headed, and at a time in its commercial development where the idea is starting to bear fruit (pun totally intended).
Other, larger vert-agri companies, such as Indoor Harvest (INQD), which has a partner pilot program with big Canadian weed player Canopy Growth Corp (CGC.T), Affinor Growers (AFI.C) which has struggled to produce a strawberry over several years where their stock dropped 95%, and Aerofarms, have spent loads of cash developing tech and trying to prove it out. AGS, meanwhile, simply licensed their tech from a third party and went to work on getting their farms rolling, which has kept their startup costs down significantly.
Last week, I wrote about Arcturus on my own site, Equity.Guru, and my only hesitation then was the company had still yet to get one of its four projects permitted to go forward. This week, one of those projects locked down permits and is go, which is a nice legitimizing move.
What's cool about it: It's all well and good to grow microgreens for local restaurants and cauliflowers to supply an increasing demand, but the cannabis industry has been casting an eye on vertical farming as a means of increasing early growth marijuana yield, and Arcturus has a big inroad to this space through the fact that it sells high quality LED lighting (see video above) to cannabis growers.
To be honest, just on the LED light potential alone, this company is undervalued.
What's not so cool about it: Worth noting, the company has, like many small Vancouver penny stocks before them, had a torturous birth process in which background dealmakers I have little time for have come and gone. But at the current valuation, I'd consider Arcturus an interesting high risk/high reward enterprise and believe, with their valuation being super tiny, if they can do any business at all, there should be real scope for share price growth in multiples.
Investor presentation: HERE
Any conflicts: AGS has paid a consideration fee to VIA for inclusion in this article.
NO, REALLY, IT TASTES GOOD. I SWEAR
COMPANY: GLOBAL GARDENS GROUP
TICKER: VGM.C
[youtube https://www.youtube.com/watch?v=5FgSaZrxzrQ]
Value: $7.2 million
Price at time of writing: $0.125
Price at beginning of 2016: $0.14
Investor return: -10.7%
What it does: Global Gardens developed, produces and sells Veggemo, a non-dairy 'vegetable milk' product made with cassava tapioca, potato starch, and pea protein. Yes, I know that sounds gross. I thought so too, but it's on your supermarket shelves and, honestly? It's good.
Why I like it: It takes a long time to get a new product to shelves, longer still when it's a brand new type of product, but these guys got Veggemo out WIDE in really quick time. Sales have been just okay, but they're fine with that because the first phase of their product was a 'shelf stable' version of the product, which is cheaper to produce and which they used to determine market demand. Phase II is to bring out a refrigerated version of the product, which will be not only better for consumers but also placed exactly where people look for their 'dairy' products. A recent $6 million financing will be used to move into US markets while they're at it.
What's cool about it: Let's ignore the fact that it tastes like 2% milk every bit as much as almond, soy and cashew milk do, and go straight to the nutrition profile. Veggemo is loaded with calcium, vitamin D and B12. It's completely free of gluten, dairy, cholesterol, soy, and GMOs. And if that's not enough, it qualifies as both vegan and kosher, which puts it right in the sweet spot going forward.
What's not cool about it: After a big splash in early 2016, investors left the stock as the reality of long term product development set in, bringing the stock down to just 1/4 of its peak in July. But the news of its expansion, and the interest level in its financing, has it back trading at a double since that point.
Company presentation: HERE
Any conflicts: None.
*** BONUS EXTRA! *** BEER TIME!
Okay, this is time sensitive, so don't screw around. I'm not normally a private equity guy, but over at the private equity investment site FrontFundr.com, you can buy shares in Gastown hospitality icon Mark Brand's Gibsons, BC-based Persephone Brewing until midnight tonight (Aug 31).
Normally private equity is a rich man's game, but the minimum purchase here is just $250 so, literally, this is one accessible deal. I just bought some because, beer, and I've probably spent more than that on lunch at one of Brand's many downtown bars.
Will you ever be able to sell it? Well, if there's some sort of exit event, or it goes public, sure. But, come on, you'd be an OWNER OF A BREWERY, which is basically every dream you've ever had as a millennial all wrapped up in one.
To get some, visit FrontFundr.
[vimeo 169108859 w=640 h=360]
-- Chris Parry
