Shocking: Meat Alternative Investors Left Reeling from Major Losses

In February 2021, former Whole Foods co-CEO Walter Robb described consumers’ gradual shift away from meat to plant-based alternatives as a “digitization-like megatrend” — potentially “the biggest single trend in food history.” “.

It has been a painful journey of two and a half years for investors in the industry ever since. An index tracking 46 plant-based food companies has dropped in value in half since it peaked weeks after Robb’s bold call, hit by lackluster sales and rising interest rates.

California based stock Beyond meat, the industry manifesto whose early backers included actor Leonardo DiCaprio and the Bill & Melinda Gates Foundation, skyrocketed after going public in 2019. It briefly enjoyed a market cap of more than $14 billion, but the shares are down about 95% since then. . The company has also been hit by class action lawsuits. Shares of Oatly, another vegan alternative, are down 90% since listing in early 2021.

Despite the boom in ethics-focused investments and growing concerns about the meat industry’s carbon footprint, consumers haven’t developed a taste for plant-based alternatives, which still account for only a fraction of one percent of the global meat market.

Until they can match meat in flavor, texture and cost, plant-based substitutes are unlikely to capture a substantial market share, analysts say. On all these fronts, a rival technology — cultured alternatives grown from animal stem cells — may pose a greater long-term threat to traditional meat companies than their plant-based counterparts.

Proponents include Arik Kaufman, chief executive officer of Israel-based Steakholder Foods, which feeds cuts of meat grown from stem cells in its “bioprinting technology” to juice steaks and fish fillets.

“Over time the uniqueness of our printers will come to the fore, flexitarians will switch to our products, and eventually we will produce ‘real’ meat, although it won’t happen overnight,” said Kaufman, whose company advocates include Renaissance Technologies, one of the most successful hedge fund firms in the world.

But Steakholder’s stock hasn’t escaped a sell-off in the broader sector, tumbling 92% over the past two years. Still, Kaufman pointed to Israeli Prime Minister Benjamin Netanyahu’s apparent endorsement of the company’s grouper fillet in an April visit as evidence of the technology’s potential.

Others sheepishly agree. Jeneiv Shah, portfolio manager at Sarasin & Partners, said cultured meat “would be an ideal solution for the environment,” given the amount of land and water needed to grow plant-based meat products.

“Food safety is another driver for this technology,” Shah said, adding that it is no coincidence that Singapore, which imported 90% of its food supply in 2021, was the first country to approve products at cultured meat base for commercial sale.

Shah estimated that the alternative meat industry’s total market could reach about $300 billion by 2035, with an ever-increasing share of lab-grown meat. In the United States, sales of plant-based substitutes fell 13% in April compared to the same month last year, according to data provider Spins.

“I don’t think Beyond Meat will be bought by a company like JBS or Tyson,” Shah said, referring to two of the largest meatpacking companies. “Only a few of them realistically think their business is going to be shut down and those who are will look to private groups in [meat] fermentation and cultivation instead”.

The cultured meat industry raised $896 million in venture capital funding in 2022, down from $1.3 billion in 2021, a slightly smaller decline than the average 35% year-over-year decline in funding risk factors, according to Barclays. The percentage of total investment in the meat-alternative space going to lab-grown products has increased over the same period.

Traditional meatpacking companies have also suffered. Shares of Tyson Foods are near an all-time low, and JBS’s value has more than halved in the past year. During first-quarter earnings calls, Tyson’s chief executive blamed “adversity in nearly every country we operate in,” while the JBS boss said he can’t remember another time where “beef, pork and chicken [had experienced] the challenges of the market at the same time”.

Beyond Meat, meanwhile, has far more to do than its $366 million annual loss last year. In early May his stock was hit after it announced it would sell up to $200 million of common stock in a bid to quickly raise funding.

It also faces class-action lawsuits: the most recent, filed on behalf of investors in California, accused the company of overestimating its manufacturing capacity and the success of its product trials with retailers including McDonald’s, Starbucks and Taco Bell.

The lawsuit also alleges that Beyond Meat executives took part in a scheme to deceive the market by selling shares at artificially inflated prices. The filing mentions former chief financial officer Mark Nelson, who sold 440,000 of his personally held shares for $58.3 million between May 2020 and October 2022. Nelson announced in March 2021 that he would be retiring from the company, but continued doing consultancy for the company until the last month.

“The company believes the claims are baseless and intends to vigorously defend all claims made,” Beyond Meat said.

However, for one group of investors, the industry’s woes have provided a chance for profit. Hedge funds betting against Beyond Meat’s stock have raked in more than $1.6 billion since January 2021, according to data provider Ortex.

“A short seller used to classify his shorts as frauds, fads and fades… [plant-based meat] it seems like a fad,” said Barry Norris, chief investment officer at hedge fund Argonaut Capital, which profited from bets against Beyond Meat.

“A lot of companies have somehow reinvented the bean burger, and there’s no economic moat behind making bean burgers,” he said.