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The shares of Quebec-based Loop Industries fell 35% in two days after the publication of a damning report that argues that its plastic recycling technology is worth absolutely nothing. Quebec and Ottawa have invested at least $ 5 million in Loop.
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Loop Industries stock closed yesterday at US $ 7.55 on the Nasdaq, which puts the Terrebonne company at US $ 319 million. At the start of the month, it was worth over US $ 500 million.
On Tuesday, US firm Hindenburg Research released a detailed report on Loop based on interviews with ex-employees, business partners and experts as well as company documents.
“Smoke screen”
“Loop Industries has never generated revenue, but presents itself as a technological innovator with a ‘proven’ solution that ‘leads the revolution in sustainable plastics’. Our research indicates that Loop is just a smokescreen without viable technology. “
Hindenburg, which was founded in 2018 by Nathan Anderson, a Chartered Financial Analyst (CFA), predicts that Loop’s value will drop to zero when the company’s cash on hand – US $ 48 million – runs out.
Note that Hindenburg is betting on the fall in Loop’s share since it holds a short position in the company.
Loop claims to be able to break down PET plastic in beverage bottles chemically – that is, by dissolving it. The industry currently advocates mechanical decomposition, either by heating.
The company was founded in 2014 by Daniel Solomita, a former IT consultant. During a brief meeting yesterday with The newspaper At his Lorraine residence, Mr. Solomita declined to comment on Hindenburg’s revelations.
Patents
Loop’s technologies are covered by a patent and pending patents owned by Hatem Essaddam and his two sons, Adel and Fares. Adel Essaddam, who is Loop’s “chief scientist”, studied the transformation of composite materials at the Cégep de Saint-Jérôme.
“The claims that [Hindenburg] facts are either unfounded, incorrect or based on the first version of Loop’s technology, known as Gen 1, which was used from 2014 to 2017, ”the company responded in a statement on Tuesday. However, Hindenburg’s report also addresses the current version of the technology, Gen 2.
Mr. Solomita owns 47% of the shares of Loop. In 2019, he was entitled to total compensation of just over $ 5 million.
Loop number two, Nelson Gentiletti, is a former executive of Transcontinental and Transat. He sits on the Board of Directors of Cascades. On Tuesday and yesterday, Mr. Gentiletti and two directors of Loop, including Laurence Sellyn, a former executive at Gildan, took advantage of the decline in the company’s price to buy shares.
Hindenburg has submitted its report to the United States Securities and Exchange Commission (SEC). Joined by The newspaper, the organization did not want to say whether or not it had opened an investigation into Loop.
Stéphanie Corrente, a spokesperson for Loop, told the Newspaper that the company planned to open a first factory in Europe in 2023 in collaboration with the French giant Suez.
Striking revelations
Hindenburg Research’s in-depth Loop Industries report is full of stunning allegations about the Terrebonne company. Here are a few .
Facilitators with a troubled past
Hindenburg claims that Henry Lorin, who pleaded guilty to securities fraud in 1989, and Lance Bauerlein, who did the same in 2015, helped Daniel Solomita raise funds to start Loop Industries.
Two laboratories in parallel
Former Loop employees told Hindenburg that the company operated two laboratories: one reserved for Hatem Essaddam and his two sons, “where incredible results were being achieved”, and another “where ordinary employees were. unable to reproduce the so-called revolutionary results ”.
Shaky agreements
Loop boasted of having partnered with giants like Coca-Cola, PepsiCo, Danone and L’Oréal. But according to Hindenburg, these agreements have not led to anything so far. “We have not yet received any rPET [plastique PET recyclé] 100% from Loop Industries ”, confirmed in Newspaper Shanna Wendt, Vice President of Communications at Coca-Cola European Partners.
A technology already known
Experts consulted by Hindenburg argue that Loop’s technology is nothing revolutionary and that if it is not used it is not economical. “To suggest that it is ‘new’ and that it is ‘simple and easy’ and cost effective as a process, that is just not true,” said one of them, under the guise of the anonymity.
-With the collaboration of Martin Jolicoeur
About $ 5 million in aid from Quebec and Ottawa
The provincial and federal governments through various programs have injected approximately $ 5 million into the Canadian division of Loop Industries in recent years.
According to a press release published in September 2019 that can be found on the website of the Ministry of Economy and Innovation, Quebec has allocated a loan of $ 4.6 million to Loop Canada to support an expansion project of the company’s pilot plant in Terrebonne.
The entire invoice for this project was then estimated at $ 9.3 million. Yesterday it was not possible to know if this project had been completed.
It was the Minister of the Economy, Pierre Fitzgibbon, who made the announcement of this loan from the Essor Program – Support for the investment project. It was granted in collaboration with Investissement Québec. The project was to lead to the creation of 22 jobs.
No shares held
A clause in the agreement for the loan provided for a 36-month moratorium on repayments upon signing. Then the principal and interest were to be paid in 84 monthly installments.
Warrants had also been granted to the Quebec government as part of this financing, we can read in the press release.
Yesterday, the Ministry of the Economy did not want to disclose the sums still owed by the company, this information being confidential. However, the government specified in an email that it did not own any shares in Loop Canada or Loop Industries.
In 2017, Loop Canada also received financial assistance of $ 94,000 from the provincial government through the PME en action program.
In addition, Loop Industries also received $ 325,248 from the National Research Council of Canada in April 2020, under the innovation assistance program.
– With the collaboration of Jean-François Gibeault
