Over the past decade, consumers have been slowly gravitating toward healthier and more natural food and drink products. Specifically, the market for all-natural, zero-calorie stevia sweeteners has been expanding rapidly. In 2012, the global market for sugar and sweeteners totaled about $77.5 billion. BCC Research
expects that market to grow at an annual rate of 4.6% and reach nearly $97.2 billion by 2017. Given that the World Health Organization estimates that stevia sweeteners could eventually replace 20 to 30% of all dietary sweeteners, the potential is obvious. Stevia First Corporation
(OTCMKTS:STVF) is attempting to become the leader in this growing niche within the beverage industry.
Stevia First is an agricultural biotechnology company that is focused on the industrial scale production of stevia. Stevia is a plant that is native to South America and is best known as a source of natural sweeteners. Although it does have medicinal purposes, it is primarily used in foods as a non-caloric sweetener and flavor enhancer. Stevia First is hoping to use its technological expertise to improve upon the current stevia farming and production methods. The eventual goal is that Stevia First will have the ability to control the quality of stevia and ensure that it offers the best-tasting stevia products at the lowest cost possible.
Initially, Stevia First plans to produce stevia extract using processing methods that utilize fermentation. The stevia extract would be utilized by globally recognized beverage companies such as The Coca-Cola Company
(NYSE:KO) and PepsiCo
(NYSE:PEP). Both of these multinational corporations offer a wide range of beverages that cater to a broad base of consumers. As consumers' appetite for all-natural and healthy beverages continues to grow, both Coca-Cola and PepsiCo should become large purchases of stevia sweeteners.
One particular group within the medical community that will be paying attention to Stevia’s future products is diabetics. This is because Reb A, a steviol glycloside, does not elicit a glycemic response. This makes it completely safe for diabetics. Additionally, Reb A offers the best taste profile, which can be 200 to 400 times sweeter than sugar. It’s also non-cariogenic, making it safe for teeth. Because the glycloside is heat and pH stable, people can use it the same way that they use sugar.
During the past couple of months, Stevia First has had several promising developments. On May 7, it announced that efforts aimed at developing domestic stevia extraction methods have reached pilot-scale functionality
and continue to progress toward commercial production capability. The investment in pilot-scale stevia extraction equipment is focused on demonstrating domestic stevia extraction methods that are economical and that can be rapidly installed into a full scale production system.
Another exciting piece of news was announced on July 2
. Stevia First revealed that it had entered into a non-disclosure agreement with GRAS Associates, LLC. The agreement will serve to expedite the regulatory approval of the company’s stevia extracts, particularly those manufactured through fermentation-based processes. GRAS Associates will be able to provide their team of highly skilled toxicologists and regulatory scientists with the expertise necessary to receive approval. Investors can now expect a much quicker timeline to receive regulatory clearances going forward.
Lastly, and potentially most importantly, Stevia First announced on July 8 that it has successfully implemented fermentation-based methods
for directed enhancement of steviol glycosides from less marketable steviol glycosides. The key takeaway from this press release is that the company will be attempting to produce a variety of sweeteners. Currently, Reb A is the market leader for natural sweeteners. However, several studies have shown that Reb D and Reb X can also be produced through fermentation-based methods. If Stevia First can successfully produce these additional sweeteners, the company will be well-positioned to dominate the market for years to come.
Stevia First appears to be on the right track to becoming one of the leaders within the nutritional beverage industry. However, investors need to understand the risks associated with a company that only carries an $18 million market capitalization. The company’s main risk is that it is not currently generating any revenue. Although not unexpected with a company still in its infancy, this could potentially mean future secondary offerings in the future. The good news for new investors is that Stevia First recently sold 3.6 million shares
at an average price of $0.34 per share in late June. This should be enough to take Stevia First to at least the end of the year before having to issue more shares.
Despite the high risk of additional secondary offerings in the future, investors should focus on the potential revenue stream that the company's stevia sweeteners can potentially generate. In 2012, the global market for sugar and sweeteners totaled about $77.5 billion. If the prediction from the WHO comes true, companies producing stevia sweeteners can capture at least 20% of that market, which would mean total revenue of $15.5 billion. A conservative estimate would be that Stevia First captures at least 5% of that stevia sweetener market. That would mean annual revenues of $1.5 billion. With Stevia First having a current market capitalization just north of $18 million, investors should be excited about the company's potential.
Editor's note: TM Meyer is a former equity derivatives market maker based out of Chicago. He currently manages his own personal portfolio using a combination of fundamental analysis, technical analysis, and event driven catalysts.
No positions in stocks mentioned.