Stevia First Corporation (STVF.OB) has had an eventful year as it has made dramatic progress in attempting to enter what could be a very lucrative product line by focusing on stevia, the largest all-natural, no-calorie sweetener in the sector. The company appears to have made much progress in gaining entry into this potentially lucrative area of food additives. For shareholders, this year had been marked by volatility with wild swings in share price ranging from $3.29 per share on March 28th to $0.23 on August 17th. While some shareholders may be content on holding through the wild share price swings, there are many that may have bought at the more elevated prices and possibly exited with substantial losses. It is my opinion that this growing company should be treated much like a small pharmaceutical or biotech company, in which its actual value should be based more on its growth and the market it is intending on entering rather than on its current financials. However, there has been a lot of skepticism surrounding the company with bloggers and posters in various forums expressing concern about not only the company's business practices, but even on its very existence.
Due to a huge level of interest in both the zero calorie and the natural products food additives, I am excited when a product that has components of both qualities begins to emerge. Not only is the health aspect exhilarating, but shareholders could also benefit handsomely from the company's prospects. I have notified Stevia First's CEO, Mr. Robert Brooke, in an attempt to not only answer some questions I have about the company's possibilities but to also give him an opportunity to answer questions about the concerns many posters and bloggers seem to have about the company and its business model.
[AN]: Mr. Brooke, congratulations on an eventful year. Stevia First has had a couple of significant press releases this year each with far-reaching ramifications for the company. I am thankful you have taken the time to answer some questions for shareholders, potential shareholders and even those consumers hoping to find more natural, zero calorie products to help them live healthier lives. I was keeping a watchful eye on Stevia First earlier in the year and was excited about the earlier announcements the company made to start off this year. Could you please give us an update on the 1000 acres Stevia First leased back in April and the subsequent field trials you announced in May?
(RB): Thank you, as it certainly has been an eventful year for our company.
Yes, we leased approximately 1,000 acres in California's Central Valley earlier this year. This is a unique property located within Sutter County's FPARC zoning designation, which enables a wide variety of permitted activities on-site, ranging from location of a stevia extraction and processing plant, location of additional R&D facilities, performance of stevia field trials, and more. We remain excited about its potential to become our base of commercial stevia operations, although we will maintain our R&D site and offices that are closer to Sacramento and UC Davis. The company will take a measured approach to further development of this site, as the nature and scale of the desired facilities will be dependent on results from our stevia field trials, stevia leaf extraction and processing studies, and fermentation-based stevia production studies.
The company has not provided any results from our field trials, but progress has been made and the company is steadily developing the know-how that will be necessary to build a sustainable California stevia industry that relies upon farm-based stevia production. Because it is a new crop and industry to California, there is a learning curve associated even with the basics such as mechanized planting, cultivation, and harvesting practices.
Also, crop harvests take place on an annual basis. Our focus on the current crop cycle is on optimizing the basic cultivation and harvest practices rather than commercial leaf production. The trials have competent management, with assistance from seasoned and innovative farming advisors, so we're confident that our organization will quickly master the fundamentals and be able to build upon them.
[AN]: Based on these field trials, have you narrowed down your choice of cultivars to the ones you intend to use? Could you give us some insight into your thought process on these choices as pertaining to the yield and steviol glycoside extract concentrations?
(RB): Excellent question, as choice of an appropriate stevia plant cultivar will be integral to the long-term success of the California stevia industry. There are already plant varieties available today that have high levels of sweet steviol glycosides and that grow well in California. We could grow significant acreage of these varieties, using known methods and known technologies, and we could make a few bucks. But at Stevia First we're not interested in becoming a commodity stevia leaf producer; we're most interested in building a vertically-integrated stevia enterprise that captures sustainable value for us and our shareholders. So, for us, the question of what cultivar we "intend to use" is more complicated, as it not only means what crop to put in the ground next season, but what crop you'll design extraction and processing facilities around. Selection of the appropriate cultivar will be a non-linear process involving data from our field trials and internal breeding efforts, acquisition of new stevia germplasm, and the relative appeal of farm-based stevia production versus fermentation-based stevia production. The ideal cultivar would have high leaf yield, high steviol glycoside concentrations, be amenable to mechanized farming, and be proprietary to the company.
So again, our goals are not geared towards short-term crop production, but towards building a sustainable stevia industry in the U.S. We are working to create the plant and practices desirable for farm-based stevia production, and also speed the emergence of fermentation-based production methods, since we see large markets for products derived from each.
[AN]: Can you divulge what time frames will likely be involved in actual production of stevia on a commercial scale?
(RB): With this question, it should again be made clear that the company is seeking to build a vertically-integrated stevia enterprise, not to become a commodity stevia leaf grower. If that was the goal, the company could quite easily produce stevia leaf at "commercial-scale" next year.
The company is instead focused on building long-term value for shareholders, and doing this by seeking to build a reliable supply chain of great-tasting stevia and stevia products for consumers and multinational companies with stringent QC requirements. Higher regulatory and quality control standards are what make California agricultural products desirable on a global basis. When combined with competitive pricing, it is an appealing solution for major food and beverage companies that until now may have been reluctant to incorporate stevia into their flagship brands.
We are also working on multiple modes of stevia production, including farm-based stevia production and fermentation-based stevia production. Both methods involve some complexity, so the production and marketing of our California stevia products on a large commercial scale is not expected for 2-3 years, which would coincide with our goals to have proprietary plants, standardized cultivation practices, and a local extraction and production facility.
[AN]: Based on the recent surge in share price, investors seem to be highly interested in the recent press release about the production of the steviol glycosides from an acquired fermentation process patent. Can you tell us how you will likely pursue this avenue of the steviol glycoside production and how this fits into your business model with the agri-business production of stevia leaves? Are the two approaches mutually exclusive?
(RB): Sure, the company is pursuing these two methods of stevia production in parallel. On the one hand, we are pursuing traditional farm-based stevia production with a modern twist, where we bring the known overseas production technologies to California and seek to improve upon them. On the other hand, we are working to develop a disruptive innovation, where the company licensed compositions and methods for the production of steviol and steviol glycosides through fermentation-based methods. This has the potential to bypass or diminish the need for stevia leaf production, which currently accounts for 70% or more the costs involved with stevia extract production, while also producing a final product that could be better-tasting and more consistent.
The approaches are mutually exclusive, for the most part. There is certainly overlap in terms of development staff, testing equipment, and regulatory approvals required. And there is a small degree of potential overlap in the production methods, but they should mostly be considered distinct approaches.
[AN]: As pertaining to the fermentation process, will the final product be construed as "all natural"? In terms of marketing the fermentation-generated steviol glycosides, what approach would you take?
(RB): It should be noted that because extraction of the sweet steviol glycosides from the stevia leaf is required today to isolate the best-tasting constituents, some discriminating consumers already don't construe this process as "all-natural". We haven't finalized the processing steps for our fermentation-based stevia products, but we don't expect the methods to change the minds of all consumers regarding this issue. In addition, the fermentation-based methods may utilize conventional yeast breeding or yeast engineering, which may create added concern for some consumers. It's important to note however that such yeast, regardless of origin, would only be used as processing agents, and the final product would be purified sweet steviol glycosides. So these are the same constituents that are produced in nature, and that have been used safely for hundreds of years in South America as part of the stevia leaf. That's a pretty impressive track record for safety, so we believe consumers for years to come will recognize stevia as a safe and useful ingredient, and for good reason.
Because of these consumer preferences, and because of labeling and marketing regulations that vary considerably across jurisdictions, the company plans to market stevia products that cater to each segment. So, for instance, in certain markets, we would offer farm-based stevia products that are widely accepted as "all-natural" and "organic". In other markets, we may focus instead on fermentation-based stevia products that are lower cost.
[AN]: Excellent response and the multi-faceted marketing approach certainly sounds exciting. As relating to the recent announcement on the fermentation process licensing, do you have an update on the pilot plant runs on the fermentation production process of steviol glycosides?
(RB): The company did disclose that it is commencing process optimization studies and will be completing pilot-scale extract production related to fermentation-based stevia production, at the same time that we announced the exclusive and worldwide license with Vineland Research. We have not provided any additional update at this time, although this is a stated milestone of the company and we expected to announce progress within the next six months.
[AN]: I realize this is still early stage, but how much communication have you had with potential suitors/partners in this venture? Will you go at this business model on your own, are you looking for suitors, are you open to a partnership?
(RB): Our interactions to date with larger companies have been focused on potential customers. Through this outreach, we've found tremendous appeal for stevia products that are sourced entirely from North America, that taste great, and that are cost-competitive. We are open to exploring deeper partnerships or collaborations, especially for specialized product development projects, but the company is mostly focused on building operations internally in the near-term.
[AN]: I see several postings in recent and earlier articles questioning the legitimacy of Stevia First. Some of these have even posted links to pictures of the property and its structures. Would you like to comment on those postings and pictures?
(RB): Yes, I am aware that there have been articles written about us that have expressed a healthy degree of skepticism about our company and operations, to say the least. For instance, one author presented an outdated Google Maps image as evidence that the company was being operated out of two sheds. This was quite a surprise, as I've never seen those sheds, and our company's two-story office and R&D laboratory is located on the same property. The same author questioned our legitimacy in a dozen different ways, spinning clever narratives about the company's history and the intentions of our leadership that distort the facts and are inaccurate. But on the other hand, there have also been positive articles written about us that gush with irrational exuberance, and that seem equally disconnected with reality.
I do hope that people reading these articles exercise their own critical thinking skills, and that they won't only read or rely upon polarizing internet articles that do nothing except further reinforce their own worldview (or stock pick). If you want a guide for sorting through many common logical fallacies, I recommend reading Michael Shermer's book "Why People Believe Weird Things", or at least the first few chapters.
[AN]: Interesting, and I appreciate your candor in the matter. Are there any final thoughts you'd like to express?
(RB): Yes, to summarize, the focus of Stevia First is to build the industry in California and North America in a sustainable way. We're working to do this through aggressive R&D efforts that seek to improve upon and leapfrog older industry technologies. We also seek to capture maximal value through vertical integration. So rather than focusing on small-scale commercial stevia leaf production to make a few bucks in the short-term, our efforts are directed towards building sustainable competitive advantages that will enable us to compete favorably in the long-term with overseas stevia growers and producers.
[AN]: Mr. Brooke, I appreciate your time and look forward to watching more events unfold at Stevia First Corporation. I hope the readership has had many of its questions and concerns addressed. As for myself, I have a new-found respect for Stevia First and its CEO in particular as he has taken the time to step aside from his busy schedule and take time out for his current and potential shareholders.
As with any development stage company in particular, investors should consider the risks as well as the potential rewards. Stevia First's common stock is currently traded on the OTCBB and has the normal risks associated with those securities. I invest in many development-phase pharmaceuticals and think that an investment in Stevia First is much like those with the same type of risk assessment. The market potential for the final product is very promising, especially with the growing obesity problem not only in the United States, but also much of the rest of the world. There will be "growing pains" in this development-phase company as it approaches and likely overcomes its coming hurdles. From an investment approach, readers should consider the market potential and the finances involved with developing the natural and zero calorie sweetener product. However, there is one area in which the risk is certainly not as great as with pharmaceuticals: Stevia extract is already approved for marketing in the United States and elsewhere. Therefore, the regulatory hurdles are much smaller, more manageable and require much less time (and likely much less money) than comparable sized pharmaceuticals that are trying to enter comparable-sized markets. Please perform your own research and risk assessment with this and any other development-phase company. With the multi-faceted approach to the steviol extracts production, the company has many potential catalysts shareholders should continue to look for in the coming days and months.
Disclosure: I am long STVF.OB.