Loop Industries' Problems Are More Than Plastic

Summary

• Loop Industries claims to “utilize its proprietary recycling technology to recycle all elements…as well as all additional shipping components,” despite management privately admitting that it sends LDPE to traditional recyclers.
• Loop raised $15.7 million between Q1 and Q4 2018 on twisted language that suggests the company’s recycled plastic is FDA-approved. Recycling trade websites, including corporate partners, have perpetuated this language.
• Loop claims that its chemical recycling process is proprietary; my analysis suggests that Generation II depolymerization doesn’t fall under the company’s patent; management purports that those patents are pending.
• The company has not reported production or recovery rates yet plans on building a second recycling plant. Cash burn leaves a little more than a quarter before necessary capital raise.
• Loop’s CEO tried the same business model at Dragon Polymer. Barron’s and the WSJ reported that LOOP’s second-largest investor leaked revenue numbers at iMergent. Loop's CFO just resigned.

(Editor's Note: Seeking Alpha wishes to note to readers the following edits that were made to the article in the days following publication: 1) The author corrected the description of the fundraising time periods discussed, and made a clarification regarding the $ amounts raised during the period. 2) The author acknowledges Loop Industries' disagreement with his opinions regarding the importance of 'FDA No Objection Letter' or pre-approval, as stated in "Loop disagrees...". 3) The author made a correction to state that Donald Danks is not a current member of Loop's Board of Directors.)

Straight to The Point

Loop Industries (NASDAQ:LOOP) raised $15.7 million between May 4, 2017 (Q1 2018) and February 28, 2018 (Q4 2018) from investors on the premise that the company is “a leader in sustainably produced polyethylene terephthalate” (Source: Loop Industries). This positioning is based on four key claims that I believe, based on my research, are untrue:

1. That LOOP “utilize[s] its proprietary recycling technology to recycle all elements…as well as all additional shipping components (bags and gaylord boxes)” (Source: 2017 Service Agreement)
2. That LOOP’s recycled plastic is “high quality FDA-approved food-grade plastic” (Source: Loop Industries Q&A). The company has since changed the language on its website. I time-stamped and screenshotted the company’s previous language, which I include below.
3. That LOOP “successfully activated the next generation of their waste PET and polyester fiber upcycling technology which now allows for the continuous production of Loop™ PET products” (Source: Loop Industries June 21, 2018 Press Release).
4. That LOOP’s “proprietary technology breaks down PET into its base chemicals, Purified Terephthalic Acid (PTA) and Mono Ethylene Glycol (MEG), at a recovery rate of over 90% and under normal atmospheric pressure and at room temperature” (Source: LOOP 2017 Second Quarter 10-Q).

As part of my research, I tried to contact the company

Analyst’s Disclosure: I am/we are short LOOP. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.