Hempalta: The Only Public Carbon Standard Body Stock
Video: A review of Hempalta (HEMP.V) stock.
Transcript
In this video, we are going to be reviewing the stock Hempalta, ticker HEMP.V.
This is a company that sells a variety of substitute consumer products made with hemp. Including garden mulch, cat litter, biochar, concrete, and more.
That product lineup typically would not interest me, but what did was the fact that this company also owns the Hemp Carbon Standard (HCS). From what I’ve seen, this is the only publicly-traded carbon standard body.
They operate a carbon methodology used to create carbon credits from sequestering carbon through the production of hemp. We’ll talk more about the HCS later in the video.
Hempalta went public via an RTO with Trailing Blaze Ventures. At the time, sporting a nearly $18 million market cap. Now down to just $5 million.
So, lets go over the company’s fundamentals, and what issues they have run into so far.
Now, looking at the company’s original product lineup, a simple search of Amazon finds a variety of very similar products. So, by no means is this an uncontested market. And there’s not really a great way to differentiate these products either.
I like to look for stocks that are as close to monopolies as possible, because that’s how you sustain high margins for long periods of time. Low levels of competition. And there is clearly plenty of competition with these hemp goods.
Recently, the company put out an update that they were going to be suspending the production of these products. Instead, they would be pivoting to focus all of their efforts on scaling the Hemp Carbon Standard.
Hempalta would retain ownership of those brands, and offer them out to other firms as a licensing opportunity. I have no idea if they will actually be able to license out those rights or not, but that would be a less capital intensive path than manufacturing those products themselves. So, that did make Hempalta more interesting to me.
The main question now was if transitioning to a focus on the Hemp Carbon Standard would make me want to buy the stock
To understand that, we first need to know how the HCS even works.
Once they sign up a hemp grower under their regenerative agriculture methodology, they measure, report, and verify the carbon credits those farms will generate through the use of flux towers and Sentinel 2 satellite data.
It’s worth noting there are other methodologies beyond just hemp, including biochar, building materials, bio-oil, and more. But most of HCS’ activity is focused on the cultivation of hemp.
Hemp is seen as one of the best crops for carbon sequestration, in fact, it is proven to absorb more CO2 per hectare than any forest or commercial crop. In theory, that is ideal for sequestering carbon out of the atmosphere. Where one carbon credit is equal to one ton of CO2, which companies can use to offset their carbon footprint.
Once that carbon sequestration has been validated, HCS will sell the carbon credits through Patch, Cloverly, or other services. HCS receives a revenue share of the profits with the farmer.
I haven’t seen it explicitly mentioned anywhere what the profit sharing percentages are between the farms and HCS, but we can back into a likely estimate.
Hemapalta says that they generated $42,000 USD in sales from carbon credits as of December 31st, 2024. Nearly all of those were sold before the end of September, which was when Hempalta’s last financial documents are from.
Here we have Hempalta’s previous sales with the hemp product lines that they aren’t producing any more. The “Others” category is a grouping of HCS and other assets.
Assuming all that nearly $12,000 in revenue came from the HCS, we convert that to USD since this is in Canadian dollars, and we get $8,400 USD. That is around 20% of the sales figure in the company’s slide deck.
So, we can assume the revenue split is that 80% goes to the farmers, and 20% goes to Hempalta for owning the HCS. Something like that.
HCS is partnered with the Trusted Carbon registry, which is used to track the carbon credits generated from these projects.
To ensure those carbon credits are trustworthy, the methodology is verified by a third-party verification and validation body (VVB) called Control Union.
They have been accredited with Gold Standard, which is the second largest carbon registry in the voluntary carbon markets. And they’re also pending approval to act as a VVB with Verra. The largest carbon registry.
That does bring some credibility, but I do think HCS is missing some crucial pieces to being a mainstream carbon standard.
Now, it’s important to note that demand in the voluntary carbon markets is shifting. Specifically, toward markers of credibility, since these markets have a history of fraudulent or exaggerated projects.
The main thing credit buyers are starting to look for is approval from the Integrity Council for Voluntary Carbon Markets (ICVCM). They have a process called the Core Carbon Principles, that projects must follow to be seen as credible.
As of the making of this video, the Hemp Carbon Standard has not even tried to apply for approval under this program. So, I find it hard to believe that they are going to find a significant amount of buyers for these credits. Especially when they are priced at around $30 or more.
And you can see the lack of demand in their results so far. The HCS generated 15,325 carbon credits in 2023, and as of December 2024, only 976 of those credits have been sold.
The standard was on track to generate 52,540 carbon credits from an increased number of sites and acres covered under the carbon methodology. But, again, it doesn’t really change much if most of the credits will go unsold. Without that validation from the ICVCM, and preferably even more organizations… demand will likely remain low.
Related to that credibility problem, Hempalta isn’t the only organization that could potentially offer a carbon methodology for generating carbon credits from cultivating hemp.
Verra has a methodology that is under development for doing just that, but it was put on hold back in December 2023 for fears of permanence risk. Meaning, Verra is worried that the carbon credits could end up worthless since the hemp products might not last as long as people hope.
The argument that growing hemp and sequestering carbon from it is a long-lasting solution since hemp insulation or hemp concrete would be durable products. Well, Verra is questioning that. But they are set to re-evaluate the opportunity this quarter. Q1 2025.
So, we have the monopoly in the space, Verra, which issues 60% of all of the carbon credits in these markets, saying that they aren’t sure this is a scientifically sound methodology. And worse than that, we have the monopoly in this market investigating if they should enter competition with HCS to offer a hemp methodology of their own.
I don’t see how the HCS could reach significant scale if Verra does start to offer its own methodology for hemp. I assume that Verra would eat Hempalta’s lunch in that scenario.
While I think it’s an interesting opportunity, I would not say that I’m a believer right now.
Unless adoption of the HCS methodology, and demand for the credits changed dramatically, it looks like Hempalta is going to be struggling for cash. The stock is going to be diluted heavily as the market cap continues to drop here.
Hempalta has already doubled its share count in a year, especially when needing to pony up more shares to acquire the HCS in the first place.
And now they are doing another raise as part of this shift to focusing on the HCS instead of the hemp product line.
An additional 30 million shares at 5 cents, and half warrants for gross proceeds of $1.5 million.
I also question how capital-light this business is to begin with. In theory, it could be because it doesn’t take much to create carbon credits, and everything can be tracked remotely with that satellite and flux tower data. The farmers are putting in all the labor.
But at the same time, we can see what Verra’s expenses and profits look like. Their expenses have been rising rapidly over the last few years. Even to the point of bringing the organization to a significant net loss over 2023.
So, if Hempalta has to make similar investments over time, it’s hard to truly know if the business is going to stay capital-light. Verra certainly hasn’t.
I will just have to pass on this one given the uncertainties and risks.