Is Hempacco Co. Inc. Stock a Good Buy?

According to the Food and Drug Administration, nicotine is an addictive chemical compound present in tobacco plants. Further, the agency warns that “using any tobacco product can lead to nicotine addiction. This is because nicotine can change the way the brain works, causing cravings for more of it.”

Unfortunately, those seeking to quit are finding fewer options, with many jurisdictions taking steps to stymie alternatives such as vaporizers or e-cigarettes. For instance, per CASAA, Inc., the “governor of California signed SB 793, a bill that banned the sale of tobacco and vapor products in flavors other than ‘tobacco’ on August 28, 2020. In January 2021, a referendum suspended the ban until voters decide to repeal or affirm it in November 2022.”

However, Hempacco may provide a transitional platform to help current smokers manage their habits while consuming a less-addictive alternative. Hempacco’s main driver is its nicotine-free cigarette manufactured from hemp. In addition, Hempacco features its own facility, brands and intellectual property, along with partnerships with major companies.

Although its initial public offering (IPO) — or the first time a private enterprise distributes its shares to retail investors — presents intriguing opportunities, prospective buyers must also consider certain drawbacks. Mainly, the hemp-integrated industry attracts intense competition. Further, going head-to-head against some of the biggest blue chips in the world isn’t necessarily a quick recipe for success.

Below are the key pros and cons to consider.

What Does Hempacco Do?

Focusing on its trademarked mission of Disrupting Tobacco, Hempacco manufactures and sells nicotine-free and tobacco-free alternatives to traditional cigarettes. According to the company’s Form S-1 filed with the U.S. Securities and Exchange Commission (SEC), Hempacco uses “a proprietary, patented spraying technology for terpene infusion and patent-pending flavored filter infusion technology to manufacture hemp and herb-based smokable alternatives.”

In addition, management notes that it conducted research and development in the smokable space and is presently “engaged in the manufacturing and sale of smokable hemp and herb products.” One of the company’s key product lines is the trademarked “The Real Stuff” Hemp Smokables.

Operationally, Hempacco’s segments include “private label manufacturing and sales, intellectual property licensing and the development and sales of in-house brands using patented counter displays.” Further, its in-house brands are currently sold in over 200 retail locations located in the San Diego, California area. As well, its private label customers include well-known players in the cannabis and tobacco-alternative industries. Hempacco also owns about 600 kiosk vending machines.

Per the firm’s IPO disclosure, its hemp cigarette production facility — also located in San Diego — “has the capacity to produce up to 30 million cigarettes monthly.” From its facility, Hempacco “ship small-to-large quantities of product — from single displays of product to targeted retail locations to truckloads of product to private label customers — with in-house processing, packing, and shipping capabilities.”

Hempacco cites its main strength in part as follows: “Our manufacturing facility can quickly scale up production volumes; our management team has extensive experience in the cigarette and food and beverage industries.”

In terms of growth strategies, Hempacco states that it aims “to offer our products and affiliate products in over 100,000 convenience and liquor stores in the United States, and we also intend to build international sales and distribution channels for our products and affiliate products. Our goal is to build a portfolio of non-tobacco smokables brands, become the United States market leader in the space, and subsequently build exclusive master distribution relationships in other countries.”

Still, management admits to certain challenges. Mainly, the company has “experienced operating losses to date and negative cash flows from operating activities. We expect to continue to incur significant expenses related to our expanding operations and to generate operating losses in the near future.”

When is the Hempacco IPO Date?

Barring any unusual circumstances, Hempacco expects to ink its name on the IPO calendar on Aug. 30, 2022. Shares will trade on the Nasdaq exchange under the ticker symbol HPCO. Boustead Securities represents the sole bookrunner for the deal.

Initially, the San Diego-based company planned to raise $15 million through the distribution of 3 million shares at a price range between $4 and $6. At the midpoint of this estimate spectrum, Hempacco would have commanded a market value of $115 million.

However, according to the latest update, the hemp specialist now plans to raise $6 million through the distribution of 1 million shares at $6 a pop. At the revised terms, Hempacco will raise around 60% less in proceeds but command a greater market value of $138 million (or up 20% from the original terms).

Before participating, market participants should realize that the post-IPO float of 1 million shares represents just 4% of shares outstanding, according to Renaissance Capital. In other words, retail investors would be paying a fairly hefty premium for a rather small share of the equity pie.

Administratively, HPCO stock presents both opportunities and risks. On the optimistic side of the fence, Hempacco doesn’t have much in the way of competition as far as new listings are concerned. Compared to the record-breaking haul of IPOs in 2021, this year has been remarkably subdued. A combination of myriad factors — including economic pressures and Russia’s invasion of Ukraine — took the wind out of several enterprises’ sails.

Essentially, then, HPCO stock offers one of the few new listings that investors can participate in. However, that might not necessarily be a positive circumstance.

Recently, Federal Reserve chair Jerome Powell, during the annual Jackson Hole Economic Symposium in Wyoming, stated that the central bank will take firm measures to combat inflation. With rising benchmark interest rates seemingly a guarantee for the foreseeable future, investors rushed for the exits. However, growth-oriented investments — which accurately describes HPCO stock — suffered the brunt of the damage.

What Analysts are Saying About Hempacco IPO

As a relatively small new listing compared to pre-2022 norms, not many analysts have weighed in on HPCO stock. However, journalist Corey Mann of Investment U published a pros-and-cons perspective regarding Hempacco’s IPO.

On the bullish side, the hemp specialist aims to “use white-labeling with various brands to its advantage. White labeling is when a company purchases another company’s services or products and presents them as their own under their brand name. And Hempacco is working with many brands to provide shelf-ready products.”

Further, Mann states that “Hempacco also has timing on its side, as it’s the first hemp cigarette on the market. And it’s planning to provide vending machine kiosks for its products.”

On the not-so-optimistic side, the company is “looking to take down a goliath in the $1 trillion tobacco industry. Many have tried it before and failed.”

According to Grand View Research, the global tobacco market size reached a valuation of $849.9 billion in 2021. Further, expectations call for the sector to generate over $1 trillion in revenue by 2030. Put another way, Big Tobacco won’t go down without a fight. Presumably, these heavyweights also have the financial resources to squash the competition if necessary.

Hempacco Financial History

For the year ended Dec. 31, 2021, Hempacco generated revenue of $1.19 million, representing 243% growth against the prior year’s result. However, the net loss last year amounted to $1.87 million, which compared unfavorably to 2020’s loss of $1.47 million.

In the first quarter of 2022, Hempacco posted top-line sales of $1.88 million, representing more than a five-fold increase against the year-ago quarter’s tally. And while the net loss for Q1 2022 came out to $97,350, it pared significantly the loss of $494,961 posted one year ago.

Hempacco Potential

Driving the bullish case for Hempacco may be relevant. According to the American Psychological Association, rising inflation and the war in eastern Europe have imposed significant mental health pressures on everyday individuals. Cynically, such stressors may lead to partaking in certain adult liberties.

At the same time, the legal hemp industry has proven incredibly competitive. In addition, as inflationary pressures rise, logical deduction indicates that the black market may tempt price-sensitive users.

Where to Buy Hempacco Stock

If you want to own a part of Hempacco, you’ll need to know how to buy stocks. But before you take that step, you must sign up for a brokerage account. Below is a list of the best brokers to consider.

Careful Investment Consideration

Hempacco Co. Inc. offers an interesting opportunity for investors. The company plans to disrupt the tobacco industry with hemp-based, nicotine-free cigarettes. However, investors should be aware of the challenges Hempacco faces in a competitive industry dominated by tobacco giants. The macroeconomic environment and consumer behavior may also impact demand for Hempacco's products. Potential buyers should carefully consider industry risks and financial performance before investing.

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