Short-seller claims: Third-party study validates Loop Industries’ recycling tech

Loop Industries (NASDAQ: LOOP) started its plastic revolution, offering industrial recycling services, at a time when regulators and enterprises were waking up to the need for environment-friendly business practices. The business model — large-scale recycling of plastic waste that remains a perennial challenge for the authorities — is unique because it supports a social cause.

Fights Charges

Responding to recent claims by a short-seller that Loop’s plastic recycling technology is flawed, the company this week disclosed the findings from an independent review conducted by third-party research firm Kemitek that validated the effectiveness of the recycling process. According to Loop’s management, an analysis conducted by the research firm confirmed that the new-generation depolymerization technology is effective in breaking waste into monomers that are good enough to produce virgin-quality plastic.

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Read management/analysts’ comments on quarterly reports

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A few weeks ago, Loop suffered a setback after short-seller Hindenburg Research alleged that the company’s management and scientists misinformed the stakeholders about the process involved in plastic recycling. The report triggered a stock sell-off and cost the company one of its key customers. According to Hindenburg, Loop’s claims of ‘breaking polyethylene terephthalate down to its base chemicals at a recovery rate of 100% were technically and industrially impossible.’ Later, a securities class action lawsuit was filed on behalf of the company’s shareholders.

Bleak Sentiment

The report affected market sentiment and the stock slipped into the single-digit territory, before regaining strength in recent weeks. Despite the volatility, LOOP looks like a reliable stock that is properly valued. While the ongoing controversy could be a cause for concern for many, the fact that the company is operating in a promising segment where it faces minimal competition gives it an edge.

There were also reports that Loop’s key partner ThyssenKrupp was reconsidering the tie-up, concerned about the feasibility of the recycling process. Responding to Hindenburg’s report, Loop’s executives dismissed the allegations, saying that Hindenburg held a short position in the company. They said the required due diligence was not done while conducting research into the company’s business practices.

The results of Kemitek’s verification reconfirm Loop’s belief that we are well-positioned to have a transformative impact on the reduction of global plastic waste. I wish to sincerely thank the entire Loop team for their dedicated work and ongoing support for the Company, as we move forward with our plans to bring our technology to commercial scale.

Daniel Solomita, chief executive officer of Loop

Meets Norms

It was found that products made of recycled materials adhered to the specifications for making resin and polyester fiber from polyethylene terephthalate with the highest level of purity. Also, the company possesses a legal opinion confirming that its patented technology is in conformity with the FDA’s stipulation — for manufacturing suitably pure mono ethylene glycol and dimethyl terephthalate that can be used in food-grade packaging.

“Kemitek’s findings through this verification allow us to attest to the capacity of Loop’s technology to produce pure monomers within their specifications. Kemitek conducted this verification in an independent manner using rigorous methodology and we ensured process integrity during the three-week testing period via surveillance, sampling, and seals,” said a statement issued by the company.

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Loop Industries: Tapping into infinite plastic recycling

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The stock has gone through a series of ups and downs ever since Loop went public three years ago. The company, which is yet to generate revenues, reported a net loss for the most recent quarter. It looks to license the technology to drive growth going forward, which would require additional investment in technology and more customer wins.