One story in the small-cap OTC space that may not have garnered sufficient attention is the Sinfit acquisition by Gentech Holdings Inc (OTCMKTS:GTEH). In short, Sinfit is a top-5 functional food brand currently sold in over 2,500 GNC locations in North America and over 10,000 global physical and e-commerce stores across more than 10 countries around the world.
GenTech acquired the brand last month and has reportedly already begun booking large orders internationally, online, and in the US domestic marketplace.
The key here is synergy. GTEH has been pursuing a wellness model driven by its subscription-based premium Brazilian-sourced CBD-infused coffee product line known as “Secret Javas”. However, recently, it acquired the Sinfit brand from Sinister Labs, LLC, which booked well over $2 million in sales last year as a leading global functional foods brand.
But it isn’t just the products acquired that are important here. It’s the distribution network.
Complementarity
GenTech already has the inhouse capability to produce CBD-infused beverages in a ready-to-drink format as a derivative of its Secret Javas line. But this didn’t make easy business sense without a platform of distribution already lined up to provide direct and powerful access to a well-suited target end market.
Now they do. Sinfit is currently distributed by Europa Sports, the largest sports nutrition distributor in the US. The brand also just signed on with True North Distributors, one of Canada’s largest distributors of supplies and products. Sinfit logged millions in 2019 revenues through sales of products across more than 10,000 sales channels globally, including both physical stores and e-commerce storefronts. Following the acquisition, those distributor relationships are now available to GTEH to capitalize on for continued growth in functional foods sales, but also for new products, including a Secret Javas RTD line.
David Lovatt, CEO of GenTech, stated, “We spent months negotiating this deal to achieve best shareholder value possible. The deal was closed less than a month ago and we are already seeing incredibly strong International revenues. When the transaction closed, GenTech received c.$70k in accounts receivable, c.$70k in inventory, and more than $100k in packaging, as well as all customer relationships, IP, web presence, and goodwill in a deal that was cash only. The former owner trusted us to actualize the tremendous potential of the Sinfit brand and I am confident we will deliver on that trust provided. Our US sales team is just starting to ramp up, and our analysis suggests very promising signals from US distributors already very familiar with the brand as stores open back up and inventories are thin at best. I think I can already state that this was an extraordinarily productive use of $250,000 in cash to acquire SINFIT.”
The Functional Foods Bonanza
Functional food, defined as conventional and modified foods that include additional health benefits beyond basic nutrition, saw sales top $267 billion in February of this year on a global basis, with sales in the US reaching $63 billion, according to Euromonitor 2020. Global sales of organic food and drink topped $105 billion, up 6% in 2018 (Ecovia 2019).
U.S. organic food sales reached $47.9 billion, up 5.9% in 2018 (OTA 2019). In 2019, 77% of U.S. adults used dietary supplements, an all-time high (CRN 2019). U.S. supplement sales are estimated to have reached $49.3 billion in 2019, up 6.2% (NBJ 2019).
That growth has also begun to lean heavily toward China, which is important. China is special because it is the world’s laboratory for what happens when billions of people move from third-world poverty into first-world middle-class consumerism. To see the functional foods category growing fastest in China is a sign that this will be one of the anointed industries set for long-term robust growth for years to come because it is showing up now as disproportionately benefitting from the evolution toward a consumption-driven economy in China.
“I think the majority of the investing public still do not fully appreciate the scale and trajectory in play right now in the functional foods market opportunity,” continued Lovatt. “It’s enormous, and only getting bigger every year. It’s also a tremendous sign that emerging markets in Asia are now the fastest growing regional markets for functional foods, with China leading the way. That suggests we have only just scratched surface in terms of where this is headed over the foreseeable future. And we now possess a true Top-five brand with an already established global network of distribution relationships.”
Value Proposition
Right now, GTEH shares trade on a market cap of just $3 million. Typically, with small-caps in high-growth markets, we look at anything under 2x forward sales as a speculator’s gift.
In this case, GenTech has already announced an expansion of Sinfit’s products, suggesting that an expectation of $2-3 million in sales over the coming year is hardly unrealistic (given that it pulled in $2.2 million last year in a growing industry category).
That doesn’t even account for the potential dramatic growth going on in CBD-infused beverages, or the company’s ability to capitalize on its acquired A-level distribution network for a coming line of RTD products. All of which would seem to suggest GTEH may be very ripe for some potential upside as the market wraps its arms around the Sinfit deal.
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