IPO Alert: What to Know as Hempacco (HPCO) Stock Debuts

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  • Shares of hemp-based cigarette manufacturer Hempacco (HPCO) skyrocketed on their debut today.
  • The company aims to challenge Big Tobacco with a nicotine-free alternative.
  • HPCO stock is intriguing, but today’s wild price undulations confirm broader industry risks.
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Firing up a relatively quiet arena for initial public offerings (IPOs), Hempacco (NASDAQ:HPCO) — a manufacturer of hemp-based cigarettes — made its public market debut today. HPCO stock rose more than six times its original offering price before paring back gains.

Based in San Diego, California, Hempacco aims to make good on its trademarked corporate mantra: “Disrupting Tobacco.” One of the longstanding criticisms of Big Tobacco centers around nicotine. According to the U.S. Food and Drug Administration (FDA), “Nicotine keeps people using tobacco products, even when they want to stop.” Basically, Big Tobacco has continued to benefit from an addicted consumer base.

In contrast, Hempacco seeks to shift the paradigm by offering nicotine-free cigarettes. By promoting a far less controversial platform, it brings focus back to the enjoyment of cigarettes rather than cynical corporate coercion.

Under the original terms of the IPO, Hempacco “planned to raise $15 million through the distribution of 3 million shares at a price range between $4 and $6.” The company would have commanded a market value of $115 million. However, the company later adjusted the deal, electing to “raise $6 million through the distribution of 1 million shares at $6 a pop” instead. According to Benzinga, under the revised terms, the company is able to raise roughly “60% less in proceeds but command a greater market value of $138 million.”

Risks and Rewards Abound for HPCO Stock

Unlike some of the higher-risk, higher-reward IPOs this year, substantive growth metrics undergird HPCO stock. Hempacco saw revenue of $1.19 million in 2021, marking 243% year-over-year (YOY) growth. In the first quarter of 2022, the company also posted sales of $1.88 million. That marks a “five-fold increase” over the prior-year period.

On the flipside, prospective investors of HPCO stock should know that the firm does face profitability challenges. According to a Form S-1 document, the company has “experienced operating losses to date and negative cash flows from operating activities.”

In 2021, the company’s net loss amounted to $1.87 million. In Q1 2022, Hempacco saw a net loss of $97,350 as well. However, this represents a significant improvement from Q1 2021.

On the fundamentals front, HPCO stock may benefit from Hempacco going after Big Tobacco firms moving forward. Publicly, these industry stalwarts don’t command a great reputation, with plenty of stories about corporate manipulation and other scandals. That said, Grand View Research does note that the global tobacco industry reached a valuation of $849.9 billion in 2021. With so much money on the line, these giants likely won’t take potentially disruptive competition lightly.

Why It Matters

Last year, Reuters reported that IPOs raised a record $594 billion globally. This year, though, circumstances have soured for public market debuts. According to FactSet, only 92 companies launched an IPO in the U.S. in the first half of 2022, raising “just under $9 billion.” In contrast, 1,073 companies IPO’d in the U.S. last year, raising $317 billion.

With that in mind, the debut of HPCO stock is significant in and of itself. However, the wild trading of shares — at one point up more than 500% from the IPO price today before paring back to a 50% gain — reflects the huge challenges of competing in the tobacco and legal hemp space.

On the date of publication, Josh Enomoto did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.


Article printed from InvestorPlace Media, https://investorplace.com/2022/08/ipo-alert-what-to-know-as-hempacco-hpco-stock-debuts/.

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