I had several investments to choose from for my weekly article about equity crowdfunding. Amongst the group was PittMoss, a Pennsylvania-based company that sells organic potting soil made from recycled paper. Far more environmentally friendly compared to traditional peat-based earth, I decided to take a closer look at its investment proposition. By the end, you’ll know whether I think PittMoss stock is worthy of your consideration.
Over the past couple of weeks, my wife has gone through several bags of potting soil as she’s worked on getting our “2020” garden up and running. I spend most of my time on the computer and have little gardening acumen in my DNA. However, I do understand the need to use more sustainable products in our daily lives. So, after my wife’s hard work the past while, the least I could do is figure out if PittMoss makes sense for future gardens.
According to PittMoss’s website, a 2 cubic foot bag of peat moss is equivalent to 22 pounds of coal. By comparison, PittMoss products saved 597 metric tons of carbon dioxide from being emitted into the air in 2019. That’s the equivalent of driving 1.4 million miles. I don’t know about you, but my car doesn’t have anywhere near that kind of mileage on it.
But seriously, peat moss is mined from wetlands, which act as the world’s most natural carbon filter. So, you might be making your garden pretty, but it’s at the expense of the air we breathe. Meanwhile, last year, PittMoss kept 67 tons of paper and 70 tons of cardboard out of landfills, while also making your garden pretty.
The choice seems obvious.
I went to Amazon (NASDAQ:AMZN) to check out the reviews. Out of 11 people who’ve bothered to fill out a customer review, 72% gave it four or five stars, while 28% gave it one star and weren’t very happy with the product.
In my experience, more people take to customer review sites when they’re unhappy about a product than when they’re happy. It’s not a huge sample, but I think it demonstrates that the product delivers the goods.
A couple of reviews caught my attention:
“Here in the desert dry climate, it holds the moisture in the soil of potted plants. Surprise, Arizona,” said one PittMoss customer.
“My plants LUV Pittmoss! And I was really happy to see that Brenckle’s Greenhouse, one of my favorite spots to buy plants, not only sells Pittmoss bags directly but they use it in their own proprietary potting mix,” said another.
I live in Canada, so I’m not sure I’ll be able to try out the product anytime soon. Perhaps, with investment dollars, PittMoss will expand its distribution.
Is PittMoss Stock a Buy?
If eco-friendly were the only condition for investing in the company, the answer would be a slam-dunk yes. Alas, this is an investment, not a gift. The business model matters. The pathway to profitability matters. The people behind it matter. You get the drill.
The Business Model: PittMoss was launched in 2015 with funding from Shark Tank regular Mark Cuban and other angel investors. The original plan was to sell base material to nurseries and commercial growers. However, it pivoted to people like my wife and other home gardening enthusiasts, and it’s been off to the races ever since, with revenues growing by 40% to 50% per year.
Selling to more than 150 stores in 22 states and on its website, PittMoss’s cumulative sales since its 2015 launch has totaled well over $900,000. And that’s from selling cubic foot bags of potting mix at prices between $11.99 and $14.99.
If it comes to Canada, we’ll give it a try.
The one thing I notice about its customers – whether those are buying wholesale or the end-user – is the emphasis on how much water the product saves. People take water for granted, but if you live in a place like Las Vegas, water conservation is one of the most critical environmental issues the city faces.
The company generates three kinds of revenues: commercial, wholesale and direct-to-consumer. Its revenues have increased every year since 2015. Its gross margins, based on a cost of $1.20 per cubic foot, vary from 52% (commercial) to 88% (DTC). However, that’s based on producing PittMoss at a significant scale.
The Pathway to Profitability: In fiscal 2019, PittMoss lost $722,846 from $408,222 in sales. In 2018, it lost $857,784 from $296,267 in sales. So, revenues grew by 38% while losses declined by 16%. Things are moving in the right direction, but don’t expect a return on investment tomorrow or the next day. It’s going to take a while for an exit opportunity to appear – probably not until its sales go well over $1 million.
To date, the company has raised more than $4.5 million from outside investors, including Mark Cuban. As I write this, it has raised $24,202 or 96% of its $25,000 goal on Republic’s platform from 107 investors or a little more than $226 per investor. With some 70 days left in its equity crowdfunding campaign, there is plenty of time to increase this number dramatically.
Assuming it raises the maximum allowed of $1.07 million, PittMoss will put 42% toward sales reps and brand ambassadors. Another 40% will go toward getting the name out there through marketing advertising and public relations, with the remaining 18% for fees and general working capital.
In 2019, the company spent $204,001 on marketing and advertising. That’s 50% of sales. In the previous year, it amounted to 73% of sales. As the word gets out and sales increase, that percentage of sales are going to decrease significantly.
Also, consider that at scale, as I said above, it will generate gross margins between 52% and 88%. In 2018 and 2019, it had gross margins of 21% and 24%, respectively.
Like most growing businesses, the faster it gets to scale, the quicker it makes a profit. To do that, it needs more cash. Users of the product are a natural source of capital.
The Bottom Line
Founder Mont Handley’s been at PittMoss since he first dwelled on the idea of an environmentally friendly potting mix at his kitchen table in 1994. It wasn’t until 2012 that Handley began the proof of concept phase. Three years later, he convinced Mark Cuban and two other sharks to invest in the company.
While it’s got a long way to go before it’s a threat to the Scott’s Miracle-Gro (NYSE:SMG), it’s giving it a spirited fight.
As money-losing investments go, you could do a lot worse.
My suggestion: Try the product, and if you like it, put down a couple of hundred on PittMoss. It’s the same investment as a nice dinner out, but with a potentially more lucrative return down the road.
I like where PittMoss is headed.
Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia. At the time of this writing Will Ashworth did not hold a position in any of the aforementioned securities.