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A Quebec company that says it’s “recycling the unrecyclable” and “leading the sustainable plastic revolution” has seen its shares tumble over two days after attracting the attention of a prominent U.S. short-seller.

Hindenburg Research, which recently garnered headlines for its short campaign against carmaker Nikola Corp., has turned its attention to Terrebonne’s Loop Industries Inc. in a report released Tuesday.

Nasdaq-traded shares in Loop have fallen 35 per cent since Monday’s close, erasing US$170-million in market value from the company.

Loop says it has a “proven, patent-protected technology” that takes the Polyethylene terephthalate, or PET, used in things such as drink bottles and recycles it into virgin-quality plastic, which is made from materials that have not been previously processed. The company, however, has reported no revenue and has racked up US$50-million in losses in its past four fiscal years, according to S&P Global Market Intelligence.

Hindenburg says it has interviewed former employees, competitors, corporate partners and chemists, and says, “Loop is smoke and mirrors with no viable technology.” Hindenburg holds a short position in the stock, which means it has profited this week as the shares fell.

In a statement Tuesday, Loop said: “the claims [Hindenburg] makes are either unfounded, incorrect, or based on the first iteration of Loop’s technology. ... In 2017, Loop reinvented its process and developed its Gen 2 technology, which is at the core of Loop’s commercialization projects." A spokeswoman declined an interview or to add further comment.

Hindenburg’s report covers both generations of the company’s technology. The two patented processes were developed by a father and his two sons, who are now Loop employees after completing undergraduate degrees in 2015 and 2018, respectively.

Loop told investors in a presentation earlier this month that it anticipates profit margins that “notably exceed competing recycling technologies."

Hindenburg says, “In other words, the company claims to have discovered how to turn worthless trash into pure gold, a feat that multi-billion [dollar] chemical companies such as DuPont, Dow Chemical, and 3M have been unable to achieve on a large scale despite years of efforts.”

In its investor presentation, Loop identifies Coca-Cola Co., Pepsico and Danone among its customers. However, Hindenburg says it has been unable to confirm any are using plastics from Loop.

Hindenburg said an outside public-relations firm for France-based Danone’s Evian, which introduced a recycled PET bottle in July, told it “when Loop’s production site is operational, Evian will be one of the first brands purchasing LOOP PET to be produced.” Hindenburg points out Loop “has no operational production site in Europe or elsewhere – hence we view the statement as a roundabout admission that no Loop plastic has been used in the Evian bottle.”

Loop chairman and chief executive officer Daniel Solomita founded the company in 2014 and it went public in a 2015 reverse merger with an assetless shell company. In 2017, it received a Nasdaq listing. In 2019, it received a US$35-million equity investment from Northern Private Capital Inc., whose chair, Andrew Lapham, sits on Loop’s board. The company raised US$25-million in September.

Hindenburg came to Canadian investors' attention in 2018, when it took on cannabis seller Aphria Inc., alleging Latin American assets it bought for hundreds of millions of dollars were “essentially worthless.” While Aphria fought back initially and still believes its successfully rebutted the report, the company has turned over its leadership and taken a writedown on the value of the assets.

In early September, Hindenburg took aim at Phoenix-based electric-truck company Nikola, calling it an “intricate fraud.” Nikola founder Trevor Milton subsequently resigned as executive chairman, and the Wall Street Journal has reported the U.S. Justice Department and the Securities and Exchange Commission are examining the allegations.

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