During the early innings of the post-pandemic new normal, special purpose acquisition companies or SPACs were all the rage. On paper, this unique financial vehicle enabled everyday retail investors to get in near the ground floor of an initial public offering. In reality, however, SPACs quickly fell out of favor when 2022 rolled around as myriad macroeconomic headwinds – particularly rising interest rates – hurt risk-on assets.

However, LightJump Acquisition (LJAQ) provided a brief upside catalyst for the embattled segment, with shares initially popping up 42% in the morning hours of the midweek session. Earlier, the blank-check firm announced that its shareholders approved a merger with Moolec Science, a food ingredient specialist. Given the latter’s potential to change the food industry paradigm, speculators saw a worthwhile opportunity.

According to Barchart.com’s content partner PR Newswire, “Moolec is a science-based ingredients company using a disruptive technology in the alternative protein landscape. The team has been under development for more than a decade and is known for being the first to produce a bovine protein in a crop for the food industry. Currently, the company is leading the production of animal proteins in plants with meat, dairy and egg replacements using soybean, pea, wheat and oat.”

Fundamentally, the alternative protein industry benefits from two tailwinds. First, concerns about climate change and sustainability theoretically augur well for Moolec and LJAQ stock. As research by U.C. Davis pointed out, a single cow can belch 220 pounds of methane a year. Methane imposes a severe impact to the environment, contributing to global warming. Therefore, plant-based alternatives can holistically alleviate animal cruelty while simultaneously reducing carbon emissions.

Second, on the economic front, younger generations have been more willing to embrace plant-based food products than older cohorts. Moving forward, millennials and Generation Z will represent the power spenders. Thus, appeasing this demo will be priority number one for any enterprise interested in at minimum staying afloat.

It all seemed to go right for LJAQ stock – until it didn’t.

LJAQ Stock Implodes on Possible Viability Concerns

While most of the morning session boded very well for LJAQ stock, as the minutes ticked toward the afternoon threshold, circumstances began souring considerably. Indeed, as the final few seconds greeted the noon hour, the SPAC was on its way down.

Still, the end result was a tough one to bear. After gaining more than 40% of equity value, LJAQ stock ended the Wednesday session 37% below parity. To be fair, those that got in recently (but prior to Dec. 27) won out. In the trailing five days, LightJump returned stakeholders more than 49%.

Nevertheless, the message was clear. Those hoping for a SPAC revival may have to wait a bit longer.

Primarily, the eventual lack of enthusiasm likely centered on viability concerns. On surface level, Moolec could spark profound changes in the food-manufacturing industry. For instance, one of the main anxieties regarding the ongoing water shortage crisis is that food production utilizes a considerable amount of the precious resource. However, Moolec’s molecular farming technology may help catalyze efficiencies, thus making food production exponentially more sustainable.

Further, as the global population increases, the world will demand more food. Inherently, unless methodologies change, traditional agricultural procedures are exceptionally water consumptive. So, if Moolec succeeds in its core objectives, it could offer wide-ranging solutions.

Unfortunately, a research paper published by the National Library of Medicine states that the molecular farming process is cost intensive. And high costs have so far been the bane of the plant-based protein industry.

Tellingly, the Good Food Institute wrote the following: “Plant-based meat premiums are even higher when comparing overall prices to conventional meat on a per-pound basis. Nielsen data demonstrates that, on average, plant-based meat is 2x as expensive as beef, more than 4x as expensive as chicken, and more than 3x as expensive as pork per pound.”

An investor only needs to look at Beyond Meat (BYND) to appreciate what unsustainable cost structures can do to a once-promising enterprise.

SPAC Credibility Issues May Linger

By the book definition, SPACs do seem enticing. According to Barchart.com, a SPAC is a “company with no commercial operations that is formed strictly to raise capital through an initial public offering (IPO) for the purpose of buying an existing company. SPACs are generally formed by investors or sponsors, with expertise in a particular industry or sector, who have the intention of pursuing deals in that specific area.”

However, several early participants failed to read the next sentence: “Although special purpose acquisition companies can result in windfall profits for investors, they can also be fraught with risk as highlighted in the SEC’s Investor Bulletin dated May 2021.”

One of those risks is equity dilution. As Harvard Law School pointed out, “[t]he primary source of SPACs’ high cost and poor post-merger performance is dilution built into the circuitous two-year route they take to bringing a company public. Along the way, SPACs give shares, warrants, and rights to parties that do not contribute cash to the eventual merger. Those essentially free securities dilute the value of shares that SPAC investors purchase.”

With SPACs and IPOs in general underwhelming throughout 2022, the implosion of LJAQ stock didn’t help. While it’s no guarantee that Moolec itself will fail, prospective investors will want to at least conduct serious due diligence before proceeding.

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