Plant Protein Maker Merit Functional Foods Announces Receivership

Plant-based ingredient company Merit Functional Foods has been placed in receivership and is expected to be “the end to Merit as it stands today,” according to a LinkedIn post from co-CEO Ryan Bracken.

Bracken announced on Wednesday that the Winnipeg, Canada-based plant protein company “couldn’t quite get to the level of cashflow needed to operate the business profitably, quick enough.”

“The current external environment is tougher now than ever before on start-ups,” Bracken continued in the post. “We started up prior to understanding the full impact of what Covid could do to our business plan.”

Bracken, a CPG executive formerly a VP at Manitoba Harvest Hemp Foods, joined co-founders Shaun Crew and Barry Tomiski to launch Merit in 2019 with the goal of making proteins from peas and canola plants. As recently as December, Merit was launching new innovations like Organic Peazazz C 850, a USDA Organic-Certified pea protein ingredient. Yet about two months later the state of the business’ financial troubles became apparent.

In his post, Bracken insisted that Merit’s dissolution was not a case of “another poorly managed business doomed to fail” but instead a number of unforeseen challenges primarily stemming from the COVID pandemic. He cited a doubling of raw material costs, 12x longer lead times for commissioning new products, rising interest rates, and a tougher investment and lending climate as some of the main factors for Merit’s failure.

A February letter from the Burcon NutraScience Corporation CEO Kip Underwood, the largest stakeholder in Merit, warned shareholders that Burcon’s had “real concerns about Merit’s financial situation and viability.”

Burcon NutraScience, a large Vancouver, Canada-based plant protein and ingredient provider, founded Merit in a joint venture. Merit produced Burcon’s novel pea and canola protein ingredients under a licensing agreement. Underwood said in last month’s letter that Burcon has helped keep Merit solvent with about $3 million in aggregate loans, having most recently committed more capital in September 2022.

In addition to Burcon’s continued financial support, Merit took on St. Louis-based agribusiness company Bunge as minority stakeholder with a $30 million investment in August 2020. The funding gave Bunge a 25% stake in Merit, with Burcon retaining 33.3% ownership.

During Burcon’s third quarter earnings call in February, Underwood reported it was trying to restructure Merit’s debt with creditors and possibly merge with the company but warned that Burcon’s proposals “may not succeed.”

The executive team reported in the Q3 press release that “due to Merit’s financial situation and liquidity position, Burcon performed an assessment of the recoverability of the investment and has recorded impairment charges of $12.3 million related to its investment in and loan to Merit.”

Merit’s receivership stems from a Winnepeg court order attributed to federal lending agencies Export Development Canada (EDC) and Farm Credit Canada (FCC). The two creditors filed the order on February 24 with about $95 million owed, noted AGCanada.com.

The company is expected to run out of cash on or around Friday or Saturday, the filing noted, after being unable to find a buyer for the business or its 94,000-square foot production facility.

Merit’s two-year old plant produced a variety of plant-based proteins like varieties of pea-based Pezazz and Pezac ingredients as well as canola-based Puratein protein formulations. The company was a third-party producer of plant proteins for use in ready-to-drink beverages, bars, powders, baking mixes and other food applications.

In January 2020, Burcon and Merit announced it had entered a partnership with Nestlé to provide the food maker with novel proteins for plant-based food and beverages. The company also engaged in a partnership with Konscious Foods and Canadian Pacifico Seaweeds to develop a line of more than 20 plant-based seafood alternative products.

The global organic pea protein market is set for a “14.5% CAGR between 2022 and 2029, reaching the revenue of nearly $52.2 billion by the end of forecast year,” according to Fairfield Research Group. Illinois-based companies Ingredion and Now Foods are major players in the pea protein with Irish multinational Kerry Group also having a significant stake in the category.

Representatives for Merit Functional Foods and Burcon NutraScience Corporation were unavailable for comment at the time of publication.