Entering US hemp/CBD market latest step in Neptune's transformation
Neptune, which previously billed itself as Neptune Technologies and Bioressources, was the pioneer of krill oil as a dietary ingredient. The company did some of the early scientific work in the arena.
While Neptune, which is based in Laval, Quebec, never had a fishing fleet of its own, as did some of its competitors (notably Aker BioMarine), it did have its own extraction plant in Sherbrooke, also in Quebec. Some of the work done there formed the basis of patents the company took out on its extraction process, as well as some composition patents.
Those laid the groundwork for a protracted, global war over krill oil patents that Neptune, under a previous group of managers, waged against Aker, Enzymotec and Rimfrost, the other major companies in the game at the time. The episode became known as the “krill wars” and played out in courtrooms in the United States, Australia and Europe.
In some ways it was the dietary supplement industry’s version of the Thirty Years War, with different phases and shifting alliances. And it resembled that conflict, too, in the damage it inflicted along the way. Observers noted at the time that tens of millions of dollars were paid to lawyers, funds that were not used to build the category.
It was a fight that strained resources across the sector. One of the competitors, Aker, had by far the deepest pockets, as it is but a division of a much larger company with interests in shipping, oil field services and other sectors. Under pressure from investors, Neptune radically shifted course. In August 2017 the company threw in the towel and announced it was selling its krill oil business to Aker.
Difficulty of big decisions
Jim Hamilton, CEO of Neptune Wellness, said he came on with a mission to bring a new vision to the company. Hamilton had a long history in the dietary ingredient industry, with a previous stint as the head of the North American operations for multinational supplier DSM.
Hamilton said that when making these key decisions, it’s important to keep the focus faced outward, on what the market is demanding, and what opportunities are there. An inward focus, such as on being vindicated on a certain position you feel is right, doesn’t always best serve those outward facing needs. Your customers might be asking, well, if you win this fight, what’s that going to do for me?
“I have found in business there can be a lot of resistance to making a bold decision. Emotion can get involved, and there are a lot of decisions where it’s not clear what is the right thing to do,” Hamilton told NutraIngredients-USA.
“I try to focus on what is ultimately best for customer,” he said.
New strategic vision
Hamilton was among a new cadre of managers brought on by the company’s principal investors with a mission to define a new direction. That led to a rethink about its core competencies in lipid extraction and how those could best be put to use if not in working with krill. The core team the previous management had put in place was a good one, one that he thought could succeed in new lines of business, he said.
“There were some great people in the company, very dedicated and very able, people you put into any company in this industry and have success,” he said.
Looking for a new growth market
Hamilton said that the end of the krill wars came at a time when the overall omega-3s market had flattened out. There is still money to be made, but the days of double digit growth might be gone for good.
“We needed to get refocused. We made the decision that the investors would be better served to place the business in sectors that had dynamic growth,” he said.
“We looked at our core competencies in extraction, in quality control, in clinical research. And one of the places we thought we could put those to use was in cannabis,” Hamilton said.
The company retrofitted its Sherbrooke plant for cannabis extraction (which also includes hemp and CBD extracts) or both the medical and nutritional markets. That retrofit included turning it into a drug facility, with greatly expanded security apparatus.
Putting expertise to use in the US market
The company also brought on Melody Harwood, PhD, as director of scientific and regulatory affairs to help drive that transformation. The expertise gained in the switchover will be put to use in the company’s new venture, cooperating with an as yet unnamed partner in hemp products in the US market.
The new partner has solid raw material supply relationships in the eastern US, Hamilton said. Neptune will supply extraction expertise and IP to help the operation get up and running. At the moment, the uncertain regulatory picture means it would be impossible to export products made in Sherbrooke into the US. While it is unclear where the regulations will eventually end up, Hamilton said that Neptune want to be positioned to provide health-supporting products in a growing market.
“We are a health and wellness company, and we believe that is exactly what this new industry is about,” Hamilton said.
“We love the US market, we love where it is going. I think the momentum is favor of the hemp category. Consumers are in favor, industry is in favor, the Farm Bill is in favor,” he said.
Major brands seeking partners experienced in quality control
Hamilton said now that the new Farm Bill has clarified the regulatory picture to some extent, the market is rapidly picking up steam. And a company like Neptune, with a history of quality control, will be well placed to benefit, he said.
“A lot of the major brands are starting to move. Some of them are saying that now they can start to have a conversation, others are even starting to build inventory,” he said.
“The experience we have seen is that when we have visited some of the companies in the extraction end of the industry in the US, the major brands have told us that they can’t even start to have a conversation about quality with those kinds of companies,” Hamilton said.
“What we can offer is expertise in the kind of quality control and traceability at a level that will be necessary for these products,” he added.