Give a Hand to Green Plains

Ethanol producer Green Plains, Inc. (GPRE:  Nasdaq) has donated industrial ethanol for use in producing hand sanitizer.  Apparently, the state of Nebraska is deployed in jail and prison inmates to make hand sanitzer for use during the coronavirus outbreak.  The company is sending industrial-grade ethanol from its York facility, which has the capacity to produce up to 50 million gallons per year.  Industrial-grade is 200-proof ethanol that is used all around the world.

Heading up the sanitizer project is Cornhusker State Industries, which operates workshops in the Nebraska Department of Correctional Services facilities.  Cornhusker has been around for over 130 years.  It presently employs as many as 500 incarcerated men and women with the objective of passing along job skills and will make re-entry the community a bit easier. 

Cornhusker will be paying inmates up to $1.08 per hour to make the hand sanitizer for use by state government employees.  Not everyone gets a job.  The inmates must be near release, already have a work release or have been laid off from their community jobs because of the COVID-19 work stoppage.

Ordinarily we focus on transportation fuel when discussing ethanol.  However, there is a good market for industrial ethanol.  In 2017, the last year we could find data, Grand View Research reports the world market size was $30.2 billion.  The market has been growing at a pace of 4.9% per year.  Green Plain’s industrial ethanol usually ends up in the cosmetics, personal care, pharmaceuticals, and other products such as printing inks, paints and coatings.

Cornhusker is already turning Green Plains’ valuable industrial alcohol into what has become an indispensible personal accessory  -  a 2 ounce bottle of hand sanitizer.  They expect to begin distribution of the first batch in the first week of April 2020.  It will go to first to employees of the Nebraska Department of Correctional Services.  The hand sanitizer will also be made available in bulk containers for visitors to the lobbies of Nebraska correctional facilities.

Cornhusker will not be making profit on the hand sanitizer.  Green Plains is giving up its contribution margin on its industrial ethanol.  There is little here for an investor other than the comfort that the coronavirus has not extinguished the generosity, creativity and gumption needed to help America survive this unprecedented health threat.  

Just to feed traders’ deep need for investment perspective, we note that GPRE is down 70% from its 52-week high set exactly one year ago this week.  Most of the loss has occurred since the beginning of this year.  Green Plains cannot blame the crash of its stock entirely on the coronavirus and the stock market sell-off.   The company has been losing money right and left as a consequence of low prices for ethanol and the Trump administration’s cold shoulder toward renewable fuels. 

Things had gone so poorly for Green Plains, leadership decided to suspend the company’s dividend in favor of stock repurchases and a project to reduce operating expenses in ethanol production.  After slapping shareholders in the face just a few months back, apparently now it makes sense to lend a helping hand to the community.  

Neither the author of the Small Cap Strategist web log, Crystal Equity Research nor its affiliates have a beneficial interest in the companies mentioned herein.