Reliv' the Hype (RELV)

Disclosure: I am short RELIV' INTERNATIONAL, INC., (RELV) NOTE: Market Cap is only $35 Million & shares have been difficult to borrow.

Summary

• PR hype just days before ugly earnings report.
• Multi-year decreases in both sales and distributor count.
• RELV SEC FILING: "Some of [Reliv's] products in certain markets still contain substances that would be or might be classified as GMOs." ~ - 2012 10-K 

RELIV' INTERNATIONAL, INC's share price exploded last week.

(click to enlarge)

What happened? There is no way to know for sure, but there was some hype just before the price spike. First, RELIV announced the acquisition of "Exclusive Rights to [the] 'Superfood' Lunasin" (For "lunasin" see Wikipedia and Lunasin.com) and second, comparisons were drawn in cyberspace with Herbalife LTD (HLF), which also had a recent run up in price.

Like Herbalife, Reliv is a nutrition-centered multi-level marketing organization, making use of independent distributors.  

However, serious comparisons with Herbalife would be difficult. A distributor's prospects grow with a growing network … and shrink with a shrinking network. Herbalife's sales are growing, while Reliv's sales have been shrinking for years..

RELIV's distributor base is also shrinking.

(Sources: RELV 10-Ks; theSecond Quarter Announcement. See alsomoney.msn.com)

Those June '13 numbers were released just days after Reliv's PR pumped up the stock price. It seemed that investors reacted to the news of the "exclusive rights" as if, 1) Reliv had a blockbuster product and 2) the "superfood" was something entirely new.

In reality, Reliv had already been trying to sell its lunasin-based product, LunaRich, for almost a year and a half now.

"LunaRich was unveiled in January 2012. We believe these innovations will form a foundation for growth in 2012." ~ 2011 Annual Report

The agreement is new, not the attempt to market the product.

There have been other attempts to market Lunasin. Reliv's recent agreement is with Soy Labs LLC. Here's a 2009 promotion of Soy Lab's Lunasin:www.nutraingredients-usa.com.

Carefast sells a product which falls under the Lunasin trademark, apparently the same one licensed by Reliv's subsidiary. (You can see the product in 2010 through archive.org.)

I found a Carefast product with Lunasin for $17 at Amazon.com and one of Reliv'sfor $55 on Ebay. If Carefast's product has not been a blockbuster, why would I think that Reliv's might be?

Reliv sales have not turned around as a result of last year's launch. From Reliv's recent 10-Q:

"Net sales for the quarter were $15.4 million, an 8.1 percent decrease from the second quarter last year."

"Reliv's total distributor count was 53,390 as of June 30, 2013 - a decrease of 9.9 percent from the same date in 2012 …" ~ SEC filed press release

And Reliv's PR is curious:

"For the first time we own an ingredient in its entirety, from the extraction process to the patented mechanisms of action within the body. And lunasin isn't just any ingredient; it's the world's first epigenetic superfood." ~ Press Release

Just what does Reliv exclusively own? "Reliv Acquires Exclusive Rights to 'Superfood' Lunasin"

"Lunasin is a peptide found naturally in soy that scientists have identified as the key to many of soy's documented health benefits." ~ lunasin.com

No one is really claiming exclusive rights to the soy bean, right? But there is asynthetic version of the peptide in question and it is has the trademark -- "Lunasin" - a trademark held by the same LLC that Reliv's subsidiary has contracted with, Soy Labs:

(See larger image: http://sdrv.ms/13f5RRr. See Agreement & Trademark Registration Certificate)

Is this the ingredient (and technology) that Reliv is claiming exclusive rights to? A syntheticpeptide?

Reliv and GMO products

RELV in SEC filing

"Some of our products in certain markets still contain substances that would be or might be classified as GMOs. We cannot anticipate the extent to which future regulations in these markets will restrict the use of GMOs in our products or the impact of any regulations on our business in those markets." ~2012 10-K

This is not a question about whether or not GMO's can be healthy, but whether or not Reliv distributors will get on board if there is a GMO in the product. It is not a science question, but a marketing question. (And just which products is Reliv referring to in relation to GMO substances?)

A later sentence in the above SEC passage is a bit humorous.

"Compliance with regulatory requirements in this area should not have a material adverse effect on our business."

Of course, it would be hard to imagine "compliance" as adverse. I think investors are more concerned with any possible noncompliance, not to mention any consumer/distributor backlash if Reliv's SEC filed statements became widely known. Would those have a "materially adverse effect" ….? Or did Reliv only mean, "becoming compliant," which could mean that they were not currently compliant, which would not be a good thing at all. But then again, in the health food business even compliance would have an adverse effect - if it meant being OK with a GMO in the product mix just because it was legal.

"Some of our products in certain markets still contain substances that would be or might be classified as GMOs." ~ SEC 2012 10-K

Poor sales or not, healthy or not, synthetic or not, GMO or not, wasn't this all supposed to feel "natural"?

Disclosure: I am short RELV.