A Healthier Living Platform & Ecosystem: Meet HumanCo

In this episode of the Retail Visionaries Podcast, Jason Karp, Founder & CEO of HumanCo joins Oliver Chen, Retail & Luxury Analyst. They discuss HumanCo, a holding company focused on delivering better-for-you products that make it easy to live a healthy life. They also speak about Jason’s career transition from hedge fund manager to growing several food brands.

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Transcript

Speaker 1:

Welcome to TD Cowen Insights, a space that brings leading thinkers together to share insights and ideas shaping the world around us. Join us as we converse with the top minds who are influencing our global sectors.

Oliver Chen:

This is Oliver Chen. I’m TD Cowen’s new platform retail and luxury analyst and host of the Retail Visionaries Podcast Series where we meet inspirational people and discuss impactful topics. Here with me is Jason Karp, he’s the founder and CEO of HumanCo. What sets Jason apart as a visionary and leader is that he’s mission-driven and cares so much about the health of our generation and those to come. We’re excited to have you on the podcast today, Jason.

Jason Karp:

Thanks for having me.

Oliver Chen:

A little bit on Jason: his focus on health and wellness and the genesis behind HumanCo has deep personal roots, as he was diagnosed previously with several autoimmune diseases, which launched his journey here. Prior to starting HumanCo, Jason was the founder and CEO of Tourbillon Capital Partners, an investment fund that managed over $4 billion in assets, and has over 20 years of investment experience. He retired from the hedge fund industry to focus entirely on health and wellness in 2018. This included selling his first food venture, Hu Chocolate to Mondelez in 2021. Jason, for those newer to the story of HumanCo, can you talk a little bit about how you got here? What is your mission?

Jason Karp:

Those are two questions, Oliver. I got here because as you mentioned, I had a debilitating illness in my early 20s where I was going blind, and despite the doctors telling me it was incurable, I cured it using food. And after that long, difficult struggle, I realized that so many people, particularly Americans, are struggling with their health. We’re the sickest we’ve ever been as a population, both in terms of physical health and mental health. Poor diet and lifestyle are now the number one leading cause of death.

And as a public market investor for over 20 years following all the large food companies and all the large restaurant companies, what became clear to me is that there needs to be more attention paid to the other stakeholders and externalities that are not just the bottom line and there’s not enough people who are raising their hand and saying, “We need to clean up our food system. We need to make it less toxic, use fewer pesticides, use fewer banned ingredients,” which have come into the food system because of the capitalistic forces of the last 30 years to make food as homogenous, widgetized and shelf stable as possible.

And so my mission at HumanCo and why first my family and I created Hu Chocolate and as my second venture HumanCo is to create products and experiences that make it easier for people to live a healthier life without them feeling like they have to make significant compromises or sacrifices around the taste, the quality, and the general enjoyment that food typically brings to people.

Oliver Chen:

You mentioned stakeholders. How does HumanCo think about stakeholders? It’s also a parent organization to several food brands. How do you operate?

Jason Karp:

So we are a holding company, not a fund. We have permanent capital and by a holding company, you could think of us as a mini conglomerate where we have effectively two businesses. We have a HumanCo brands which owns and controls three separate brands that are all CPG frozen food brands. All of our brands are gluten-free, grain-free, seed oil-free, responsibly sourced, and they use simple ingredients instead of technology or chemicals. Those three brands are Cosmic Bliss, which is an organic ice cream, Against The Grain, which is a gluten and grain-free pizza and bread company, and Snow Days, which makes frozen pizza bites that are gluten and grain-free and organic.

We also have an investment arm called HumanCo Investments where we have significant, what I’ll call semi-control investments in things. We don’t fully control them, but they’re very significant and very active. And those two businesses are True Food Kitchen and Grove Collaborative. The holding company model or the conglomerate model, what it allows us to do is create an ecosystem where people can try all of our different products and experiences under one roof and understand what our ethos and mission is about so that you can think of us almost like a master brand and you know our general values and our approach to how we source our ingredients, how we treat people, how we make what we make, how we think about where the food comes from and what the ultimate provenance is of the ingredients. And because of that, our profit margins tend to be lower.

So there’s inherently a philanthropic aspect to what we do because we can’t fully price or charge what the cost is relative to the other large big food companies. But we believe that ultimately consumers will start to realize that you get what you pay for and that doing things the right way, treating the land the right way, treating people the right way, treating animals the right way does cost more money than doing it in a way where you’re using massive industrial farming techniques, treating animals like widgets and commodifying them. And so our approach is definitely premium and hopefully once people experience our products and our general experiences, they will see that there’s a significant benefit to how you feel afterwards.

Oliver Chen:

Jason, how would you speak to your core competencies, either in terms of thinking about the master brand or specific to brands?

Jason Karp:

I’d say our core competencies are the fact that I came from the investment world where I spent almost 21 years doing mostly public and some private investing. And so we have a pretty strong sense of capital allocation and how to create a platform that creates shared resources and synergies across all the brands. Part of the approach in having a holding company is that you can have multiple brands under one roof and you can have shared resources that dramatically reduce the duplicative costs and overlap. And so that’s our general approach.

Oliver Chen:

Where can listeners buy your food brands? How does a grocery store play a role? What do you see as the future of distribution?

Jason Karp:

So our brands have differing distribution by brand. Against The Grain is the most widely distributed. We’re in probably over 10,000 doors. In each of our brand websites: Cosmic Bliss, Against The Grain, or Snow Days, at the top of the website, there’s a where to buy and you put in your zip code, you can see what retailers carry it. Cosmic Bliss has probably the most concentration of the natural channel, more health food type of places, whereas Against The Grain has more of a mix of conventional and natural across it.

My goal is to have these products available nationwide at all grocery stores eventually, but as you’ve probably learned, Oliver, there still needs to be more adoption of organic products, of products that are a bit more premium in terms of the ingredient quality and how it’s made. So our general approach is a combination of business to business where we serve some of our products through restaurants. We currently sell Cosmic Bliss on the dessert menu at True Food Kitchen, for example. If you go to most restaurants, even high-end restaurants, you’ll notice they don’t typically have very high quality ice cream, certainly not organic ice cream. And our dairy, Cosmic Bliss is both a plant-based and a dairy, our dairy is 100% from grass fed cows, which is also an unusually high standard for ice cream.

Oliver Chen:

Jason, as we rewind a little bit, many of us know about Hu Chocolate. Can you share briefly thoughts on Hu Chocolate? And when you made the decision to focus entirely on health and wellness, what were some major milestones and/or learnings for what you’re doing at HumanCo?

Jason Karp:

Well, if I knew then what I know now about the chocolate industry, I’m not sure we would’ve gotten into it. It was a bit of an accident how we got into it. But Hu Kitchen started, Hu stands for human. The businesses that I do all have the word human in it for a reason because I believe we need to get back to living in a way that’s evolutionarily consistent with how humans came to be. Hu Kitchen started as a restaurant and the chocolate came out of it and became a very quick hit. And it was a super premium product at the time, not because we were trying to make more money, but because it cost a lot to make it the way we made it. And our chocolate was the first of its kind. It’s organic, it’s fair trade, it has no refined sugar, it has no typical chemicals or additives that most chocolate has, but it’s also, and most importantly, it’s very delicious. And we won Best Vegan Chocolate many, many years in a row.

The evolution of that chocolate was fascinating, I think for my family and I, because we didn’t really know what we were doing when we got into it. And we had to figure out a lot of things the hard way, things like how to source a massive amount of organic unrefined coconut sugar, which wasn’t a huge ingredient when we got started, to how we dealt with distribution, to how we dealt with relationships of very large retailers. And so we learned a lot of lessons, many of which were tough lessons to learn. We had many hiccups and when people see a big exit of a company, they think it was a straight line up, but there were a lot of really terrible dark moments in that journey of getting from where we started to where we finished. There were many weeks where we were very close to shutting it down.

So I guess some of my greatest learnings were patience, were understanding that the consumer really can smell bull shit. And I think what made Hu so successful was that it came from a deeply personal, soulful place where we were making that product because we felt the world needed it and not because we were trying to make money. And I think there needs to be more products that have that kind of consciousness and soul behind them instead of just trying to make a product that sells a lot and ends up poisoning people down the road. So the lessons with that were just, the world needs more healthy products that are delicious, people want them, and you have to stay true to your mission the whole way and not compromise for money.

Oliver Chen:

You come from a very successful hedge fund career, and we were both in economics class back in boarding school at Loomis Chaffee. How are you balancing profitability and mission, and what about earnings per share? Isn’t that extremely important? How can you make these trade-offs?

Jason Karp:

Well, it’s time. Of course we need to have a profitable, viable business. I think the challenge with healthier products is they do inherently start with lower profit margins than traditional junk food for all the obvious reasons, Oliver, but Hu, for example, had quite low margins in the beginning when we were subscale and we didn’t have a lot of our efficiencies dialed in. And now nine years later, Hu is part of a public company and it has quite decent margins now because of its scale. The goal with HumanCo is of course to develop products that have a fair margin that allow the business to succeed. And my belief is that you can’t change the world in a purely nonprofit way. I think the forces of capitalism and economics can be used for good, especially if people really want your products. But again, the businesses have to be viable.

So for us and our investors, it’s very much a multi-year bet in the same way that a company like Amazon was not profitable for 12 years, or might even be 15 years. And certainly we don’t hope to go that long, but many of the best businesses, I think require some duration in building efficiencies, building scale, and building the kind of shared platform so that you can eventually get to a place where you can enjoy a healthy margin and a healthy profit.

Oliver Chen:

What are your thoughts, and you mentioned this earlier about how big food has evolved over the last 50 years. Why does this disconnect exist? And related to this, a second part: what is the future of food? What are some dynamics that you and listeners should pay attention to?

Jason Karp:

The disconnect exists, and very few public companies and very few public market executives I think are malicious. I think everyone’s trying to do the right thing, but I think this disconnect exists in terms of why we still have so much toxic, terrible food is because of the public market incentive structure. If you are a large public company, just think of this as an example, Oliver, if you’re a large public company and your most profitable product is soda, which it typically is for those beverage companies in terms of profit margin, and then you bring in something that is much better for people, let’s just say it’s not made with a plastic bottle, or let’s say it doesn’t use chemicals and it uses more organic ingredients, they’re not going to be able to charge the same pass through price which will give them the same profit margin.

So when it gets to the board meeting and that company is maybe having a hiccup, the board, which answers to shareholders, eventually says, “You know what? Do more of that super profitable thing and do less of that thing that doesn’t make as much profit because if you focus too much on that healthier option, we’re going to get fired.” And if you look at the history of public companies trying to do this, people were fired over and over again. And so I think that disconnect will persist in the public markets as long as there’s not other ways to measure the externalities of, are you polluting the world? Are you creating too much plastic? Are you poisoning people? That’s all stuff that’s downstream much, much later. And giant index funds are only looking at whether that stock is outperforming or underperforming.

So that’s why the disconnect exists. I think the future, especially as you’ve seen recent articles in Bloomberg and The Journal about cancer rates in people under the age of 35, particularly in the gastrointestinal area, cancers of consumption, nanoplastics, and now we’ve discovered in the last few months that all the plastic bottles are shedding and we’re consuming tons and tons of plastic as humans every single day, which is leading to cancers and all these other new diseases that were developing. I hope that public policy gets involved sooner rather than later and starts banning some of these practices because I don’t think the public companies are going to… It’s actually like a game of game theory in terms of who blinks first. And I don’t think they’re going to change their habits unless the market or the consumers start voting with their wallets and saying, “We don’t want that stuff.”

Oliver Chen:

Jason, in closing, we’d love to hear about what’s next for HumanCo and any closing remarks you might have on the future of food.

Jason Karp:

We’re going to continue to develop products that we think people love and want and are done in a much more responsible way. We’re doing some really unique partnerships with some very interesting, high profile people who have reached out to HumanCo and wanted to be a part of some of our products. So in the next couple weeks, you’re going to see a launch of a new celebrity product. It’s going to start at Erewhon Market in LA and then we’ll go nationwide. I need to keep it under embargo. So I’d say just keep a lookout for that, but I’m just going to continue to do what I do and hopefully help people heal themselves the way I was able to heal myself.

Oliver Chen:

Jason, it was great spending time with you. Congratulations and excited about everything that’s on the horizon. Thank you.

Speaker 1:

Thanks for joining us. Stay tuned for the next episode of TD Cowen Insights.

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