Lobsters are cannibals. Their larval development is long and complex, and they are voracious feeders.
For decades, these three challenges have thwarted scientists and entrepreneurs seeking what has been called the “holy grail of aquaculture:” a profitable commercial-scale hatchery that breeds lobsters and raises them to plate size for sale.
But research has continued, and with reason: Whoever gets there first could stand on the cutting edge of a multibillion-dollar industry that taps into the growing demand for the crustaceans as their stocks are depleted in the wild.
Now, a small Virgin Islands company claims it has cracked the code.
Caribbean Sustainable Fisheries — which says it already raises tiny wild-caught baby lobsters to adulthood at its half-acre farm in Pockwood Pond — has received government permission to expand by building what it calls “the world’s first Caribbean lobster hatchery” on nearly three acres in East End beside the protected Beef Island Channel.
The plan is ambitious. Aquaculture experts said no spiny lobster hatchery has proven commercially profitable anywhere in the world, although an Australian firm recently reported early success with a pilot project that builds on two decades of research by university groups funded by tens of millions of dollars.
“The problem with all of the spiny lobsters — the more tropical lobsters — is that it’s nearly impossible to run a hatchery in a classic sense [of] basically developing eggs to juveniles,” said Dr. Michael Rice, a professor of fisheries and aquaculture at the University of Rhode Island. “Oh, it’s real hard. And the reason it’s really hard is that the larval stages are extremely long-lived.”
Nevertheless, CSF owner Giles Cadman and biologist Dr. Nik Sachlikidis — an Australian lobster expert who joined CSF in 2017 — said the VI company and its seven full-time employees are positioned to succeed with help from two sister companies in the United Kingdom.
“Over the years, I’ve employed and consulted with lots and lots of aquaculture people,” said Mr. Cadman, a British entrepreneur who also operates Cadman Capital Ltd., a VI-registered investment manager. “I’ve been to multiple aquaculture fairs and shows. They didn’t have the answers. They didn’t have any vision. They don’t understand the boundaries that you can push and the breakthroughs you can get if you’re prepared to put the amount of money that’s required to do the [research and development]. If you do that, then you get the answers and you get the gold.”
CSF’s vision has also been pitched to investors abroad, and at least 124 people have invested nearly $4.7 million in the company’s offering since 2005, according to its 2021 filings with the United States Securities and Exchange Commission.
During that time, the company has described itself as a potentially lucrative venture. Though the Pockwood Pond farm hasn’t yet expanded beyond its original half acre, a 2018 CSF brochure obtained by the Beacon claimed the company’s value more than tripled from $10 million in 2009 to $32 million in 2016.
The brochure also claimed that CSF could be worth more than half a billion dollars by 2025 if its expansion plans succeed — a target Mr. Cadman said is still feasible despite the challenges of the ongoing Covid-19 pandemic.
Questions and criticism
But the company has also faced questions and criticism.
Two former employees have contradicted key claims about its past successes, and VI fisheries officials previously have alleged that the Pockwood Pond operation was “illegal” for more than a decade before regulations were changed last year in a way that accommodates its business model.
Meanwhile, the company’s own accounts of its operations and plans have shifted considerably over the years, and the application materials it submitted to government contain contradictory claims about the East End proposal.
That project is now under fire from community members as well: After its oceanside site was cleared in recent months, more than 20 people signed a “landowners’ petition” in September asking the Planning Authority for a stop order, alleging that their concerns were not properly addressed before approval was granted.
Some VI fishers, meanwhile, warned that the new farm could cut into their business and complained that government planners never held a public meeting about it.
Mr. Cadman himself has also faced questions from US regulators about investment opportunities his companies have offered in the past.
In 2012, he consented to permanent injunctions without admitting or denying liability after the US SEC charged him and two of his other companies with registration violations in connection with the alleged sale of about $20 million in “wine investment contracts” and more than $1.8 million in promissory notes to US investors.
But in interviews with the Beacon, Mr. Cadman strongly defended his record as an entrepreneur, saying that criticism is part of doing business in highly competitive industries over his more-than-30-year career.
He also denied that the Pockwood Pond farm has ever broken any laws or operated without permission, and he said his company is well-positioned to spearhead a ground-breaking aquaculture project that will bring jobs, revenue and other benefits to the territory by producing as much as 255,000 pounds of lobster annually for export.
“The Cadman Capital Group has through extensive [research and development] established a proprietary model for hatching, catching, growing and selling lobsters profitably through a modular system unmatched anywhere in the world,” Mr. Cadman wrote in an email.
Beginnings
CSF built its half-acre facility in Pockwood Pond in 2008 and 2009, but the farm doesn’t use the hatchery model ultimately planned for East End, according to Mr. Cadman.
Instead, he said, the company developed a sustainable system for capturing tiny baby lobsters from VI waters and raising them to adulthood in land-based tanks.
This system eliminates many of the challenges associated with a closed-cycle hatchery because the babies are captured after metamorphosing from their spider-like larva phase into a form called a puerulus, which resembles a translucent, fingertip-length adult lobster.
From there, they are much easier to raise to adulthood.
But even this simpler business model is highly unusual in this part of the world: It has not proven consistently commercially viable elsewhere in the Western Hemisphere despite some success in Southeast Asia, where labour costs are much lower and lobster can be sold for a premium price in nearby countries, aquaculture experts told the Beacon.
“In the Western Hemisphere, it’s pretty novel,” said University of Arizona fisheries and aquaculture professor Dr. Kevin Fitzsimmons. “In Southeast Asia, there are a fair number of operations. But virtually all of them collect juvenile lobsters from the wild and then rear them up in captivity and then sell into live markets, especially in places like Hong Kong, Shanghai, Guangzhou, where … spiny lobsters get just incredible prices in some of these restaurants.”
The Southeast Asia farms — which typically grow lobsters in small ocean pens and feed them on marine life captured nearby — tend to be modest facilities, he said. To his knowledge, he added, none operates on a mass commercial scale.
“I would say they’re all fairly small operations: I mean family or maybe a couple of wage labourers in addition,” said Dr. Fitzsimmons, a past president of the World Aquaculture Society who has worked in aquaculture in Myanmar in recent years. “I can’t think of anybody who’s any bigger than that.”
The same challenges with the puerulus-raising model that have precluded commercial expansion in Southeast Asia have also hindered profitability in this hemisphere, he said. Lobsters, for instance, grow slowly and eat a lot, meaning that business expenses including labour, food and other costs can quickly exceed their sales value.
“It’s fairly labour intensive to rear them,” Dr. Fitzsimmons explained. “And they can be cannibalistic. So they need to be either at relatively low densities in cages, or if they want to go kind of higher density, they can put them all into individual boxes and feed them that way. But again, you’re opening and closing all the time and stuff like that.”
In the Western Hemisphere, he added, there is significant competition from a well-developed industry for wild-caught clawed lobsters that grow further north.
The only one?
Mr. Cadman acknowledged that the Pockwood Pond farm’s business model is highly unusual in this part of the world, and he said he too believes its catch-and-grow operation could be the only one in the Western Hemisphere.
“Nobody’s done what we’re doing,” he said. “Because they all get to the point and they go, ‘Land costs, wages, food conversion: too difficult.’ They haven’t got 15 years’ worth of experience.”
Mr. Cadman — whose companies also advertise access to “alternative investments” in fine wine, real estate and other aquaculture ventures — said he learned about the business model in the mid 2000s from biologist Rob Power, who at the time was working on related research through a partnership with the H. Lavity Stoutt Community College. They launched CSF in 2005.
Through CSF’s work with Mr. Power and other researchers who were employed in succession after he left in 2009, the company eventually developed a system for catching and raising wild puerulus to a sales weight of about 2.5 pounds within 14 to 18 months, according to Mr. Cadman.
Before Hurricane Irma, he said, the farm eventually managed to produce as much as 12,000 to 15,000 pounds of lobster annually, which it sold mainly to restaurants and other businesses in the VI, including his former Road Town sushi restaurant Origin.
However, CSF’s planning application presents a different timeline, suggesting that production didn’t begin until the year of Irma.
“Since 2017, the farm has been producing lobsters to adult size,” the application states.
Mr. Cadman declined to comment on the application’s claim, alluding to “confidential business matters which we will not disclose.”
However, he did tell the Beacon that CSF’s lobsters died shortly after Irma because someone stole the farm’s generator, and that the company then started buying small legal-sized lobsters from fishers and growing them further for re-sale.
In early 2019, he added, the company also began shipping some of its lobsters to the United States, an accomplishment he said helped it sell nearly 20,000 pounds that year.
In 2020, however, Covid-19 hit, shutting restaurants across the world and impeding the company’s export efforts, he said. By June of this year, Mr. Cadman said the Pockwood Pond farm held only around 2,500 lobsters.
But despite the recent challenges, he insisted that the farm has developed a profitable system for raising puerulus to adulthood.
“We run at about a 35 percent gross margin on the sale of the lobsters,” he said.
Former manager’s claims
A former CSF employee, however, has painted a different picture of the Pockwood Pond farm during his time there.
Richard Land, who worked as the facility’s general manager between 2013 and 2016, recently agreed to be examined as a witness outside of court for an ongoing civil court case in Canada that doesn’t directly involve CSF.
During the examination, one of the case’s two defendants — who are being sued with Mr. Cadman’s support for allegedly defrauding two Cadman clients — asked Mr. Land for his opinion about the Pockwood Pond farm’s profitability.
“Was it profitable when I was working there? Absolutely not,” Mr. Land responded. “We probably didn’t produce enough lobsters to pay one week’s wages on the farm.”
Mr. Land, who previously worked with clawed lobsters in the United Kingdom, also described his recollection of the Pockwood Pond facility when he arrived on the job.
“When we got over, there was very few lobsters on site,” he said. “The project had been really run down. There was about — I think about six partially grown lobsters and some smaller lobsters, which we couldn’t really quantify, in the tanks, because it was covered in algae.”
He added that he eventually produced figures illustrating his opinion about the difficulty of achieving profitability given the high cost of lobster feed and other obstacles. However, he claimed, he was discouraged from repeating such explanations.
“When I first presented this back in, I think, early 2015, I was told never to do a spreadsheet again,” Mr. Land said in the September witness examination, the transcript of which was filed publicly at the Ontario Superior Court of Justice. “This ‘wasn’t part of my business;’ I ‘got the figures wrong.’ I do not think I got those figures wrong.”
‘Disgruntled ex-employee’
Mr. Cadman, however, told the Beacon that Mr. Land doesn’t understand the spiny lobster species found in the Caribbean and had failed in his mission at CSF and set back the company.
“Land is an angry, disgruntled ex-employee, and no weight or credibility should be given to any statement he has made to you,” Mr. Cadman wrote in an email, adding that Mr. Land is a “carpenter, not a scientist,” who “just didn’t understand feed.”
Mr. Cadman also provided a March 2015 email in which Mr. Land noted, “We are so close to having all of the components in place for full-scale farming.”
In reference to the email, Mr. Cadman wrote, “Curious that while working for us, we are close in 2015 to full-scale farming, but when he wasn’t working for us, it would never work. Sounds like sour grapes.”
He also described documents filed in the Canada proceeding as part of a smear campaign by the two defendants in the case, one of whom previously worked for his office in Toronto.
Mr. Land declined to be interviewed for this article, but he emailed a brief response to Mr. Cadman’s allegations about him.
In the response, Mr. Land referenced the 2018 CSF brochure, which asserted that CSF’s value doubled during the period he worked there with his UK business partner Dennis Gowland, climbing from $16 million in 2013 to $32 million in 2016.
“So something is not correct in [Mr. Cadman’s] statement,” Mr. Land wrote.
He also stated that he and Mr. Gowland — who declined to be interviewed for this article — have been involved in lobster hatcheries for 21 years, developing technology that “made clawed lobster hatcheries possible in a commercial setting.”
“So the big question is: Is it economic or sustainable to farm, on land, the Caribbean spiny lobster?” Mr. Land wrote. “Scientific publications would suggest not. But it would be very easy for [Mr. Cadman] to show the costs of running the farm against sales of farm-reared lobster to put this matter to rest.”
Profitability
But even CSF’s own figures appear to suggest that the Pockwood Pond farm’s operating expenditures have so far exceeded its revenue from selling lobsters.
Mr. Cadman declined to disclose the company’s prices, but VI fishers said whole live lobsters often sell for $7-$15 per pound wholesale in the territory. At those rates, the 12,000 to 15,000 pounds Mr. Cadman said the farm produced in its best years before Hurricane Irma would have sold locally for $84,000 to $225,000.
CSF’s planning application, however, states that investment into the company between 2005 and 2019 ranged from about $400,000 to nearly $1.5 million per year. Of a total of more than $11 million invested during that time, $1.4 million went toward developing the Pockwood Pond site, but the majority went to “operating expenditure representing the day-to-day cost of staffing the farm, looking after the livestock, and developing the systems that we see today,” according to the application.
As for the 2019 exports, Mr. Cadman said whole lobster prices in the US can range from $5-$40 per pound, which could put that year’s revenue between $100,000 and $800,000 if CSF exported all of the nearly 20,000 pounds he said it sold that year. But the United Nations Food and Agriculture Organisation stated in July that the Florida beach price of spiny lobster — the wholesale price paid to fishers directly — has ranged from about $4-$9 per pound, which would equal a more modest $80,000 to $180,000.
Asked to elaborate on his claim that the company is profitable, Mr. Cadman explained that much of the investment over the years has funded research and development designed to take the business to the next level. Once that cost is removed, he said, the model itself is profitable.
“The formula of food, people, energy, and then the sales price, is a profitable operating model, and with the small team here could run forever,” he said of the Pockwood Pond facility. “We could run this as a profitable farm: We would take out anyone involved in [research and development], any progression of the business. But just to run it as a, you know, 20-tank farm, it’s a really lovely, profitable little business.”
East End expansion
But Mr. Cadman added that CSF’s future projections — what he calls the company’s “telephone-number valuations” — are not based on the Pockwood Pond model of raising wild-caught puerulus to adulthood.
Instead, they are based largely on the plan to eventually breed lobsters in a closed-cycle system at the proposed East End hatchery, which he said would then raise and sell puerulus to a network of other grow-out farms built here, in Puerto Rico and elsewhere in the region.
“Our belief was you can collect puerulus for a certain period of time, but the ultimate business is to have a hatchery,” he said, adding, “But you never get there if you just go hatchery, if you think a hatchery is five years and $10 million.”
Aquaculture experts confirmed that breeding and raising spiny lobsters from egg to adult in a closed-cycle hatchery is much more difficult than raising wild-caught puerulus.
Largely for this reason, they said, a profitable commercial-scale hatchery has so far eluded the industry despite years of attempts fuelled by hopes of cashing in on the high market demand and premium prices for the crustacean.
The lobster hatcheries that do exist are often publicly supported operations that breed northern clawed varieties — which are easier to culture than tropical spiny species — and then release tiny juveniles into the wild to replenish existing populations.
This subsidised model, though, is a far cry from a commercial hatchery that makes a profit by breeding and raising lobsters to plate size for sale.
“The major problem with the clawed lobsters is they’re slow growing, so it’s just not economic — or hasn’t been economic to date — to grow them [commercially], because it would take you five or six years to … edible size,” said New Zealand lobster biologist Dr. Andrew Jeffs, who has contributed to the research behind the recently launched Australian hatchery project.
Tropical spiny lobsters, like the ones in the VI and Australia, present a different problem: They grow relatively quickly after they transform into puerulus, but their larval stages are much longer and more complex than clawed species’, he explained.
“The female carries the eggs under the tail for several months; she releases those eggs and they hatch in the water column,” said Dr. Jeffs, a professor at the University of Auckland. “And those larvae spend anywhere between six months to 24 months out at sea.”
Repeating that process in a hatchery is “really difficult to do,” he said. And from there, he added, profitably growing the larvae to adulthood depends on the ability to scale up.
“With most aquaculture, it’s a scale game,” he said. “Operating at small scale, it’s hard to pay for the basic operating costs like running pumps and having staff. So you need to reach a sort of a critical point where you’ve got enough income to pay for those things.”
Dr. Rice, the Rhode Island professor, echoed Drs. Jeffs’ and Fitzsimmons’ descriptions of the international lobster aquaculture industry. He also said that to his knowledge most spiny lobster hatchery research is taking place on the other side of the world.
“The people that are really working on this hatchery aspect of the spiny lobsters are the Australians, both in the Queensland state and the northern territories there,” he said, adding, “There is a little bit of work on this in the Philippines, the south of China, and there are some people in Vietnam working on it, but it is a really technically difficult problem.”
CSF breeding work
Mr. Cadman, however, said CSF has the knowledge and experience it needs to build a profitable commercial hatchery right here in the VI.
To get there, it has been experimenting with lobster breeding since around 2008, he said, adding that this early research helped lay the groundwork for the planned East End expansion.
CSF’s planning application also touts its work in this field.
“Since we have been breeding and hatching lobsters through our research and development companies since 2008, we have developed cutting-edge technology and have experienced success on similar spiny lobster species in other parts of the world,” the application states.
A 2008 press release went a step further, appearing to suggest that the company was already closing in on a commercial hatchery by that time: It stated that Mr. Cadman’s VI-based wealth management company Venulum had “successfully managed to breed Caribbean spiny lobsters in commercial quantities in controlled conditions” in the VI.
This claim, however, diverges from an account provided by Mr. Power, the original CSF biologist.
Mr. Power, who left the territory in mid 2009, told the Beacon that he never attempted to breed lobsters or do other lobster research that in his opinion would be described as hatchery work.
Instead, he focused on setting up the system used at Pockwood Pond for capturing and raising wild puerulus, he said, though he declined to comment further for this article.
Told of Mr. Power’s account, Mr. Cadman stood by the 2008 claim and advised this reporter to “do some very deep soul searching and stop listening” to “disgruntled ex-employees.”
Mr. Cadman also described three “stages” of hatchery work: “breeding,” which he said includes mating and producing eggs; “metamorphosis” from eggs to larvae known as phyllosoma; and “grow on” from puerulus to adult for sale.
“Various attempts were made for stage one, and the first adults which produced eggs was an incredibly exciting step,” he wrote in an email. “Whether you could call it hatchery work or not is debatable. Facts are, lobsters bred in our tanks.”
‘They failed miserably’
Everyone who “has ever worked” on the Pockwood Pond farm, he added, “has attempted the highly complex stage two” transition from egg to larvae.
“They failed miserably,” he wrote. “Perhaps that’s why they are quiet on it. What they don’t know, however, is that all of the work time and effort goes into the dataset which is the foundation of our hatchery programme.”
In part because of that work, he added, his team now has the “knowledge and capability to close the cycle” and launch the hatchery.
“How we are going to do it is commercially sensitive and something we are not going to share,” he wrote. “It will also create jealous ex-employees and industry jealousy, something you are learning I am used to dealing with.”
In interviews, Mr. Cadman also listed other people who worked at CSF after Mr. Power, including a research intern pursuing a master’s degree and a PhD student who arrived around the time Mr. Power left.
“We just kept testing and testing, and there was some science that we needed that we didn’t have [to launch a hatchery],” Mr. Cadman said. “And so we tried a few different people that said they could do it.”
Most of them, he explained, brought different skills that helped the overall project move forward.
“In 2012 to 2013, we had a New Zealand couple come down. They had a lot of experience of aquaculture, and they just sorted out the farm,” he said, adding, “They perfected the catch-and-collect system and the logistics, but they had no hatchery experience. And they weren’t people that were going to work on the diet.”
The couple later moved away and Messrs. Land and Gowland arrived from the UK, but Mr. Cadman said the pair “didn’t have a clue” despite their promises.
“So we lost a couple of years,” he added.
In 2016, Mr. Cadman said, CSF hired Dr. Matthew Johnston, an experienced lobster specialist with a PhD in aquaculture nutrition from the University of Western Australia.
“We took all of our learning, took everything, gave him the data, and he put his chef’s hat on and started testing,” Mr. Cadman said, adding, “So he put together a balanced diet.”
Then in early 2017, CSF hired Dr. Sachlikidis, an Australian biologist who has spent much of his 20-year career on lobster aquaculture, including hatchery work.
“We were absolutely flying, and then Irma came along,” Mr. Cadman said.
Two phases
Despite such challenges, however, Mr. Cadman and Dr. Sachlikidis said CSF is now positioned to move forward with the expansion in East End.
The plan, which was approved by the Planning Authority on June 30, involves two phases.
During the first phase, they said, the new facility will largely mimic the model used at the Pockwood Pond farm: collecting and raising wild puerulus from VI waters, as well as purchasing small legal-sized lobsters from fishers and growing them further for export.
The second phase, for which work will start simultaneously, will be the closed-cycle hatchery, where the lobsters will be bred and raised from eggs, eventually eliminating the need to source puerulus from the wild, they said.
“I’ve made the commitment to Nik to support the hatchery over the next five years,” Mr. Cadman said. “It’s not a blank cheque, but it’s do what we need to do to commercialise it. Because we know we can do it: We just have to commercialise it. … And so we’ll get some more breakthroughs on the hatchery side of things to get the price of the puerulus down to significantly lower numbers.”
Petitioners ‘dismayed’ over approval for lobster farm that was previously denied
The new facility will take about 18 months to build, and when in full operation it will employ about 40 people full time and 25 part time and eventually produce about 255,000 pounds of lobster annually for export, according to Mr. Cadman.
“The telephone-numbers valuations of this business is not about being a farmer,” he added. “It’s about selling puerulus and feed systems and grow-out systems and tanks and technology. And then you start talking about production in tens of millions of pounds of lobster. And we have every single element of it. We just haven’t built the hatchery.”
Australian project
CSF isn’t the only company to make such claims.
An Australian company called Ornatas recently launched a pilot project it is advertising as the first commercial spiny lobster hatchery in the world.
But Ornatas isn’t doing it alone: The company has partnered with the University of Tasmania’s Institute for Marine and Antarctic Studies.
The collaboration is the culmination of more than 20 years of research involving multiple universities and dozens of biologists, engineers, nutritionists, social scientists, technical staff and others, according to Dr. Greg Smith, the director of the Tasmania university’s ARC Research Hub for Sustainable Onshore Lobster Aquaculture.
Dr. Smith told the Beacon he has been involved in the research since 1999, around the time it started.
“For the first 10 years or so, all we did was produce a few animals in a few small containers sort of thing. So, you know: prove that you can do it, but you had no commercial size or scalability,” he said, adding that the work has been supported by tens of millions of dollars in public funding.
The researchers eventually found a commercial partner: Darden Restaurants — then the parent company of the US-based Red Lobster chain — which in 2012 announced plans to use their work to develop a $650 million commercial lobster hatchery in Malaysia.
“When Darden came on to the project, the idea was to prove that you can do this on a commercial scale,” Dr. Smith said. “So we went from a research scale up to a commercial scale essentially.”
During that time, two current CSF employees worked for the Darden project in Malaysia: From 2012 to 2015, Dr. Sachlikidis was a hatchery manager, Dr. Johnston a feed development manager, according to their LinkedIn pages.
But Darden sold Red Lobster in 2014, and the Malaysia project didn’t come to fruition as planned. After that, the University of Tasmania researchers found a new partner in Ornatas, Dr. Smith said.
The company — which says it is investing about $19 million to commercialise the technology developed by the university — recently announced major breakthroughs: Last Christmas, it claimed to have hatched the “first-ever commercial run” of tropical spiny lobsters, and in June it announced that the larvae had grown to the juvenile stage.
“At this time point, they are still in the early stages of development but are having good success despite a steep learning curve,” Dr. Smith told the Beacon at the time.
The Ornatas hatchery and grow-out facilities already have the capacity to produce about 300,000 pounds annually of 2.6-pound lobsters, a goal that the company hopes to achieve within the next three to five years, Ornatas chief executive Scott Parkinson told Hatchery International magazine.
After that, he added, the company hopes to expand further and produce some 2.2 million pounds each year.
The planned grow-out facilities include a 667-acre former prawn farm in northern Queensland as well as a system of ocean-based rafts, according to Dr. Smith and Ornatas.
CSF undaunted
Despite the scale of the Ornatas operation, Mr. Cadman and Dr. Sachlikidis said they are undaunted.
“I’d say we’re a little bit further ahead,” said Mr. Cadman, who estimated that CSF would spend about $11 million on the East End project over its first five years. “I don’t think anybody’s as far ahead as we are. Because they’ve got hurdles that they don’t know about.”
Dr. Sachlikidis added, “I don’t think it’s in our place to comment on other people’s projects. We’ve got a lot of work in the grow-out space, which is a really, really difficult and expensive place to operate in. It’s at a point where we’ve got all these things that [Mr. Cadman has] mentioned, including commercial grow-out diets and other things that are very, very difficult to come across.”
$500m vision
Over the course of two interviews and several emails, Mr. Cadman described CSF as a cutting-edge firm that is on the edge of lucrative success in an industry that will provide enormous profits to whoever first crosses the finish line.
A similar vision was described in a CSF brochure obtained by the Beacon. Labelled “Overview and Vision Document 2018,” the document asserted that the company’s value spiked from $10 million in 2009 to $16 million in 2013 and $32 million in 2016.
The brochure — which warned that its “forward-looking statements” involved “risks and uncertainties” and were intended only for accredited investors — also mentioned plans for expansion beyond the existing half-acre farm in Pockwood Pond.
“If we achieve these goals by 2025, then the company has the potential to be worth over $500 million,” according to the brochure, which was filed publicly by a defendant in the Canada court case.
Mr. Cadman — who described the brochure as “an update” rather than a “pitch deck” — told the Beacon that an independent valuation of CSF was carried out in 2016.
He declined to identify the assessor or to provide the full report, but he said the 2025 projection considered CSF’s planned East End hatchery as well as possible expansions in Pockwood Pond and elsewhere.
“CSF’s valuation is not solely based on sales of lobsters,” Mr. Cadman added in an email. “CSF has [intellectual property] for multiple elements of the aquaculture process, some of which have been patented and others that will be.”
His aquaculture group, he noted, also includes two UK firms: Ocean on Land Technology, which markets a lobster “hatchery in a box;” and Orkney Shellfish Hatchery, which advertises an oyster hatchery and a clawed-lobster hatchery that plans to supply juveniles to restoration projects in Europe.
“We have systems IP,” Mr. Cadman said. “The method and system have been developed. And that’s the IP of the business.”
‘Sky’s the limit’
Asked in an interview if he believes CSF can still achieve a half-billion-dollar value by 2025 despite the challenges associated with Covid-19, he replied that the company will “be worth a lot more than that.”
“If you have a hatchery that can produce hundreds of thousands of puerulus, or millions of puerulus, and you have a system where they can be grown anywhere in the world, then half a billion dollars is conservative when you look at the size of the market,” Mr. Cadman said. “And that’s why it’s a forward-looking statement. If we’re able to achieve this, then the sky’s the limit.”
He added that “early pioneers” in shrimp and salmon farming were told their ambitions were impossible, but they succeeded “because people like me took a chance and said, ‘Actually, I think it’s going to be possible.’”
“And we’ll spend the money in the right areas and get the right people to make it happen,” he said. “Some of these businesses are worth billions and billions of dollars.”
Investors
Though CSF has obtained funding from investors, Mr. Cadman said he is the “100 percent owner” of the company.
“We did some early-stage debt financing, and the group has relied on some capital from our aquaculture fund. So we’ve got a few — you know, a handful — of private investors that are interested in impact investment,” he told the Beacon. “But it’s massively high risk.”
In the project’s early stages, he said, he organised an event here in the VI to help get the endeavour off the ground.
“We did a conference at the Bitter End Yacht Club,” he said. “We invited some really good clients that became friends. And we did a presentation on a number of things. And I said, ‘Look, I’ve got this crazy idea about a lobster farm.’ And they were scientists and they were quite interested, and it got us off the ground. So I think I put in … half a million and raised about $700,000 from them and got us off and running.”
Though the event was held in the territory, he later said the CSF offering is “not open for BVI investors: never has been, never will be.”
Instead, investment has come from abroad. CSF told the US Securities and Exchange Commission in a 2021 filing that 124 people have invested nearly $4.7 million in its offering over the years.
Mr. Cadman said most of that funding came from debt offerings — where a company raises financing by selling a note, bond or other instrument to an investor for a period of time before paying them back with interest — as opposed to equity offerings, where funding is raised by selling shares or other forms of ownership in a company.
“If someone advances a loan with a two-year term, then renews it, the amount is entered into the SEC database,” he wrote in an email. “If they do it five times in 10 years, the [$100,000] loan would show on the database as $500,000.”
Marketing calls
One method that has been used for targeting investors in Mr. Cadman’s ventures is described in a 2018 affidavit recently made public in the Ontario court case.
The affidavit originally was provided by Alun Williams, then CEO of the Canada-based Cadman Capital Inc, for an arbitration proceeding against a former CCI employee who is now a defendant in the court case.
In the document, Mr. Williams stated that CCI “purchases lists of high-net-worth individuals compiled by US marketing companies. It then reaches out to those parties by way of ‘cold calling,’ seeking their interest in purchasing fine wine.”
Only a “very small percentage” of the people who are called purchase wine, but those who do are “taken through a due-diligence process to determine their suitability for investments into alternative assets,” according to the affidavit.
The Cadman Group of Companies’ businesses include real estate, fine wine and aquaculture operations such as “oyster and shellfish farms in the UK and British Virgin Islands,” Mr. Williams stated in the affidavit.
Additionally, Mr. Williams noted that the former employee, who worked for CCI in 2016 and 2017, had raised $50,000 in financing for aquaculture operations from a client.
‘Investment into aquaculture’
In interviews, Mr. Cadman confirmed the affidavit’s general description of the sales process, but he said the process is not a simple cold-calling operation directly selling investments into CSF.
“I’d describe it as an investment into aquaculture across a multiple number of companies that do different things in different places,” he said. “It would be quite simplistic to go, ‘Yeah, they cold-called some guys and raised some money to invest in CSF,’ because that’s not the case.”
He added that such aquaculture investments are offered to longstanding clients.
“We have an investment fund called Cadman Global, and they would make investments into Cadman Global, but it’s usually in the form of debt into a US instrument, not a BVI company,” he said.
He added that he believes CCI has not cold-called clients in recent years.
“Prices in wine dropped catastrophically in 2013, 2014, so I can’t imagine we’ve cold-called people since then,” he said, adding, “But we have a significant client base of high net worths.”
2012 SEC claims
In the past, Mr. Cadman and his companies have drawn allegations from US regulators for their sales tactics.
In 2012, the US SEC charged him and two of his entities — VI company Venulum Ltd. and Canadian company Venulum Inc. — with registration violations in connection with “unregistered offers and sales of promissory notes and interests in fine wines.”
Beginning in 2002, the SEC alleged, “Venulum made unsolicited calls to American investors, primarily dentists, to solicit investments in interests in trading in fine wines to be managed by Venulum.”
In this manner, the companies raised about $20 million from the sale of “wine investment contracts” to 1,664 US investors, and they also sold “promissory notes beginning in April 2010 and raised a total of $1,855,500,” the SEC alleged in 2012.
The proceeds from the promissory notes were used as working capital for both Venulums, as well as “other companies affiliated with Mr. Cadman,” according to the SEC.
Mr. Cadman and the companies were not fined and they did not admit or deny the allegations. They did, however, consent to permanent injunctions against violating Sections 5(a) and 5(c) of the Securities Act of 1933.
Asked to comment on the case, Mr. Cadman had a simple explanation.
“I didn’t check the box,” he said of an SEC form that he said should have been filled out to indicate “debt securities” instead of “other securities.”
Now, he added, he makes sure to avoid such errors.
“I should have checked the box,” he said. “But there’s no fraud, no misrepresentation.”
Lucrative potential
Many major enterprises begin as small-scale, speculative start-ups, and aquaculture experts who spoke to the Beacon agreed that a commercial-scale lobster hatchery could prove lucrative for anyone who is able to perfect the process.
“Lobsters have been of interest for aquaculture for a long time because they’re such high value as seafood,” said Dr. Jeffs, the New Zealand biologist. “They’re an obvious candidate, but there’s some major problems with them.”
Lobster aquaculture could also bring ecological benefits, he added.
“[Spiny] lobster fisheries all over the world are under incredible pressure,” he said. “Even here in New Zealand, where we have a very good fisheries management system, we’re seeing major ecological changes in our coastal ecosystems as a result of overfishing lobsters. … Anything that addresses that shortfall of supply and helps meet the demand, I think there’s benefit to it.”
Some experts, though, also noted that big promises are common in the aquaculture industry, especially when a breakthrough is believed to be near at hand.
Dr. Dale Leavitt, an aquaculture extension specialist and emeritus professor of marine biology at Roger Williams University in Rhode Island, said he has seen many unsuccessful projects during his career.
“There have been many, many instances where people have made some fairly grandiose claims in terms of their capacity to produce and then used that as a tool for soliciting investors in businesses,” Dr. Leavitt said, adding, “It’s always a little bit of a guessing game as to whether they are, in fact, true to their statements about production capacity and capability.”