More than 100 cities in the US have put ordinances in place restricting or flatly banning the use of disposable styrofoam, especially by restaurants and for shipping food and other products. In the state of California alone, 97 cities or counties have a partial or full ban on single-use styrofoam, with another one slated to take effect in Los Angeles County this May.

Meanwhile, companies that ship or sell fragile goods, food or medical supplies that need to stay cold during shipping still need materials with the lightweight, insulating qualities and manufacturability of styrofoam.

That’s where startup Cruz Foam comes in. Founded in 2017 by CEO John Felts and CTO Marco Rolandi the startup, which employees about 30 full-time today, has created an alternative to expanded polystyrene, better known by its trade name styrofoam.

Cruz Foam is made from naturally occurring materials including chitin (pronounced like “kite-in”) along with starches and fibers diverted from agricultural waste streams. Chitin is a polymer contained in the shells of shrimp and other crustaceans, as well as insect exoskeletons. It’s biodegradable and generally safe for animals to eat.

By contrast, traditional styrofoam is made using heavy chemicals, degrades slowly, and proves harmful when it crumbles and accumulates in our oceans, adding to micro-plastics pollution.

According to wildlife conservation researchers at Fauna & Flora International, when marine life ingests styrofoam it can “cause a range of problems such as digestive obstructions, a false sense of fullness that can lead to starvation, and reduced fertility.” Besides that, styrofoam products are usually treated with flame retardants and can absorb other pollutants from water around them, increasing the threat to any wildlife that eats or lives amid the discarded styrofoam.

Cruz Foam CEO and cofounder John Felts says that he and CTO Marco Rolandi bonded during their graduate studies in materials science over a love of the ocean, surfing and a wish to enjoy nature without causing any harm to it.

They based their startup in Santa Cruz, California — a city known for its gorgeous beaches, boardwalk, surf culture and elephant seals, and used the name of the city for their startup.

For about two years, they focused their efforts in the lab on developing a kind of foam from chitin that could serve as the core of a molded surfboard. Chitin was already known as a promising bioplastic, but it was typically used to create bioplastic films and not so much puffy foams, Felts recalls.

As they tinkered and tested, they realized they could make a broader impact on ocean health if they addressed a larger market than surfboards. They shifted their attention to packaging.

Since then, Cruz Foam has developed a foam pellet from natural materials which can be extruded and shaped into a wide range of packaging materials and containers on the same machinery that’s in place in factories making traditional styrofoam products today.

On Wednesday, Cruz Foam formally introduced its new line of shipping products including:

• A foam and paper wrap that can replace bubble wrap or styrofoam peanuts
• A foam-padded mailer
• Foam coolers that can protect and keep fresh and frozen items cold
• Foam products that protect large items like furniture.

All of its new packaging products are “curbside recyclable,” and compostable, said Felts.

The foam dissolves in a tub of water and can be poured over a lawn or garden to safely add some nitrogen back into the soil, Felts said. And it’s safe if your dog, or your fish, eats any of the foam.

To finance its growth so far, Cruz Foam got $2 million in grants from the National Science Foundation to develop materials and manufacturing processes. The startup has also raised just over $25 million in venture funding from climate tech and science-focused investors including At One Ventures, Ashton Kutcher and his climate fund Sound Waves, Helena Group, Regeneration VC and others.

At One founding partner Tom Chi said that his firm wanted to back companies making a difference to ocean health. They looked into “closed loop plastic recycling,” where companies take back the packaging that they make and recycle it, but the unit economics there don’t work because of the high cost of “reverse logistics and post-consumer material processing.”

Cruz Foam’s approach, Chi said, “solves the problem by using earth-compatible materials in the first place, but does so in a way that can be directly cost-competitive with virgin foam production.”

The startup has just kicked off a partnership with North Carolina-based Atlantic Packaging to bring its sustainable foam products to a wide range of grocers and retailers. And Cruz Foam expects to move into its first phase of high-volume production by mid-year 2023, Felts told CNBC.

When it comes to new products, Felts acknowledged there’s a huge amount of demand out there for disposable insulating coffee cups and takeout containers. But the focus for his company this year will remain on e-commerce, shipping and protecting everything from car parts and medical supplies to meal kits.

The pandemic has juiced e-commerce and shipping demand, Felts said, but many businesses are just now figuring out how to ship items they make or sell directly to homes, rather than to grocers or retailers, and that includes rethinking their packaging end to end.