Kaival Brands Innovation (OTCMKTS: KAVL) is in the right market at the right time. In fact, they are positioned to significantly benefit from an electronic nicotine delivery system industry (ENDS) in turmoil. Why so? Because Big Tobacco is under regulatory attack, losing patent protection and receiving FDA warning letters for not yet complying with Premarket Tobacco Product Applications (PMTA) provisions. Worse for them, their window of regaining compliance is closing. It's their own undoing.
Still, their pain could be Kaival's gain. In fact, Big T's lack of proactively taking the initiative to change its marketing practices positions KAVL to rise as a preeminent market leader after September 9th, the compliance deadline for all companies wanting to compete in the space. The better news for KAVL and its shareholders is that of the 300 companies applying to stay in business, at least 43% are not yet in compliance. The best news- KAVL is.
And its market position is getting stronger by the day. In fact, VaporVoice reported that as of July 9th, the FDA has issued 130 warning letters to companies marketing illegal vaping products. And the result of any final enforcement isn't a monetary fine. It's a closeout demand from one of the most powerful regulatory agencies in the world. And competitor's bad news may be great for KAVL.
In fact, it could cut the competitive landscape by more than half, eliminating up to three million products from store shelves nationwide. Moreover, it's not just the companies manufacturing these devices that can be in the crosshairs of enforcement; the stores that sell them are mandated to follow the rules of the PMTA as well. Thus, in roughly 45 days, this industry could be changed forever.
That also means that KAVL, with its patent-protected line of BIDI® electronic nicotine delivery devices and products, could emerge literally overnight as a leading ENDS industry player. In fact, KAVL can immediately position to increase distribution from its current 10% of retail placement to more than 50%- literally overnight. And that means potential procurement into millions of new retail locations. The resulting revenue growth- exponential.
An Industry Shakeout Is Kaival's Gain
What you just read is not an exaggeration. Literally, hundreds of once market-leading manufacturers and distributors are days away from losing their entire market share. And it's not only the small companies needing to worry. JUUL (NYSE: MO), which once dominated the market and enjoyed a substantial interest from Altria, is staring down multiple regulatory actions and civil lawsuits that may hamstring them from ever regaining their market dominance. In fact, weakening them further, Altria is already divesting its stake from an original $12 billion to less than $1.5 billion today. Expectations, by the way, are for Altria to entirely divest its stake over the next few months.
Philip Morris (NYSE: PM) is faring no better in protecting its share. Last week the High Court agreed with British American Tobacco (NYSE: BTI) and revoked four heat-not-burn cigarette technology patents belonging to Philip Morris. That ruling followed a previous U.K. judgment from March 2021, where Philip Morris succeeded in revoking two British American Tobacco patents.
Notably, this drama isn't just a battle of the titans. This decision effectively shrinks the competitive landscape, with Big Tobacco relying on its presumed patent protections to markets hundreds of products under different names. Thus, when companies lose claim protection, hundreds, if not thousands of brands, can be shut down overnight.
From KAVL's perspective, however, these events may be welcomed news. At worst, it shrinks the competitive landscape. At its best, it creates a massive market opportunity for KAVL to fill. After all, its innovative, patent-protected line of BIDI® products is more than capable of filling market gaps; it's also one of the top 50% of brands that have not received an FDA warning letter. And keeping in mind that some companies may not have the resources to try to comply with the September 9th, 2021 mandate, saying that 170 companies are still in play may be an exaggerated number.
Hence, a perfect storm of opportunity is developing for KAVL. And with its planned NASDAQ uplist, they are expected to have the capital structure to pounce on that opportunity.
Seizing A Massive Open Opportunity
Better still, don't think that Big Tobacco isn't already looking at KAVL and BIDI®. Altria's divestiture in Juul isn't about the markets. It's about how Juul targeted them. Hence, investors shouldn't think that Altria is abandoning the current $19 billion opportunities. Moreover, they certainly will not turn their back on the expected 22% CAGR that puts the market size north of $40 billion by the end of 2028.
Altria only needs a better, more compliant product that is not mired in civil litigation and further exposed to potentially billions of dollars in settlements for the next decade. The excellent news- KAVL's BIDI® products could meet their needs. And if not Altria, expect other Big Tobacco to take an interest. After all, BIDI® has a best-in-class product portfolio, a compliant business strategy, and well-fortified patent protection.
Better still, KAVL is also compliant with the stringent standards mandated in the recently passed PACT Act, making them again one of the few already positioned to continue and enhance marketing initiatives. And, as competitors fail to implement plans to meet intense regulatory scrutiny from the PACT Act, combined with PMTA violations, the competitive landscape could become an open target for KAVL to exploit. And it could put its market expansion plans in full attack mode after September 9th once PMTA is fully enacted and enforced.
Better still, assuming that KAVL is interested in licensing its BIDI® line of products, expect some jockeying of position by Big Tobacco as the deadlines for compliance with PMTA and PACT Act provisions approach. Let's be clear, though. No one is saying that KAVL is shopping for partners. The point being made is that unsolicited offers could come their way.
Moreover, for KAVL, there's more to the story than being in the right market at the right time. They also have a superior line of products and devices through their BIDI®® disposable electronic nicotine delivery system products. Better still, their combination of design, function and regulatory adherence does more than bring adult-targeted, counterfeit-proof, compliant nicotine delivery to market; it makes them a phenomenal corporate citizen in the process. And that's precisely what the FTC and other industry regulators are demanding.
Best of all, by staying focused on meeting the demands of the changing regulatory environment over quick profits, KAVL has positioned itself for potentially exponential growth and, with no exaggeration, possibly become one of the last companies standing in a multi-billion dollar industry.
There are still more reasons to like KAVL. As noted, an imminent uplist to the NASDAQ markets is one.
Compounding its Advantages With A NASDAQ Uplist
As if KAVL didn't already have enough in its favor on its operation side, its imminent uplist to the NASQAQ and a change to its capital structure to reduce its share count ideally positions them to capitalize on massive opportunities not available as an OTCBB company. In fact, at a time when sector consolidation is expected, its NASDAQ listing could provide lucrative rewards.
It immediately opens the door to institutional investors, can help facilitate meetings with Big Tobacco, enhances their corporate reputation, and brings in an entirely new class of investors. In fact, having that enhanced transparency may be the final ingredient needed to create a perfect recipe for market success. Thus, for investors looking for a company providing investment exposure in the multi-billion dollar ENDS industry, there's no need to look outside KAVL.
In fact, KAVL provides investors a head start in a changing sector, with exposure to the industry through a company already compliant in PACT Act, licensing, tax, and regulatory mandates. Better still, KAVL limits future exposure to enforcement action by doing business only with companies that also follow the provisions of the PMTA and PACT Act.
Hence, investors can get the benefit of growth through a de-risked business model. Better still, with KAVL maintaining control over its business from initial manufacturing to the end sale, shareholder value is more than protected; it's enhanced.
Best of all, KAVL already has a running start in creating shareholder value.
Record Sales And Momentum At Its Back
In fact, despite sector weakness, Kaival Brands is on a revenue-generating roll. During its second quarter of 2021, KAVL recorded the largest single order in its history, an approximately $22.4 million order from Grocery Supply Warehouse, Inc. that expects to place BIDI® products into more than 25,000 retail locations. That wasn't all.
They also announced a $19.2 million order from Lakshmi Distributor, Inc., in the same period. Thus, the $41.6 million combined orders in a single quarter exemplify the meaning of revenue-generating momentum. The better news going forward, though, is that with retailers potentially apprehensive about dealing with companies not yet in compliance with September 9th mandates, KAVL could see a surge in Q3 revenues as well. And with KAVL's new strategy to target sales from large wholesalers and distributors versus smaller retailers, that's likely.
Even better, those sales represent the U.S. markets only. KAVL already has approvals to market and sell BIDI® Vapor products in 11 countries and republics, including those in Russia and Europe. Better still, KAVL is eyeing opportunities in the massive China markets, taking advantage of relationships already inherent to BIDI®. Note- if they can consummate a deal there, KAVL can become a Top 5 player in the sector.
Know this too, KAVL expects to launch its BIDI® products into the U.K. during the next two quarters. Again, being PACT and PMTA compliant could be a catalyst to penetrate those markets sooner rather than later as well. Better yet, by building a logistical infrastructure, expansion into other neighboring international markets can quickly follow.
Potentially Exponential Growth
Should investors be optimistic about KAVL's near-term opportunities? Absolutely!
In fact, with KAVL putting itself in an optimum competitive position over those still facing regulatory compliance hurdles, the value opportunity in KAVL stock may never be better.
In fact, KAVL is positioned to have more than its best year in history; it can transform from a micro-cap player into an industry leader in less than 45 days. And if Big Tobacco needs to protect its share, KAVL could be their vehicle, creating potentially exponential gains from its current share price levels. And with some once-dominating competitors possibly not making it through the regulatory cut, don't rule out that interest.
Still, don't consider that KAVL can't transform this company into an industry powerhouse on its own, either. In fact, its imminent NASDAQ uplist could be the springboard to making that happen.
Better still, with a combination of near-term catalysts, domestic and international expansion in play, regulatory compliance in its pocket, and the potential to attract massive investment, KAVL stock at current levels is more than substantially undervalued; it's a smokin' hot buy. Or, in this case, a smokeless and potentially colossal investment opportunity.
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