Kaival Brands' (NASDAQ: KAVL) stock has been on a roller coaster ride of late. And for those who get motion sickness, consider taking the ride anyway. That's because truth be told, $KAVL is an ideal takeover target.
Why? Because KAVL is essentially the last company standing in an FDA-fueled attempt to rid the market of electronic nicotine delivery system (ENDS) products, even for users over the legal age. Proof of that is having industry behemoth Philip Morris ($PM) signing a deal in June with KAVL's wholly owned subsidiary, Kaival Brands International, LLC ("KBI"), to develop and distribute electronic nicotine delivery system products in markets outside the U.S., subject to regulatory assessment. That deal not only puts an almost entire multi-billion dollar market into play but also exposes that PM may need KAVL more than the other way around.
Make no mistake, having $PM as a partner is a massive score for KAVL. No one is underestimating that value here. But what also shouldn't be under-appreciated is the reality for KAVL that if they did intend to take this project forward independently, they likely wouldn't have issues raising capital. In fact, that's happening now.
Developing Global Opportunities
In July, KAVL announced the launching of PMPSA's custom-branded self-contained e-vapor product, VEEBA, being sold in Canada, with royalties due to KBI pursuant to the international licensing agreement. The bullish proposition gained momentum in August after KAVL announced the U.S. Court of Appeals for the Eleventh (11th) Circuit ruled in favor of Bidi Vapor in its appeal of the U.S. Food and Drug Administration's ("FDA") Marketing Denial Order ("MDO") issued to the non-tobacco flavored BIDI Sticks. The court set aside or vacated the MDO and remanded the PMTAs back to FDA for further review.
Separately, in May 2022, FDA placed the tobacco-flavored Classic BIDI® Stick into the final Phase III scientific review. Chances are that the FDA will approve based on the thousands of documents provided and KAVL's unequivocal commitment to only market these products to people of legal consumption age. That is the FDA's primary concern.
A Massively Changed Sector
That's created a roller coaster ride for the entire sector, with federal regulators relentless in not letting markets care for themselves. In fact, the ambiguous and inconsistent intervention has all but extinguished a multi-billion dollar flavored electronic delivery systems market. And while the intent may be well-founded, the unintended consequences are having a considerable impact on those in the sector. Many brands, small and large, may not survive the challenges imposed by the FDA. The great news- Kaival Brands appears to be one that will.
That's because, unlike many of its competitors, they have ENDS products and data that comply with the new order. Companies relying on flavored products, and those that didn't complete mandated PMTA submissions, may not get a second chance to enjoy the same marketing luxury.
There's even better news. In addition to the likelihood that U.S. markets will again open to certain BIDI Vapor products, whether through its own efforts or jointly with $PM, KAVL never intended to rely on a single market. Of course, the U.S. markets can add hundreds of millions in revenue; don't forget that fact. Still, the more excellent news is that KAVL is also pivoting to massive opportunities abroad.
Hence, as KAVL re-engages to market its non-flavored BIDI Vapor products in the states, investors should take notice of their intention to penetrate markets where lucrative and broad marketing opportunities still exist.
That initiative is underway.
BIDI Vapor Into U.K Markets
In fact, Kaival Brands announced plans to launch its BIDI Vapor products in the United Kingdom, also a market that can generate billions in revenues and be expedited by facing far fewer logistical hurdles. Moreover, entry into the U.K markets can accelerate further European expansion from already secured marketing and product approvals to distribute its entire BIDI® Stick product line (including non-tobacco flavors).
Know this, too. Most countries aren't following the FDA's flavored-ENDS prohibition. Instead, markets overseas, while fully committed to the safe sale and marketing of products, are more considerate of letting the industry manage itself. And that's excellent news for KAVL, which keeps its flavored ENDS products marketable in much of the world. Better still, global marketing approvals are increasing in number. BIDI Vapor received marketing and distribution approval in 11 international markets over twelve months, including the United Kingdom and Russia.
And given the favorable dynamics of the U.K. market, BIDI Vapor and Kaival Brands could reap the rewards from focusing their time and strategic efforts on penetrating markets overseas, particularly those in the U.K. market
Leveraging U.S. Connections To Expedite Growth Overseas
KAVL can benefit from existing business relationships as well. KAVL clarified that while simultaneously building out its U.K. infrastructure, it will actively engage in discussions to formalize international distribution agreements with its U.S. customers with global distribution capabilities. Thus, while the FDA limited specific product marketing, billion-dollar market opportunities through its U.S. connections are still in play.
Notably, while in focus more today, the U.K. market has always been in KAVL's crosshairs as a strategic market to launch products on an international scale. That plan is still in place, with KAVL expecting to soon roll out product across the European Union, representing an ENDS market opportunity of $2.5 billion. And with that market expected to eclipse $3.9 billion by 2023, earning just a tiny piece can deliver substantial revenues and create enormous shareholder value.
Also important, while the U.K. market is substantial, so are the demographics. In the U.K., the target market is primarily adult consumers, with an average consumer age range of 35-45 years old. That compares to an average demographic in the U.S. between 18 – 24 years old. Noteworthy, too, is that adult consumers (cigarette smokers) in the U.K. appear more motivated than Americans to transition to vape products.
Thus, the combination is potentially excellent news for KAVL, with BIDI Vapor products serving as an authentic, effective alternative for adult smokers of traditional combustible cigarettes. Further, while easy to say now, its product design and approach to marketing look to be a better fit overseas, especially with the U.K. ENDS consumers primarily composed of current and former smokers. Less than 3.5% of that market's adult ENDS consumer population is described as "never smokers."
Non-Flavored ENDS Back In-Play
Here's the most excellent news. From an investor's perspective, with $PM support, KAVL's interests are back in play in the U.S. markets. And while the FDA's actions may likely eliminate a significant number of suppliers to the ENDS market, the end result of that order may end up having minimal impact on adult consumer demand for ENDS products. Better yet, for $KAVL, with far fewer competitors, market share and revenue-generating opportunities from KAVL products could reach into the billions.
Keep in mind, too, before the recent PMTA update, hundreds of companies were competing in the marketplace. Now, a fraction of that number is left standing as most lacked the resources to develop the scientific evidence needed to meet the FDA's high public health protection standard.
KAVL, on the other hand, not only submitted volumes of data but positioned itself to tap the capital markets if and when needed. And at this point, trading a little bit of dilution to own a substantial share of a billion-dollar market is a fair trade. Hence, when KAVL says they see blue skies ahead, it's safe to give them the benefit of the doubt. Few other companies can and/or are making the same forecast.
Thus, while many companies got smoked in the FDA rampage, the survivors, like Kaival Brands, inherited the ability to accelerate growth and capture market share far faster than expected. Put simply, with KAVL one of the last competitors standing in a billion-dollar sector, two words say it all... take advantage.
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