Indeed, much has changed since the demand for electronic nicotine delivery systems (ENDS) took the U.S. markets by storm in 2010. For some in the sector, the "good news" is that most of that change is on the regulatory front. For others, the "bad news" is that even some industry pioneers may not survive the regulatory storm. However, for Kaival Brands Innovation (OTCMKTS: KAVL), they benefit from both. And they have the soon-to-be $35 billion markets in its crosshairs.
In fact, they may be best-positioned to swipe substantial market share from market leaders, like JUUL (NYSE: MO), who are unexpectedly finding themselves playing catch-up to smaller players that they may have once thought of as a nuisance. And as these one-time leaders struggle to regain market footing, KAVL is on the other spectrum capitalizing on competitors' missteps that have exposed massive market opportunities. Some of that weakness could be surprisingly financial.
For instance, despite controlling about half of the e-cigarette market, JUUL's marketing muscles may significantly weaken as Altria continues to divest its one-time $12 billion stake billion in the company to a reported $1.5 billion today. And with the Federal Trade Commission arguing that the Altria investment violated antitrust laws, the markets expect that a complete unwinding of that deal is imminent. That's not all.
Compounding their problems, JUUL agreed to a $40 million settlement with the North Carolina AG for its aggressive advertising practices. And while that fine may be manageable for a billion-dollar company, JUUL isn't necessarily out of the crosshairs just yet. Civil lawsuits could linger for years, distracting their mission to rebuild their brand image. Still, as cases mount, JUUL's pain could be KAVL's gain. Even better for KAVL and its investors is that other market competitors may not fare any better.
Finding Its Space In A Massive Market
In fact, with massive industry regulation created through the recently passed PACT Act, only a small handful of companies are currently positioned to abide by the stringent requirements. Kaival Brands is one of them. Better still for KAVL, as competitors fail to implement plans to meet intense regulatory scrutiny, the competitive landscape may do more than shrink; it could accelerate KAVL's mission to earn substantial market share sooner rather than later.
Of course, it takes more than a mission and regulatory compliance to become successful in a booming market. It takes best-in-class products and technological innovation as well. And KAVL's IP portfolio, combined with its BIDI® line of disposable electronic nicotine delivery system products, checks all those boxes. Better still, the 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 the changing regulatory environment over quick profits, KAVL appears better positioned for growth than even its largest competitors.
BIDI® Products And Marketing Adhere To Regulatory Demands
In fact, as many of its competitors struggle to earn regulatory favor, Kaival could be the near-term benefactor. Better yet, their head starts in meeting the new compliance mandates could make them one of the last ENDS companies standing. That's no exaggeration, either. In fact, by Kaival meeting the March 28, 2021 deadline to meet strict compliance with terms specified in the PACT Act, KAVL is uniquely positioned to be just that. There's still more to like.
Beyond its compliance processes that ensure all PACT Act, licensing, tax, and regulatory matters are met, Kaival takes things a step further by committing to do business only with companies that also follow the full provisions of the PACT Act. That's a big deal. In fact, that commitment adds a layer of protection to shareholders by insulating itself from downstream indiscretions over rapid revenue growth. In short, it significantly de-risks the investment proposition.
Even better, by maintaining control over its business from initial manufacturing to the end sale, shareholder value is more than protected; it's enhanced.
The best news, bottom line, is that KAVL's focus has enabled them to build on the momentum created last quarter.
Momentum And Record Sales Orders
In fact, despite sector weakness, Kaival Brands stock is trading nearly 22% year-to-date and up more than 11% thus far in July. Still, while those gains are impressive, as investors come to understand the distance KAVL is creating from competitors, the trend higher could accelerate.
And that distance isn't only compliance-related. Competitive advantages also stem from its best-in-class product portfolio, with its BIDI® Stick disposable electronic nicotine delivery system positioning to contribute to a potentially exponential rise in revenues by the end of this year. That charge is already happening.
During its second quarter, KAVL announced receiving the largest single order in its history, an approximately $22.4 million order from Grocery Supply Warehouse, Inc. that could put them into more than 25,000 retail locations. That agreement adds to a $19.2 million order from Lakshmi Distributor, Inc., in the same period. Indeed, the $41.6 million combined orders created substantial revenue-generating momentum heading into the current quarter. And with its shift to target sales from large wholesalers and distributors versus smaller retailers, future invoicing is expected to be similarly impressive.
Still, beyond its Q2 sales milestones, investors would be remiss to undervalue KAVL's standing as one of the few companies already in compliance with PACT Act requirements. That's been noted repeatedly; however, with that advantage alone putting them well ahead of others to seize upon the roughly $19 billion current global market opportunity, it's worth the repetition. Moreover, with KAVL having approvals to market and sell Bidi Vapor products in 11 countries, including those in Russia and Europe, estimates made before its strengthened competitive position could prove conservative.
In fact, a potentially massive near-term revenue-driving catalyst could come from its launch of BIDI products into the U.K., an event expected to happen in the next two quarters. And with a logistical infrastructure in place, expansion into other international markets can quickly follow.
More Than BIDI Stick To Drive 2021 Growth
Still, while its BIDI® Stick is earning the lion's share of attention, its patented BIDI® Pouch could potentially generate billions in sales as well.
In fact, if not for COVID-related headwinds, BIDI® Pouch would likely be contributing substantially more to revenues already. And with global market expansion expected this year, sales are expected to ramp considerably higher into the back half of this year and the first part of 2022.
Even better, KAVL believes that by offering a better alternative targeting a "smokeless future," BIDI® Pouch could become the gold standard in the market by delivering similar ENDS nicotine delivery without traditional impurities. Most notable, the patented formulation is tobacco-free nicotine made with natural fibers, chew-based fillings, and various all-natural flavorings, making it both consumer and Eco friendly. Best of all, based on consumer and client feedback, demand for the BIDI® Pouch is expected to be substantial, and updates on its global market introductions are said to be imminent.
Hence, KAVL is positioned to achieve this year what its competitors can only hope for next year- creating massive shareholder value. And keeping in mind that some competitors may not even return to the markets due to complexities within the PACT Act, that value may be built far ahead of even the most optimistic expectations.
Thus, combining the sum of its parts shows that KAVL is more than undervalued; it's a compelling near and long-term investment opportunity as well. Indeed, it's one to consider.
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