Kaival Brands Innovations Group, Inc. (NASDAQ:
KAVL) ("Kaival Brands," the "Company" or "we,” “our” or
similar terms), today announced a general business outlook update.
The Company has been actively maintaining an outlook of positive
change as it seeks to grow in a diversified way.
UNPRECEDENTED EARLY GROWTH
In less than 12 months of initial operations,
Kaival Brands achieved over $100 million in gross revenues through
distribution of the BIDI® Stick. Since then, the Company has
continued to navigate significant regulatory turbulence within the
domestic United States ENDS market. To augment our core offering,
the Company has continued to pursue pathways for
diversification.
Regulatory
Hurdles:1
- Bidi Vapor submitted PMTAs for all
11 flavor varieties (9 flavored ENDS plus Menthol and Tobacco) of
its BIDI® Stick prior to the court-ordered September 9, 2020, PMTA
deadline, despite considerable business and logistical challenges
due to the COVID-19 pandemic. The detailed applications ran over
285,000 pages and contained significant information supporting the
products as appropriate for the protection of the public health –
including robust and reliable scientific data supporting that its
flavored BIDI® Sticks provide an added benefit to adult smokers
over tobacco-flavored ENDS.
- Despite submitting scientifically
rigorous PMTAs and keeping the FDA informed about its ongoing
clinical and behavioral studies, among other things, Bidi Vapor
received a marketing denial order ("MDO”) for its flavored BIDI®
Sticks, along with nearly all other manufacturers of flavored ENDS,
in early September 2021. On September 29, 2021, Bidi Vapor
subsequently filed a Petition for Review with the U.S. Court of
Appeals for the Eleventh Circuit, seeking judicial review of the
MDO under the Tobacco Control Act ("TCA"), the Administrative
Procedure Act ("APA"), as well as the U.S. Constitution.
- On February 1, 2022, U.S. Court of
Appeals for the Eleventh Circuit granted a judicial stay of the
marketing denial order ("MDO") previously issued by the U.S. Food
and Drug Administration ("FDA") to Bidi Vapor in September
2021.
- The stay ruling allowed Bidi Vapor
and Kaival Brands to continue to market and sell all of its BIDI®
Stick ENDS, including its tobacco, menthol and flavored products,
while the case on the merits continued.
- Following the judicial stay of the
MDO issued in February 2022, on August 23, 2022, the 11th Circuit
granted Bidi Vapor’s petition for review and set aside and remanded
the MDO, which the Court held was arbitrary and capricious because
FDA failed to consider relevant evidence before it, specifically
Bidi Vapor’s aggressive and comprehensive marketing and
sales-access-restrictions plans.
- Despite the issuance of MDOs
covering over 1.2 million flavored ENDS products, the FDA failed to
adequately enforce the denials at the ground level. This lack of
enforcement allowed the sale of illegal products to continue,
accelerating the tailwinds created during the pandemic, where
e-cigarette sales surged2, with the spike concentrated in
disposable vapes after they took a back seat in federal enforcement
actions.
MAXIMIZING THE GROWTH OF BIDI®
STICK
The Company remains committed to maximizing the growth and
distribution of its core offering, the BIDI® Stick. In June, the
Company announced it has relaunched distribution of the BIDI® Stick
in over 1,000 Circle K locations, with a 5,000-store ramp-up
underway within the South Atlantic and Midwest regions3, and
launched in over 900 Kwik Trip and Mapco locations nationwide, with
a ramp-up to over 1,200 locations.4
Capitalizing on the Tailwinds of Increased FDA
EnforcementIn May 2023, the FDA launched a self-proclaimed
“Inspection Blitz,” which underscores the agency’s unwavering
commitment to addressing the issue facing America’s youth.5
Both the Company and Bidi Vapor have remained steadfastly
committed to compliance and youth-access prevention. That
commitment, along with the renewed focus and commitment by
retailers, will continue to help educate consumers and raise
awareness about the importance of youth access prevention and
buying legitimate, non-illicit products. As reiterated by Brian
King, Ph.D., M.P.H., director of the FDA’s Center for Tobacco
Products (CTP), “all players in the supply chain—including
retailers—have a role in keeping illegal e-cigarettes off the
shelves.6”
The Company is encouraged by the renewed momentum we are
experiencing (subject as always to FDA enforcement discretion) with
retailers like Circle K, Kwik Trip, and Mapco who champion
compliance and youth-access prevention and recognize our ongoing
efforts since last year to educate retailers and distributors of
the business value of marketing BIDI® Stick versus non-compliant
competition. Of course, the goal is to capitalize on this momentum
in orders as we seek to increase our revenues during the remainder
of 2023 and beyond.4
Completed FDA Reviews of Market Dominant
PMTAs Expected by December 20237The FDA has recently
provided a timeline on anticipated reviews of covered PMTAs to be
completed. Covered PMTAs are limited only to: 1) new tobacco
products on the market by Aug. 8, 2016; 2) must have been filed by
the Sept. 9, 2020; and 3) products sold under the brand names Vuse,
Juul, NJOY, Logic, SMOK, Blu, Puff Bar or Suorin, or that reach 2%
of total retail dollar sales as reported in the Total E-Cig Market
and Players report or the Disposable E-Cig Market and Players
report, as produced by Chicago-based NielsenIQ.
BIDI® Stick: 1) was on the market prior to
August 8, 2016; 2) PMTAs were filed by the September 9, 2020
deadline; and 3) has consistently been the number one disposable
vape product for more than twenty-four months since 2021 and has
consistently reached 2% of total retail dollar sales as reported in
the Total E-Cig Market and Players report or the Disposable E-Cig
Market and Players report, as produced by Chicago-based
NielsenIQ.
The FDA anticipates action
on:52% of covered PMTAs by March 31;53% of covered PMTAs
by June 30;55% of covered PMTAs by Sept. 30; and100% of covered
PMTAs by Dec. 31.
MILESTONE PATENT PORTOFOLIO
ACQUISITION
GoFire Patent Portfolio
AcquisitionAcquisition from GoFire includes 12 issued and
46 pending patents.8 The GoFire patent portfolio includes 12
existing and 46 pending with novel technologies across extrusion
dose control, product preservation, tracking and tracing usage,
multiple modalities (i.e., different methods of vaporizing) and
child safety. The patents and patent applications cover territories
including the United States, Australia, Canada, China, the European
Patent Organisation, Israel, Japan, Mexico, New Zealand and South
Korea. The portfolio also includes a proprietary mobile device
software application that is used in conjunction with certain
patents in the portfolio.
The acquired patent portfolio includes
the following:9
- Controlled
Delivery- Patented Twist-to-Dose™ technology utilizes a
micro-threaded piston that provides consistent and precise delivery
of consumables. There is an audible “click” so the consumer knows
exactly how much is inhaled with each use.MHRA
Requirements- Technology is designed to meet all Medicines
and Healthcare products Regulatory Agency (MHRA) requirements in
the United Kingdom.
- Bluetooth Child Safety App
and Mechanical Cartridge Protection- A dual lockout system
including a child safety lockout via Bluetooth app and child safety
measures built mechanically into the cartridge design to prevent
accidental consumption by minors.
- Flavor Delivery and
Experience to Last Puff- Patented technology eliminates
the bad taste that is associated with oil and e-liquid degradation.
The RefreshFlavor™ technology is designed in a novel way to keep
the vaporized solution safely away from the heating chamber until
the moment it is consumed.
- Leak Proof Design and
Removal of Cutting Agents- Patented sealed reservoir
prevents leaks from occurring. Ordinary cartridges rely on
dangerous thinning agents and wicks to deliver the oil and e-liquid
to the heating chamber. The Twist-to-Dose™ technology with
micro-threaded piston system can directly extrude oil into the
heating chamber decreasing carbonyl and analyte formation.
- Authentication
System/Counterfeit Protection- The acquired patents also
include novel cartridge/pod identification and
authentication/counterfeit protection capabilities.
- Dry Puff
Protection- Certain elements of the acquired technologies
design mitigate “dry puffs” which can occur when the consumable
reservoir in a vaping/inhalation device is depleted, allowing the
coil or wick to burn dry and emit potentially harmful toxins.
- 510 and Pod
Compatibility- The technology included in the acquired
patents is compatible with both the universal 510 thread format as
well as pod-based systems, the dominant formats of vaporizer and
inhalation technologies.
- Product Remaining
Indicators- The acquired technology provides indicators
allowing for consumer insight into remaining product supply.
EXPLORING NEW REVENUE STREAMS AND
OPPORTUNITIES:
Potential Revenue Opportunities with
Recently Acquired Patent PortfolioThe Company is also
pursuing capital-efficient opportunities to accelerate the
potential monetization of its recently acquired patent portfolio.
We are actively seeking third-party licensing opportunities in the
cannabis, hemp/CBD, nicotine and nutraceutical markets. Longer
term, we believe we can utilize the acquired patents to create
innovative and market-disruptive products for its growing base of
adult consumers, including patent protected vaporizer devices and
related hardware and software applications.9
Ongoing Consideration of Further M&A
OpportunitiesWe continue to remain open to, and exploring,
opportunities to acquire new products and technologies that can be
monetized utilizing our existing network and manufacturing
capabilities.
We are actively seeking to expand our portfolio through
acquiring controlling interest in or exclusively distributing
innovative and profitable products and growing them into dominant
brands for their respective share markets.
PHILIP MORRIS INTERNATIONAL AMENDMENT & EXPECTED
ROYALTIES10
Amended Agreement with Philip Morris
InternationalOn August 17th, the Company, through its
wholly-owned subsidiary, Kaival Brands International (“KBI”)
entered into an amended agreement with Philip Morris Products S.A.
(“PMPSA”), a wholly owned affiliate of Philip Morris International
Inc. (“PMI”) (NYSE: PM), for the development and distribution of
electronic nicotine delivery system (“ENDS”) products in markets
outside of the U.S.
Under the terms of the amended agreement, the parties agreed to
revise certain terms, which provide for, among other things, a
fixed pricing structure with volume-driven increases and a
recapture of non-recurring engineering costs by KBI. Accordingly,
the Company expects a reconciliation payment of approximately
$135,000, which brings the total amount of royalties earned by the
Company since July 2022 to over $400,000.
Expected RoyaltiesFurthermore, the Company
projects approximately $300,000 in additional royalties to be
earned through the end of 2023, with an anticipated increasing
trajectory of royalty income.
Eric Mosser, Chief Executive Officer of Kaival Brands, stated,
"We are extremely pleased to reach an agreement that shall enable
us to achieve cost savings of approximately $2.7 million for the
Company over the lifetime of the license agreement. It also enables
better predictability and forecasting for KBI and streamlines data
reporting. We anticipate that the acceleration of royalty payments
will be a net positive to our financial performance over the
duration of the agreement. Some people may be betting against the
success of Kaival Brands, but we will not be deterred from
increasing value while building a successful, diversified, and
profitable company.”
Additional information regarding this amendment will be provided
in a Current Report on Form 8-K being filed by Kaival Brands with
the Securities and Exchange Commission.
1
https://www.prnewswire.com/news-releases/bidi-vapor-wins-judicial-stay-of-fdas-marketing-denial-order-301474799.html2
https://rollcall.com/2023/06/22/disposable-vape-sales-soared-after-fda-focused-efforts-elsewhere/3 https://www.globenewswire.com/en/news-release/2023/06/14/2688049/0/en/Kaival-Brands-Relaunches-Distribution-of-BIDI-Stick-in-Over-1-000-Circle-K-Locations.html 4
https://www.globenewswire.com/en/news-release/2023/06/15/2688871/0/en/Kaival-Brands-Launches-Distribution-of-BIDI-Stick-in-Over-900-Kwik-Trip-and-Mapco-Locations.html5 https://www.fda.gov/news-events/press-announcements/fda-conducts-retailer-inspection-blitz-cracks-down-illegal-sales-popular-disposable-e-cigarettes 6
https://www.fda.gov/news-events/press-announcements/fda-inspection-blitz-leads-more-180-warning-letters-retailers-illegal-sale-youth-appealing-elf-bar7
FDA Will Finish Reviewing E-Cigarette PMTAs by End of Year
(cspdailynews.com)8 Kaival Brands Acquires Extensive Vaporizer and
Inhalation (globenewswire.com)9
https://www.globenewswire.com/en/news-release/2023/06/09/2685507/0/en/Kaival-Brands-Looks-to-Address-Key-Market-Opportunities-Following-Acquisition-of-Extensive-Vaporizer-and-Inhalation-Patent-Portfolio.html10
https://www.globenewswire.com/en/news-release/2023/08/17/2727648/0/en/Kaival-Brands-Amends-Agreement-with-Phillip-Morris-International-for-Distribution-of-ENDS-Products.html
ABOUT KAIVAL BRANDS
Based in Grant-Valkaria, Florida, Kaival Brands
is a company focused on incubating innovative and profitable
adult-focused products into mature and dominant brands, with a
current focus on the distribution of electronic nicotine delivery
systems (ENDS) also known as “e-cigarettes”. Our business plan is
to seek to diversify into distributing other nicotine and
non-nicotine delivery system products (including those related to
hemp-derived cannabidiol (known as CBD) products). Kaival Brands
and Philip Morris Products S.A. (via sublicense from Kaival Brands)
are the exclusive global distributors of all products manufactured
by Bidi Vapor.
Learn more about Kaival Brands at
https://ir.kaivalbrands.com/overview/default.aspx.
ABOUT KAIVAL LABS
Based in Grant-Valkaria, Florida, Kaival Labs is
a 100% wholly-owned subsidiary of Kaival Brands focused on
developing new branded and white-label products and services in the
vaporizer and inhalation technology sectors. Kaival Labs’ current
patent portfolio consists of 12 existing and 46 pending with novel
technologies across extrusion dose control, product preservation,
tracking and tracing usage, multiple modalities and child safety.
The patents and patent applications cover territories including the
United States, Australia, Canada, China, the European Patent
Organisation, Israel, Japan, Mexico, New Zealand and South Korea.
The portfolio also includes a fully-functional proprietary mobile
device software application that is used in conjunction with
certain patents in the portfolio.
Learn more about Kaival Labs at
https://kaivallabs.com.
ABOUT BIDI VAPOR
Based in Melbourne, Florida, Bidi Vapor
maintains a commitment to responsible, adult-focused marketing,
supporting age-verification standards and sustainability through
its BIDI® Cares recycling program. Bidi Vapor's premier device, the
BIDI® Stick, is a premium product made with high-quality
components, a UL-certified battery and technology designed to
deliver a consistent vaping experience for adult smokers 21 and
over. Bidi Vapor is also adamant about strict compliance with all
federal, state and local guidelines and regulations. At Bidi Vapor,
innovation is key to its mission, with the BIDI® Stick promoting
environmental sustainability, while providing a unique vaping
experience to adult smokers.
Nirajkumar Patel, the Company’s Chief Science
and Regulatory Officer and director, owns and controls Bidi Vapor.
As a result, Bidi Vapor is considered a related party of the
Company.
For more information, visit
www.bidivapor.com.
Cautionary Note Regarding
Forward-Looking StatementsThis press release and any
statements of the Company’s management and partners related to the
subject matter hereof includes statements that constitute
“forward-looking statements” (as defined in Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended), which are statements
other than historical facts. You can identify forward-looking
statements by words such as “anticipate,” “believe,” “continue,”
“could,” “estimate,” “expect,” “forecast,” “intend,” “may,” “plan,”
“position,” “should,” “strategy,” “target,” “will,” and similar
words. All forward-looking statements speak only as of the date of
this press release. Although the Company believes that the plans,
intentions, and expectations reflected in or suggested by the
forward-looking statements are reasonable, there is no assurance
that these plans, intentions, or expectations will be achieved.
Therefore, actual outcomes and results (including, without
limitation, the anticipated benefits to the Company of the PMI
License Amendment, including the Company’s anticipations about
potential royalties receivable from PMPSA as described herein)
could materially and adversely differ from what is expressed,
implied, or forecasted in such statements. The Company and PMPSA’s
businesses may be influenced by many factors that are difficult to
predict, involve uncertainties that may materially affect results,
and are often beyond the control of the parties. Factors that could
cause or contribute to such differences include, but are not
limited to: (i) future actions by the FDA or its non-U.S.
equivalents with respect to the Company’s or PMPSA’s products, (ii)
the outcome of FDA’s scientific review of Bidi Vapor’s pending FDA
Premarket Tobacco Product Applications, (iii) the results of
international marketing and sales efforts by PMPSA, (iv) how
quickly domestic and international markets adopt the Company’s
products, (v) the scope of future regulatory activity in the ENDS
industry, (vi) general economic uncertainty in key global markets
and a worsening of global economic conditions or low levels of
economic growth, (vii) circumstances or developments that may make
the Company or PMPSA unable to implement or realize anticipated
benefits, or that may increase the costs, of our current and
planned business initiatives, (viii) significant changes in the
Company’s relationship with PMPSA or other distributors or
sub-distributors and (ix) other factors detailed by the Company in
our public filings with the Securities and Exchange Commission,
including the disclosures under the heading “Risk Factors” in our
Annual Report on Form 10-K for the fiscal year ended October 31,
2022, filed with the Securities and Exchange Commission on January
27, 2023 and accessible at www.sec.gov. All forward-looking
statements included in this press release are expressly qualified
in their entirety by such cautionary statements. Except as required
under the federal securities laws and the Securities and Exchange
Commission’s rules and regulations, we do not have any intention or
obligation to update any forward-looking statements publicly,
whether as a result of new information, future events, or
otherwise.
Kaival Brands Investor Relations:Brett Maas,
Managing PartnerHayden IR(646) 536-7331brett@haydenir.com
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