Kaival Brands Innovations Group, Inc. (OTCMKTS: KAVL) has set itself up for a surge in the back half of this year. At least three things happened last week that can accelerate growth and increase shareholder value. First, KAVL completed a capital restructure that puts the outstanding share count to roughly 23.6 million shares. Second, KAVL announced its imminent uplist to the NASDAQ markets. And, third, the company announced the re-start of Bidi™ Pouch production ahead of an anticipated September launch. Combined, the announcements create a path for substantial growth in Q3 and potentially exponential growth in Q4.
Along with the announced re-launch of its patented Bidi™ Pouch, KAVL also offered some production guidance, expecting its first run of enhanced "in-house" production to yield up to 500,000 cans of the Bidi™ Pouch in September. Putting that product to work, KAVL says it has agreements in place to have its pouches is as many 8,000 points of distribution across the country. Moreover, a deal made in Q2 could put its broader line of Bidi™ Vapor ENDS products into as many as 25,000 retail locations.
Hence, it's fair to say that KAVL had a busy week. And value is likely to follow.
Bidi™ Pouch Changes The Pouch Landscape
Moreover, its Bidi™ Pouch alone will be targeting a massive market opportunity. According to MarketResearch.com, the global Nicotine Pouch market is expected to reach $32.8 billion by the end of 2026, with an anticipated CAGR of 54.9% through 2026. Moreover, according to New York-based Nielsen, the entire sector is booming, showing an increase in unit sales of 59.9% in U.S. convenience stores over the 52 weeks ended June 19, 2021.
The more excellent news for KAVL going forward is that growth in its targeted markets is not expected to slow down any time soon. And that's great news for its product line that can contribute substantially to revenue growth in the back half of this year. It's also extremely important to recognize that KAVL is taking its products to market with regulatory compliance as a tailwind.
Unlike the roughly 40% of companies receiving an FDA warning letter for non-compliance of new marketing standards, KAVL and Bidi® Vapor's are sticking to and enhancing upon its founding mission to provide recreational, non-combusted alternatives to adult cigarette smokers. They are adamant about keeping their products out of the hands of minors, which is a critical part of the new regulations.
That mission is more than responsible; it's timely. New laws, strict ones, come into effect on September 9, 2021. And companies that are non-compliant with mandates will not be allowed to market their products. As noted, roughly 40% of the sector players are not yet compliant, meaning that up to three million individual products may not be cleared to make it back to store shelves later this year.
And it's not only KAVL's own mission to stay compliant. They have the exact expectations for their distribution partners to be fully transparent and compliant in their mission, mitigating its risk of being included in potential violations downstream.
Specifically, KAVL said it will work only with law-abiding retailers and distributors that comply with all federal and state laws and taxes applicable to the distribution of the Bidi®️ Stick and the BIDI®️ Pouch. Further, KAVL mandates that its distribution and sales partners comply fully with the Family Smoking Prevention and Tobacco Control Act, the Food, Drug and Cosmetic Act ("FDCA"), and Prevent All Cigarette Trafficking ("PACT") Act.
KAVL expects a lot. But with leading brands like Juul (NYSE: MO) still facing some regulatory headwinds, they are doing the right things at the right time. Moreover, the looming Premarket Tobacco Product Application (PMTA) provisions may be the undoing of many current market leaders in the pouch and ENDS sector.
Premarket Tobacco Product Application Shakeout
And Big Tobacco isn't excluded by any means. Potentially 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.
As noted, Juul, which once dominated the market and enjoyed a substantial interest from Altria, is staring down multiple regulatory actions and civil lawsuits that could slow, or even stop, them from ever regaining their market dominance. Notably, their reign may already be substantially weakened, with Altria reportedly divesting its stake from an original $12 billion to less than $1.5 billion today. According to reports, Altria is expected to entirely divest its stake over the next few months, taking massive marketing and distribution strength with them in the process.
Other Big Tobaccos are having issues as well. Philip Morris (NYSE: PM) took a hit earlier this month when 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. Thus, while it's a give and take between those two, losing patent protection also reduces the number of products on the market. And from KAVL's perspective, these events may be welcomed news.
The worst-case for KAVL is that its competitive landscape shrinks. That's a win for KAVL. And its best case could be even better, with patent battles creating a significant market opportunity for KAVL to fill. Better still, 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 comply with the September 9, 2021 mandate, the current 170 companies still trying to make the regulatory cut may miss the mark. Thus, non-compliance numbers could spike from here.
That could translate into KAVL, with its patent-protected line of BIDI® electronic nicotine delivery devices and products, emerging quickly to a leadership position in the sector. And that would coincide with KAVL's expectations to reach upwards of 50% retail placement in the coming months compared to its 10% today. Thus, potential procurement into millions of new retail locations could be on the table. And with a shakeout expected in September, KAVL is positioning itself to serve the masses.
Keep in mind, too, there's more to the story than compliance. KAVL and BIDI® are bringing a superior line of disposable electronic nicotine delivery system products to market. Also, 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, KAVL's proactive focus on meeting the demands of the changing regulatory environment over quick profits has positioned itself for potentially exponential growth. And with no exaggeration, possibly become one of the few companies standing in a multi-billion dollar industry.
Imminent NASDAQ Uplist
Moreover, after its imminent uplist to the NASQAQ, KAVL will be ideally to capitalize on massive opportunities not available as an OTCBB company. In particular, it can immediately open doors to institutional investors, can help facilitate potential licensing meetings with Big Tobacco, enhances their corporate reputation, and brings in an entirely new class of investors.
It's also worth reiterating that KAVL could have a significant head start over some of its once-feared competitors by staying compliant with PACT Act, licensing, tax, and regulatory mandates. Hence, investors can get the benefit of growth through a de-risked business model and a more controlled trading environment. And with KAVL maintaining control over its business from initial manufacturing to the end sale, the total KAVL package may be in its best position ever to maximize its growth potential.
Expect A Surge In 2H 2021
Thus, investors have every right to expect a surge in the back half of this year. Keep in mind, momentum is already at KAVL's back after booking $41.6 million in product orders during its second quarter. As part of that total, KAVL announced receiving the biggest order in its history, an approximately $22.4 million order from Grocery Supply Warehouse, Inc. that should help place BIDI® products into more than 25,000 retail locations.
Better still, those orders represent the U.S. markets only. KAVL announced approvals to market and sell BIDI® Vapor products in 11 countries and republics, including those in Russia and Europe. Further, KAVL is evaluating opportunities in the massive China markets, taking advantage of relationships already inherent to BIDI®.
Know this too; KAVL will likely accelerate its growth by taking manufacturing in-house, and significantly expedite the planned product launch of its BIDI® products into the U.K. That milestone is expected to be reached during the next two quarters. Thus, KAVL appears to be primed to deliver several company-changing catalysts during the next several weeks.
And with a combination of near-term catalysts, its planned NASDAQ uplist, domestic and international expansion, regulatory compliance in its pocket, and the potential to attract new institutional investment, KAVL stock, despite having a market cap of $198 million, may be considerably undervalued. Hence, investment consideration ahead of news may be a wise decision.
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