Kaival Brands (NASDAQ: KAVL) stock is soaring after the FDA authorized the marketing of particular electronic nicotine delivery system (ENDS) products. The first-ever ruling allows marketing of non-flavored electronic-nicotine through their Premarket Tobacco Product Application (PMTA) pathway and could re-open massive revenue-generating doors into the U.S. markets. And after completing an $8 million capital raise and having potential best-in-class ENDS products through its BIDI Vapor line, KAVL is positioned to take quick advantage.
The more excellent news is that KAVL stock is reacting as it should. Month-to-date, shares are higher by more than 53%. While impressive, they are back to targeting a more than 99% surge made earlier last week.
Why the investor interest? Because KAVL is one of the last few ENDS companies standing in a multi-billion dollar industry.
A Massively Changed Sector
Indeed, it's been a roller coaster ride for the entire sector over the past sixty days, 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 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, KAVL never intended to be reliant on a single market. Of course, the U.S. markets can add hundreds of millions in revenues; 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, earlier this month, Kaival Brands announced plans to launch its BIDI Vapor products in the United Kingdom, also a market that can generate billions in revenues and 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 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.
Even better, after completing a capital raise last month, KAVL is ideally positioned to support its products with an extensive marketing campaign to accelerate its revenue-generating opportunities in new markets. That new funding, says KAVL, is ample to kick-start marketing, staffing, and benefit from a sales strategy that faces significantly fewer hurdles.
Leveraging U.S. Connections To Accelerate Growth Overseas
KAVL can benefit from existing business relationships as well. KAVL clarified that simultaneously building out its U.K. infrastructure, it will actively engage in discussions to formalize international distribution agreements with its U.S. customers who have 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, which currently represents 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 built with 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 the total adult ENDS consumer population in that market is described as "never smokers."
Non-Flavored ENDS Back In-Play
Here's the better news. From an investor's perspective, KAVL's interests are back in play in the U.S. markets, with KAVL expecting BIDI Vapor to eventually receive authorization for its tobacco and menthol BIDI® Sticks. Thus, while the FDA's recent 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, with far fewer competitors, market share and revenue-generating opportunities from only two KAVL products could still 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 will be left standing as they lack 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, they have the advantage of tapping 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 are making the same forecast.
The U.S. Market Back In The Mix
Better still, when it's time to refocus in the U.S., KAVL can do so in a substantially reduced competitive environment. That should position KAVL better than ever to reclaim its impressive market share in the U.S. for non-flavored vape products. Further, as the markets continue to shake out over the next month or two, KAVL's position is strengthened.
Indeed, investors are rewarding KAVL for weathering two massive storms: COVID-19 and the FDA's broad decision on flavored ENDS. And while the share price is not where investors expected it to be, KAVL investors could benefit going forward by an overnight shift in U.S. marketing rules and from KAVL being well-positioned to take advantage of those changes on the fly.
Are better times ahead for KAVL? Most say absolutely. In fact, its recent share price run of 99% shows that to be the case. And as market makers settle their books from fast and furious KAVL interest, it appears its current 53% increase is the springboard for a new leg higher. Hence, it may be a great time to be a KAVL investor. Moreover, with dark clouds of marketing uncertainty lifted, cost-averaging by current investors may be wise as well.
Thus, while a tremendous number of companies got smoked in the FDA rampage, the survivors, like Kaival Brands, in turn, inherit 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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