Kaival Brands: Positioning for the Future

Rhea-AI Summary

Kaival Brands announces positive business outlook update with $100 million in gross revenues achieved through distribution of BIDI® Stick in less than 12 months. Company continues to pursue diversification. Regulatory hurdles faced with flavored BIDI® Sticks. Judicial stay granted, allowing continued marketing and sales. Lack of FDA enforcement allows sale of illegal products. Company focuses on maximizing growth of BIDI® Stick through partnerships with retailers. FDA expects completion of reviews of covered PMTAs by December 2023. Acquisition of GoFire patent portfolio with innovative technologies. Company exploring revenue opportunities with acquired patents. Open to M&A opportunities. Amended agreement with Philip Morris International for ENDS products outside of the U.S. Reconciliation payment of $135,000 and projected additional royalties of $300,000. Positive impact on financial performance.

Positive

• $100 million in gross revenues achieved in less than 12 months
• Judicial stay granted for marketing and sales of flavored BIDI® Sticks
• Maximizing growth of BIDI® Stick through partnerships with retailers
• Expected completion of FDA reviews of covered PMTAs by December 2023
• Acquisition of GoFire patent portfolio with innovative technologies
• Projected additional royalties of $300,000

Negative

• Regulatory hurdles faced with flavored BIDI® Sticks
• Lack of FDA enforcement allows sale of illegal products

FDA Scientific Review Update, Patent Portfolio Acquisition, International Royalties

GRANT-VALKARIA, Fla., Aug. 23, 2023 (GLOBE NEWSWIRE) -- 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 Enforcement
In 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 2023⁷
The 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; and
100% of covered PMTAs by Dec. 31.

MILESTONE PATENT PORTOFOLIO ACQUISITION

GoFire Patent Portfolio Acquisition
Acquisition 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 Portfolio
The 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 Opportunities
We 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 International
On August 17^th, 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 Royalties
Furthermore, 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.html
2 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.html
5 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-bar
7 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.html
10 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 Statements
This 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 Partner
Hayden IR
(646) 536-7331
brett@haydenir.com