Kaival Brands International (NASDAQ: KAVL) stock may be volatile in December, but make no mistake, they are one of the last electronic nicotine device system (ENDS) sector companies standing in a sector worth potentially billions in revenues. That results from KAVL earning a stay of order from a U.S. District Court that allows KAVL the opportunity to market certain ENDS products in the United States. Specifically, the U.S. Court of Appeals for the Eleventh (11th) Circuit ruled in favor of Bidi Vapor in its appeal of the U.S. Food and Drug Administration's ("FDA") Marketing Denial Order ("MDO") issued to the non-tobacco flavored BIDI Sticks, setting aside or vacating the MDO and remanding the PMTAs back to FDA for further review. There's more good news.
That update coincides with the FDA entering the tobacco-flavored Classic BIDI® Stick into the final Phase III scientific review, which, when all is said and done, could lead to unrestricted marketing approval and open the door to a multi-billion-dollar U.S. market opportunity. If that becomes the result, KAVL share price valuations at current levels present a potentially enormous opportunity for investors to take advantage of a well-positioned company that could quickly transform from impressive to hyper-growth mode. And the court win isn't the only news fueling expected near and long-term growth.
KAVL also announced a business partnership with tobacco industry behemoth Philip Morris (NYSE: PM), leveraging into KAVL's market position to launch its custom-branded self-contained e-vapor product, VEEBA, which PM intends to market in Canada. Of course, Philip Morris S.A. isn't the only winner. For its part, KAVL will earn royalties from the international licensing agreement, and with PM able to penetrate markets quickly, those royalties could, and likely will, be significant.
That's led to increasing interest in KAVL. And while KAVL shares may tend to follow broader market sentiment, it's been clear that when risk trades prevail, KAVL can outperform by significant measures. But remember that even the weakest market sentiment often can't hold fast-growing company prices down. That means with KAVL looking like it's in its best position ever for explosive growth in 2023, its shares could rise appreciably no matter the direction of NASDAQ markets.
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Positioned To Grow- Here's Why
KAVL has undoubtedly laid the groundwork for that to happen. In addition to Court wins and partnerships, KAVL announced extending a critical marketing deal that helps enhance a pathway to meet U.S. demand and secure the development and distribution of ENDS products, domestically and in overseas markets, subject to regulatory assessment. That foundation appears ample to facilitate KAVL targeting billions in sales worldwide, with a jump-start in the states after the FDA pulled nearly every competing ENDS off the market.
They didn't play favorites, either. Juul, owned by Altria Group (NYSE: MO) and once the dominant player in the sector, had many of its offerings forced off the shelves. Also taken down were scores of other brands that failed to submit acceptable Premarket Tobacco Applications (PMTA) proving accurate product claims and a commitment to only market to people of legal age. The FDA's intervention was so intense it resulted in critical reviews of approximately 99% of the nearly 6.7 million ENDS products submitted for premarket authorization, with marketing denial orders determined for more than 1 million ENDS products. The other 5.7 million aren't home-free. Most are restricted from marketing, and it will likely stay that way since the cost to provide the FDA with the volumes of data needed to secure a marketing approval can be time and cost prohibitive.
Thus, there are reasons supporting the bullish sentiment. Moreover, while potentially able to score massive market space wins on its own, it's no overstatement of how valuable KAVL's role can be for others wanting to stay business relevant in the sector. In that respect, speculation is already mounting that the deal with PM is the first of several, with other industry giants like British American Tobacco (NYSE: BTI) and Altria Group likely needing to tap into KAVL's resources to expedite their revenue-generating initiatives. Remember, the more time KAVL is given to strengthen its market presence, the more substantial its share. And those who know retail understand that companies will do more than fight for market share; they will pay handsomely for it if needed.
KAVL Grows Other Brands Get Smoked
Right now, that's a point to consider. While KAVL stands strong, small, independent brands may not have the financial muscle to meet new FDA requirements. Worse, most certainly probably can't pay the fines already levied. They can be enormous, evidenced by Juul's $438 million settlement over the company's marketing of its product to teens. And the FDA is demanding more than fines get paid; they also want volumes of data about each product's makeup, claims, and marketing plans. Unlike most, KAVL provided that.
They noted that Bidi™ Vapor's application included over 285,000 pages, including science-based evidence demonstrating that Bidi™ Sticks are Appropriate for the Protection of Public Health (APPH). In addition, the applications support the public need to provide alternatives to adult smokers of combustible tobacco products. KAVL met that filing burden by detailing 11 flavored varieties with 6% weight/volume nicotine concentrations as part of the company's proprietary e-liquid formulation. That's not all. From a competitive perspective, Bidi™ Vapor has engineered its electronic nicotine-delivery system (ENDS) products using its own patented technology, ensuring quality control and assurance from the raw chemicals and components purchased through the manufacturing process in a cGMP (current Good Manufacturing Practice) facility. The quality assurance doesn't end there.
Products then go through various in-vitro and in-vivo toxicity testing (including genotoxicity tests) at a GLP (Good Laboratory Practice) approved lab, as well as HPHC (Harmful and Potentially Harmful Constituents) analysis of both the aerosol and e-liquid in ISO 17025 certified labs. KAVL added more, saying that applications included data from Bidi™ Vapor conducting three independent surveys and one "combined" consumer survey of people aged 21 and over.
All told, the work highlighted separates KAVL and its products from 99% of the competitive field. Thus, saying that KAVL stock looks appreciably undervalued at less than a dollar isn't subjective; it's justified.
KAVL- Right Place, Right Product, Right Time
The more excellent news for KAVL and its investors is that the competitive landscape may not expand anytime soon. If anything, the FDA rules have become increasingly restrictive. That's coupled with ambiguous legislation being enforced by federal regulators determined to keep tobacco and nicotine products away from the hands of young adults.
While the proper intention, their inconsistent intervention and unclear regulatory guidelines have all but extinguished a multi-billion-dollar flavored electronic delivery systems market. Many small and large domestic brands have been unable to survive the challenges imposed by the FDA, with mom-and-pop vapor shops closing their doors across the nation. Not KAVL.
They are expediting growth by taking significant steps to ingrain themselves as a sector leader. And keep this in mind- it's not often that a multi-billion-dollar market cap company knocks on the door of a micro-cap for help. But that's what's happening now. And these developing relationships can do more than aid KAVL in maintaining and building its U.S. presence through potentially several channels; it also allows them to lean on its partner's international presence to expedite global product introductions.
International Markets Play By Own Rules
Another thing to remember, the rest of the world isn't bound to the FDA's flavored-ENDS prohibition. That could lead to accelerated market expansion of certain KAVL products enabling revenues to accrue much quicker than domestic sales. Compliant in every way, KAVL is taking advantage of friendly markets. BIDI Vapor has earned marketing and distribution approval in 11 foreign markets, including the U.K. and Russia. Those markets, both massive in terms of revenue potential, position BIDI Vapor and Kaival Brands to benefit significantly from those approvals.
Moreover, they can expedite market penetration by allowing KAVL to concentrate their time and strategic efforts on marketing into these key international markets. The favorable dynamics in those markets, coupled with licenses in hand, should help transform marketing ambitions into revenues faster than many expect. Keep in mind, too, that KAVL may get a running start to market in the United Kingdom, noting it's been a focus market with plans in place to exploit the opportunity.
But here's the more excellent news: penetrating the U.K. markets could be the revenue-generating stepping stone for rapid expansion across Europe. That intent could be fueled by already-secured marketing and product approvals to distribute its entire BIDI® Stick product line (including non-tobacco flavors) in those markets. Indeed, things can change. But, as it stands, KAVL is in an ideal position for rapid, perhaps exponential, growth in overseas markets. Today, that ENDS market opportunity presents a more than $2.5 billion value proposition. Investors can bet that it's not only a target for KAVL; it's likely already in the crosshairs.
A KAVL Proposition Too Good To Ignore
If so, KAVL stock at current prices may present a value investment opportunity too good to ignore. In fact, it would be hard for any investor or sector analyst to argue against KAVL being better positioned than most to exploit billion-dollar marketing opportunities in a beaten-down sector. Frankly, played correctly, KAVL could transform from a niche ENDS sector player into one of the more influential companies in the ENDS space.
That's not blind ambition; it's an assumption supported by an FDA that has dismantled the ENDS competitive landscape, leaving only a tiny handful of domestic or international companies positioned to do what KAVL can. Thus, those thinking KAVL doesn't hold tremendous intrinsic firepower to increase shareholder value and have enough leftovers to fuel the growth of others need to reconsider.
In fact, with plenty of news on the wires, and more expected soon to support that presumption, action instead of consideration may be better warranted. After all, the cumulative nature of what KAVL has said and is expected to say supports the premise that the path of least resistance for KAVL stock is higher. In other words, this valuation disconnect may not last, but then again, the biggest ones typically don't.
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