GRANT, Fla., Sept. 14, 2021 /PRNewswire/ -- Kaival Brands
Innovations Group, Inc. (NASDAQ: KAVL) ("Kaival Brands," the
"Company," or "we"), is the exclusive global distributor of
products manufactured by Bidi Vapor, LLC ("Bidi Vapor"), including
the BIDI® Stick, a disposable electronic
nicotine delivery system ("ENDS"), which is intended exclusively
for adults 21 and over.
"We anticipate announcing soon a significant hire who will run and
manage the European business on the ground."
Significant Revenue Impacts of FDA PMTA Review
Process
We believe that the Premarket Tobacco Application ("PMTA")
process undertaken by the U.S. Food and Drug Administration ("FDA")
has had a significant impact on the e-cigarette industry.
Prior to the September 9, 2021
court-ordered deadline for the FDA to make PMTA determinations for
pending applications, we believe that many retailers and
distributors were reluctant to take on new inventory. We believe
these retailers were concerned with the potential for being left
with inventory that after September 9,
2021 could be ruled adulterated or misbranded by the FDA
and, thus, illegal to sell. Separately, we believe there were other
retailers willing to purchase counterfeit or sub-optimal products
from manufacturers who were selling these products at significantly
reduced prices. These manufacturers were willing, we believe, to
significantly reduce sales prices because they realized they would
likely not receive the FDA's PMTA authorization on September 9, 2021, and were attempting to
recognize any revenues associated with what they believe will
likely be unsellable product following the deadline. These
tangential consequences of the PMTA process have resulted in the
third quarter of fiscal 2021 being an extremely challenging quarter
for us.
In addition, COVID-19 impacted Bidi Vapor's ability to quality
test because of supply chain disruptions and develop its new
product the BIDI® Pouch in line with its targeted release date,
which negatively impacted our ability to begin distribution of the
BIDI® Pouch.
These impacts ultimately affected our financial results for the
quarter ended July 31, 2021. We
reported revenues of $3.4 million for
the three months ended July 31, 2021,
compared to $32.4 million for the
three months ended July 31, 2020. We
reported revenues of $59.5 million
for the nine months ended July 31,
2021, compared to $54.9
million for the nine months ended July 31, 2020.
In continuation of its long-standing history of stressing
corporate responsibility, Bidi Vapor, the manufacturer of the BIDI®
Stick and BIDI® Pouch, a synthetic nicotine based smokeless pouch
distributed by us, has encouraged a potential FDA ban on the
marketing and distribution of synthetic nicotine in the U.S.,
taking the firm position that synthetic nicotine should be
classified as an unapproved drug and, thus, subject to the
applicable FDA drug regulations.
Due to its position, which Bidi Vapor has communicated to the
FDA, Bidi Vapor has formally communicated to us that the planned
launch of manufacturing of the BIDI® Pouch, which was initially
delayed because of COVID-19, will now be further delayed as its
tobacco-derived formula will be subject to the PMTA process before
it can be distributed in the U.S. However, while the BIDI® Stick
completes the PMTA process within the U.S., the tobacco-derived
nicotine formula is approved for distribution in several global
markets, including the United
Kingdom and Russia, as
further discussed below. As a result of this decision, and of
developments relating to the PMTA process discussed below, we have
lowered our internal revenue expectations related to the
distribution of the BIDI® Pouch, which lowered expectations are
reflected in the anticipated results for the year ending
October 31, 2021. We
believe that the delay in the distribution of the BIDI® Pouch in
the U.S. will lower revenues in the short term. However, we believe
that in the longer term, the removal of all synthetic nicotine
products in the U.S. market could prove to be a positive event for
us. Based on the FDA's PMTA decisions related to disposable ENDS
products, we anticipate that Bidi Vapor's naturally derived
nicotine products will remain on the market following the
completion of the FDA's PMTA process. Conversely, we believe that
many other ENDS manufacturers are utilizing synthetic nicotine as a
loophole to avoid the rigorous PMTA process and that if synthetic
nicotine is deemed to be an unapproved drug, the FDA will need to
regulate synthetic nicotine products as unapproved drugs, or remove
them from the market, in order to enforce and bolster compliance
requirements.
As discussed below, we expect the impact of continued FDA
scrutiny on the ENDS industry, as well as the commencement of
distribution of the BIDI® Pouch, initially outside of the U.S., to
have a positive impact on us in the longer term, but the dynamics
that affected the third quarter, as well the delay in launching the
BIDI® Pouch in the U.S., will cause our revenues for the full year
ending October 31, 2021 to be below
previously issued guidance. The Company now expects revenues for
the year to be approximately $68
million, as compared to previous guidance of $400 million.
Management Commentary:
"While our third quarter revenue results did not meet our
expectations, we remain steadfast in our commitment to preventing
youth use of ENDS, responsibly marketing to adult tobacco users
21-and-over, working with law abiding retailers and distributors,
and complying with all federal and state laws and taxes applicable
to the distribution of the BIDI® Stick, including, but not limited
to, the Family Smoking Prevention and Tobacco Control Act, the
Food, Drug and Cosmetic Act, and the Prevent All Cigarette
Trafficking Act," said Niraj Patel,
Founder and Chief Executive Officer of Kaival Brands.
"Since inception, we, together with Bidi Vapor, have been built
upon the foundations of industry-and-regulatory exceeding
compliance standards. Over the past twelve months, together we have
been preparing for a post-PMTA regulatory environment and have
maintained our focus on providing an industry-leading premium vape
experience along with establishing industry-best youth access
prevention programs and protocols."
PMTA Review Process Updates and Commentary
We believe that due to increased pressure from, among others,
tobacco control and public health groups, members of Congress,
academic institutions, family advocacy organizations and attorneys
general, FDA has used the September 9,
2021 PMTA deadline to effectively "ban" flavored ENDS by
denying nearly all pending PMTAs for such products. As of
September 10, 2021, the FDA announced
that it has taken action on over 93% of applications and issued
Marketing Denial Orders ("MDOs") for more than 992,000 flavored
ENDS products, while issuing zero marketing authorizations.
Unfortunately, despite submitting a comprehensive PMTA and
continuing to develop robust and reliable product-specific
scientific evidence demonstrating the public health benefit of its
flavored ENDS products, Bidi Vapor, along with nearly every other
company in the ENDS industry, received an MDO for its non-tobacco
flavored BIDI® Sticks, including its Arctic (menthol) BIDI® Stick,
which the FDA mischaracterized as "flavored." However, because its
Arctic BIDI® Stick is menthol, Bidi Vapor believes that this
menthol BIDI® Stick is not subject to the MDO. This position is
aligned with the FDA's public statements and press releases stating
that tobacco and menthol ENDS are not deemed flavored products
subject to the MDOs. Accordingly, along with the Classic (tobacco)
BIDI® Stick, Bidi intends to continue to manufacture and market its
Arctic (menthol) BIDI® Stick for distribution by us.
Historically, substantially all of our revenues were derived
from sales of flavored BIDI® Sticks, including the Arctic (menthol)
BIDI® Stick, sales of which constituted approximately 15.2% and
18.5%, respectively, of our total sales of BIDI® Sticks for the
three and nine months ended July 31,
2021. Generally, substantially all of the ENDS industry
revenue is derived from the sales of flavored products.
Following the issuance of the MDOs, nearly all manufacturers,
not only Bidi Vapor, will be limited to manufacturing and selling
only tobacco and menthol ENDS products. Accordingly, we believe
that consumers are likely to modify their purchases to shift to
products that are available, and thus that a substantial amount of
our revenue that had previously been generated from sales of
flavored BIDI® Sticks (other than Arctic) may be replaced through
sales of the Classic (tobacco) and Arctic (menthol) BIDI® Sticks,
given that consumers will only be able to purchase, on a legal
basis, non-flavored ENDS products. Accordingly, we believe revenues
for tobacco and menthol ENDS products will restore some or all of
the revenue we derived from the sale of flavored products.
Moreover, based on sales and consumer data, we believe that our
consumers are loyal to the Bidi Vapor brand and BIDI® Sticks and
that they thus are likely to continue to purchase our Classic
(tobacco) and Arctic (menthol) BIDI® Sticks in lieu of the flavored
BIDI® Sticks they may have bought in the past.
If the FDA disagrees with Bidi Vapor's position, issues a
warning letter, or takes other action against Bidi Vapor resulting
in us not being able to distribute the menthol (Arctic) BIDI® Stick
in the United States, or consumers
do not purchase the tobacco (Classic) or menthol (Arctic) BIDI®
Sticks, our revenues and, thereby our financial results and
condition, would be materially adversely affected. Our financial
results and condition will also be significantly impacted by our
ability to continue to sell the Arctic (menthol) BIDI® Stick and
the degree to which sales of the Classic (tobacco) and Arctic
(menthol) BIDI® Sticks replace sales of flavored products that are
now prohibited.
Despite this setback, Bidi Vapor informed us that it is not
wavering in its commitment to demonstrating that all its BIDI®
Stick products are appropriate for the protection of the public
health and proving to the FDA that these products should remain on
the market as an alternative for adult cigarette smokers. In this
regard, Bidi Vapor is appealing the MDO and plans on continuing to
complete multiple ongoing studies, including a clinical
pharmacokinetic, or PK, study, and several actual use and
perception and intention studies to support its PMTA. Preliminary
results from these studies indicate that, compared to
tobacco-flavored ENDS, the flavored BIDI® Sticks do indeed provide
an added benefit for adult cigarette smokers while outweighing any
risks to youth posed by flavored ENDS, particularly when
considering Bidi Vapor's stringent youth access prevention
measures.
As has become clear, the PMTA decision process will result in
the elimination of the vast majority of all ENDS products from the
marketplace, as these applications did not include the product
specific scientific evidence needed to justify marketing
authorization, which Bidi Vapor is developing.
Despite this MDO, Bidi Vapor is not wavering in its commitment
to demonstrating that all its BIDI® Stick products are appropriate
for the protection of the public health and proving to FDA that
these products should remain on the market as an alternative for
adult cigarette smokers.
Ultimately, we continue to believe that Bidi has the potential
to be one of only a handful of companies that will not only survive
but rise above the demanding scrutiny of the new regulatory world,
while continuing to deliver a premium and preferred vape
experience, as evidenced by the BIDI® Sticks continued leading
market share in the disposable ENDS category, as confirmed by
Nielsen data ending June 29,
2021.
"The BIDI® Stick has become a preferred product for adult
consumers not because of our flavors, but because of our patented
delivery system, which delivers a consistent and smooth experience.
Going forward, U.S. consumers will only have the option of
purchasing tobacco or menthol ENDS products and, moreover, will
only be able to choose from products manufactured by a limited
amount of PMTA approved brands. We believe in the continued growth
of the U.S. vape market, and now that 93% of the market has been
eliminated, we expect Bidi Vapor's market share to, at a minimum,
reach pre-PMTA levels," notes Mr. Patel.
As noted in previous announcements, the BIDI® Stick has received
marketing and distribution approval in 11 European markets,
including the United Kingdom. We
do not expect these countries to follow the FDA and ban flavors; as
such, Bidi Vapor and we will now expedite the planned product
launches into foreign markets starting with the United Kingdom. We anticipate announcing soon
a significant hire who will run and manage the European business on
the ground.
"In six weeks, our new fiscal year begins. We look forward to
our second full year as an operating company and while fiscal 2021
proved challenging, we are proud of our efforts in navigating
COVID-19, the PMTA process, bolstering our internal infrastructure
and setting the stage for our international growth strategy," notes
Mr. Patel.
Mr. Patel, the Company's President and Chief Executive Officer,
owns and controls Bidi Vapor. As a result, Bidi Vapor and the
Company are considered under common control and Bidi Vapor is
considered a related party.
ABOUT BIDI VAPOR
Based in Melbourne, Florida, Bidi Vapor maintains a
commitment to responsible marketing, supporting age-verification
standards and sustainability through its BIDI® Cares
recycling program. The Company's premiere device, the
BIDI® Stick, is a premium product made with
medical-grade components, a UL-certified battery, and technology
designed to deliver a consistent vaping experience for adults 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 our mission,
with the BIDI® Stick promoting environmental
sustainability, while providing a unique vaping experience to adult
smokers.
For more information, visit www.bidivapor.com
ABOUT KAIVAL BRANDS
Based in Grant, Florida, Kaival Brands is a company
focused on growing and incubating innovative and profitable
products into mature and dominant brands in their respective
markets. Our vision is to develop internally, acquire, own, or
exclusively distribute these innovative products and grow each into
dominant market-share brands with superior quality and recognizable
innovation. Kaival Brands is the exclusive global distributor of
all products manufactured by Bidi Vapor.
Learn more about Kaival Brands Innovations Group, Inc., at
www.ir.kaivalbrands.com
Forward-Looking Statements
This press release includes statements that constitute
"forward-looking statements" within the meaning of federal
securities laws, which are statements other than historical facts
that frequently use 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 we believe 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 could materially differ from
what is expressed, implied, or forecasted in such statements. Our
business may be influenced by many factors that are difficult to
predict, involve uncertainties that may materially affect results,
and are often beyond our control. Factors that could cause or
contribute to such differences include, but are not limited to, the
timing and results of the FDA's PMTA process; the scope of future
FDA enforcement of regulations in the ENDS industry; the FDA's
approach to the regulation of synthetic nicotine and its impact on
our business; the duration and scope of the COVID-19 pandemic and
impact on the demand for the products we distribute; the actions
governments, businesses, and individuals take in response to the
pandemic, including mandatory business closures and restrictions on
onsite commercial interactions; the impact of the pandemic and
actions taken in response to the pandemic on global and regional
economies and economic activity; the pace of recovery when the
COVID-19 pandemic subsides; general economic uncertainty in key
global markets and a worsening of global economic conditions or low
levels of economic growth; the effects of steps that we could take
to reduce operating costs; our inability to generate and sustain
profitable sales growth; circumstances or developments that may
make us unable to implement or realize anticipated benefits, or
that may increase the costs, of our current and planned business
initiatives; changes in government regulation or laws that affect
our business; significant changes in our relationships with our
distributors or sub-distributors; and those factors detailed by us
in our public filings with the Securities and Exchange Commission.
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.
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SOURCE Kaival Brands