Tobacco and nicotine addictions are still a major healthcare issues around the globe. In fact, according to data provided by the World Health Organization (WHO), the tobacco epidemic is one of the biggest public health threats the world has ever faced, killing more than 8 million people a year around the world. More than 7 million of those deaths are the result of direct tobacco use while around 1.2 million are the result of non-smokers being exposed to second-hand smoke. The WHO also indicates that over 80% of the 1.3 billion tobacco users worldwide live in low- and middle-income countries, where the burden of tobacco-related illness and death is heaviest. To this day, tobacco use contributes to poverty by diverting household spending from basic needs such as food and shelter to tobacco. In recent years, electronic nicotine delivery systems (ENDS) and electronic non-nicotine delivery systems (ENNDS), commonly referred to as e-cigarettes, have become very popular. However, e-cigarettes are particularly risky when used by children and adolescents as nicotine is highly addictive and young people’s brains develop up to their mid-twenties. TAAT Lifestyle & Wellness Ltd. (CSE: TAAT), British American Tobacco p.l.c. (NYSE: BTI), Philip Morris International Inc. (NYSE: PM), Universal Corporation (NYSE: UVV), 22nd Century Group, Inc. (NYSE: XXII)
After the passage of the 2018 Farm Bill, which legalized production of industrial hemp, transforming it into a mainstream agricultural product, numerous categories of CBD products started to appear. Now, the growing awareness about the therapeutic benefits of cannabidiol has influenced people to buy such products, even at relatively high costs. As a result, mainstream retailers are now focusing on selling CBD-based products, as these have a higher profit margin. Perhaps not surprisingly, hemp and CBD products are potentially stealing market share from other markets, such as tobacco for example. According to data provided by the Brightfield Group and published by Hemp Industry Daily, a survey of more than 5,000 CBD users in the U.S. reveals that 24% have used it to help quit smoking and quitters are often replacing cigarettes with either smokable hemp or vaping. And, 41% of quitters have entirely replaced tobacco with hemp CBD.
TAAT Lifestyle & Wellness Ltd. (CSE: TAAT) announced last week breaking news that, “it has entered into a letter of intent dated July 10, 2020 to acquire Redwood Reserves Ltd. (“Redwood”), one of the largest and best-established U.S. hemp cigarette brands, for an acquisition price consisting of $1,155,000 and 2,390,000 common shares in the capital of TAAT. This strategic acquisition is intended to provide more cost-effective manufacturing capacity to TAAT, in addition to gaining an established direct distribution network through which Beyond Tobacco™ cigarettes are planned to be supplied to Redwood’s extensive network of retailers. As Redwood’s product line is currently being sold in more than 1,600 U.S. smoke shops and convenience stores, carried by several distributors, and sold through Redwood’s online store, the Company will realize cash flow from Redwood’s continued business activities following the proposed acquisition. Additionally, the Company believes that Redwood’s product offerings can complement TAAT’s Beyond Tobacco™ product upon the planned Q4 2020 product launch.
Subject to a definitive agreement, which the parties have agreed to proceed with diligently and in good faith to negotiate and settle the terms for execution on or before July 31, 2020, TAAT will acquire 100% of Redwood, resulting in Redwood becoming a 100% subsidiary of the Company. The acquisition of Redwood is subject to customary conditions of closing, including without limitation, the satisfactory completion of due diligence by both parties and the receipt of applicable regulatory and governmental approvals.
Founded in Portland, OR in 2019, Redwood produces hemp products that are characterized by an organic growing process, and the unique horticultural properties of Oregon’s Willamette Valley which are said to yield hemp of remarkable quality. Its “seed-to-smoke” production chain allows for complete visibility into every step of a Redwood hemp product’s journey to maintain the high standard that has earned Redwood a sterling reputation in the hemp industry. Aside from its flagship proprietary blend hemp cigarette products sold in a “stick” format and cigarette-style packaging (shown below), Redwood also offers pre-rolled hemp in a “joint” format, as well as “kief”, and various varieties of single-gram “dabs” and flowers in 3.5g and 7g units. Redwood has developed three proprietary hemp strains to include Carolina Dream, Golden Redwood, and Wild Bourbon. All proprietary strains, as well as the Redwood Reserve blend have undergone separate laboratory tests conducted by Confident Cannabis, to provide users a comprehensive overview of their respective qualities. Redwood’s laboratory reports can be accessed at the following link: https://redwoodreserves.com/lab-reports/
To date, Redwood has established a presence in more than 1,600 U.S. retail stores to include stores in major markets such as New York City, Los Angeles, Dallas, Chicago, Boston, and San Francisco. In the past six months, Redwood has formed agreements with more than one dozen national and regional distribution firms to supply Redwood hemp products to retailers throughout the United States. Redwood presently has open dialogues with additional distribution firms in which new distributorship is being contemplated, to potentially further expand Redwood’s retail market reach.
Through strategic search engine optimization, Redwood has gained significant online visibility, even without the use of pay-per-click advertising. As of this writing, Redwood’s website benefits from top-level visibility in the Featured Snippets section of Google search results for search terms to include “benefits of CBD cigarettes” (shown below). Moreover, sales volumes on Redwood’s online store experienced notable recent growth, with June 2020 sales 421% higher than sales for the month of November 2019, following the online store’s launch in October 2019.
‘We’re enthusiastic about acquiring Redwood for many reasons’, said Joe Deighan, Founder of TAAT. ‘Their organically-grown proprietary strains of hemp have earned Redwood a loyal base of followers, in addition to strong relationships with retailers and distributors. Aside from that, having access to their production capacity can improve our production timelines for Beyond Tobacco™ and reduce costs considerably. Thus, bringing Redwood under TAAT’s umbrella is both an operational play for the Company itself, in addition to a marketing play to capitalize on the brand recognition of a proven and successful seed-to-smoke hemp company under great leadership. I believe Beyond Tobacco™ can prosper in combined marketing and distribution efforts with Redwood’s product line, which is already highly sought-after. We look forward to exploring these synergies as we get closer to the planned Q4 2020 launch of Beyond Tobacco™.'”
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British American Tobacco p.l.c. (NYSE: BTI) announced last November that it is creating three global brands for its New Category product portfolio: VUSE for vapour products; VELO for modern oral products and glo for tobacco heating products to further accelerate the growth of their New Category business. BAT has long been focused on offering adult consumers a range of satisfying and enjoyable products with reduced-risk potential in comparison to cigarettes. Since launching its first e-cigarette in the UK in 2013, BAT has made impressive progress, now offering an unrivalled range of innovative and exciting products in more than 40 countries around the world. Over that period BAT has invested over $4bn in the development, manufacture and commercialisation of these products. “We are at a very exciting stage of our New Category journey. Central to our leading role is continuing to develop remarkable products and trusted brands, whilst driving global awareness of them. The move to VUSE, VELO and glo is yet another exciting milestone in our New Category journey. We remain committed to accelerating the transformation of our industry and the growth of our brands.”
Philip Morris International Inc. (NYSE: PM) announced earlier in January, a global collaboration agreement with the leading tobacco and nicotine company in South Korea, KT&G, to commercialize KT&G’s smoke-free products outside of the country. “Our objective is that all adult smokers who would otherwise continue to smoke switch as soon as possible to better alternatives and abandon cigarettes to the benefit of their health, public health and society at large. Further to our ongoing efforts to develop, assess, and commercialize our pipeline of science-based smoke-free alternatives to cigarettes, we are always open to collaboration with third parties on products that complement our already strong portfolio and that we can further enhance. We are delighted that KT&G has chosen PMI to expand the sales of its smoke-free products outside of South Korea…”
Universal Corporation (NYSE: UVV) announced last year, that the Company’s subsidiary, Universal Leaf Philippines, Inc. (“ULPI”) will be increasing its purchases of leaf tobaccos in the Philippines, as part of a new leaf supply arrangement for the Philippines with Philip Morris International Management SA (“PMIMSA”). Previously, PMFTC, Inc. (“PMFTC”), an affiliate of PMIMSA, purchased certain quantities of leaf tobaccos produced by their own contracted grower base and processed that tobacco in their own facility. Starting with the 2019 crop, PMFTC will purchase processed grades of tobacco from ULPI. The new arrangement is expected to provide important supply chain efficiencies and is indicative of PMIMSA’s and Universal’s strong commitment to the grower communities in the Philippines and PMIMSA’s intent to remain a major purchaser of Philippine-grown leaf tobacco. Universal initiated operations in the Philippines in the late 1960s. George C. Freeman, III, Chairman, President and Chief Executive Officer of Universal Corporation stated, “We are very excited about this new opportunity to continue to meet the evolving needs of one of our long-standing global business partners, while expanding our leaf purchasing and grower support services in the Filipino grower communities.
22nd Century Group, Inc. (NYSE: XXII), a leading plant biotechnology company in reduced nicotine tobacco and hemp/cannabis plant genetics research, announced on March 11th, that lead scientists from 22nd Century Group and KeyGene had assembled a high quality genome sequence of two hemp/cannabis lines and established a new, proprietary hemp/cannabis bioinformatics platform. Both are believed to be among the highest quality, hemp/cannabis reference genomes in the world. “These exciting, new developments are already enabling the rapid breeding of new and proprietary hemp/cannabis plant lines with truly remarkable and potentially novel medicinal cannabinoid profiles,” said Michael Zercher, President & Chief Operating Officer of 22nd Century Group. “Our research partnership with KeyGene will bolster our existing, proprietary hemp/cannabis plant lines and accelerate our molecular breeding work focused on the creation of valuable, new hemp/cannabis plant varieties and related intellectual property. We congratulate 22nd Century’s science team as well as our partners at KeyGene on these very exciting achievements, and we look forward to even more exciting and valuable results in our hemp/cannabis plant genetics research,” Zercher concluded.