Hemp and CBD Arise as Alternatives to the Tobacco Industry

FinancialBuzz.com News Commentary

NEW YORK, Aug. 3, 2020 /PRNewswire/ -- The tobacco industry is a major market, and in some aspects, it is evolving to adapt to a new demographic. Next generation products, such as new forms of e-cigarettes and heated tobacco products, are rising in popularity in the market. Nonetheless, governments around the world do try to reduce tobacco consumption, with mixed results. According to a report from the World Health Organization (WHO) from last year, for the first time, the organization projects that the number of males using tobacco is on the decline, indicating a powerful shift in the global tobacco epidemic. "Declines in tobacco use amongst males mark a turning point in the fight against tobacco," said Dr Tedros Adhanom Ghebreyesus, WHO Director-General. "For many years now we had witnessed a steady rise in the number of males using deadly tobacco products. But now, for the first time, we are seeing a decline in male use, driven by governments being tougher on the tobacco industry."  TAAT Lifestyle & Wellness Ltd. (OTC: TOBAF) (CSE: TAAT), Philip Morris International Inc. (NYSE: PM), Turning Point Brands, Inc. (NYSE: TPB), British American Tobacco p.l.c. (NYSE: BTI), Imperial Brands PLC (OTC: IMBBY)

The tobacco industry is also influenced by the increasing consumption of CBD and hemp products. For example, a study by Morgan et al, looked at the impact of CBD on nicotine addiction was measured by conducting a randomized, double-blind, placebo-controlled study on 24 smokers who wished to stop smoking. Two groups received either a CBD inhaler (400 μg/inhalation) or a placebo inhaler. They were told to use the inhaler whenever they felt the urge to smoke, to assess daily cigarette and inhaler use, and to monitor their craving once daily for 1 week. The study concluded that, "a significant reduction in the number of cigarettes smoked (≈40%) in the CBD inhaler group during the week of treatment, with a trend indicating a reduction after follow-up. Both groups also showed a reduction in cravings between day 1 and day 7, though not between day 1 and follow-up."

TAAT Lifestyle & Wellness Ltd. (OTC: TOBAF) (CSE: TAAT) announced breaking news last week that, "it has appointed Setti Coscarella, who recently resigned as a lead strategist at Philip Morris International ("Philip Morris"), to lead Taat as its Chief Executive Officer as the Company prepares for the planned Q4 2020 launch of Beyond Tobacco™ cigarettes. Holding an MBA from the Schulich School of Business, Mr. Coscarella's professional experience includes analyst and investment banking roles at three of Canada's "Big Five" financial institutions, as well as positions in private equity and management consulting. Coscarella also co-founded The Gentlemen's Expo ("TGE"), an annual consumer show in Toronto that attracts more than 25,000 attendees each year. During his tenure at Philip Morris, Coscarella led a commercialization team and was a lead strategist for Reduced Risk Products ("RRP"), an emerging category in the tobacco industry to provide alternatives for smokers to reduce their exposure to contents of traditional nicotine-based products that are known to be harmful. The Company believes that Mr. Coscarella is uniquely suited to the CEO role given his proven track record in finance, management, and entrepreneurship, as well as his familiarity with the tobacco industry from the perspective of its biggest player.

In its June 22, 2020 press release, the Company announced it was planning on launching Beyond Tobacco™ cigarettes as a better-for-you alternative to tobacco cigarettes that contains no nicotine or tobacco. The intended value proposition of Beyond Tobacco™ cigarettes is to offer a user experience that closely resembles the experience of smoking a traditional cigarette, which the Company has sought to achieve with a traditional "stick" format and cigarette-style packaging that it expects to be familiar to smokers. A proprietary blend of tobacco flavouring and an enhanced volume of smoke exhaled are designed to make the experience of smoking a Beyond Tobacco™ cigarette substantially similar to that of smoking a tobacco cigarette. Each stick of Beyond Tobacco™ contains at least 50mg of cannabidiol ("CBD", a non-psychoactive derivative of hemp), which has been shown to mitigate tobacco withdrawals and reduce dependency upon tobacco. Beyond Tobacco™ is to be offered in an "Original" variety as well as a "Menthol" variety.

Mr. Coscarella's professional career began at Scotiabank, where he was a risk management analyst for commercial credit. In subsequent years, Coscarella pivoted to a financial analyst role at CIBC, and then to investment banking at TD Securities where he conducted research and built financial models relating to company valuations for M&A, IPOs, and secondary public offerings. Coscarella then founded the Toronto-based boutique advisory firm Severus where he provided management consulting services to mid-sized companies to assist with growth, structuring, and financing. Building upon his M&A experience, Coscarella was appointed director of corporate development for GL Capital Corp. ("GLCC") where he administered the development of its investment portfolio consisting of assets to include real estate, operating companies, and equity in newly-launched startups. Coscarella centralized the "back office" functions of GLCC's companies to improve overall efficiency of operations. Coscarella also developed innovative commercialization efforts resulting in 30% year-over-year revenue growth. In 2012 Coscarella co-founded TGE, which quickly became regarded as a high-profile men's lifestyle consumer show in Toronto. Prior to the show being acquired by a large expo producer in 2016, Coscarella built a roster of more than 200 vendors and sponsors (including L'Oreal, Loblaws, Diageo, InBev, and OLG), and grew TGE's attendance from 3,000 in 2012 to 25,000 in 2016.

In 2017, Coscarella joined Philip Morris in its Toronto office to lead a commercialization team for its RRP portfolio. In this capacity at Philip Morris, Coscarella rapidly ascended the ranks and began advising the senior executive team on innovative strategies for navigating the route into the Canadian market for the RRP category, which is one of Philip Morris' fastest-growing categories globally. His leadership and execution led to the launch of numerous successful initiatives that collectively yielded a fivefold increase in leads and purchases for RRP. Between these initiatives and a new business unit created by Coscarella dedicated to the commercialization of RRP in Canada's challenging regulatory environment, Mr. Coscarella played a significant role in revolutionizing how RRP is marketed in Canada…

'Becoming CEO of Taat is an incredible opportunity for me," said Mr. Coscarella. "For a matter of decades, public attitudes towards tobacco have consistently called for a less-risky alternative to traditional cigarettes. This is something that Philip Morris recognized with its attention to the RRP category, as well as its Unsmoke campaign. What appealed to me about Taat is how they have developed Beyond Tobacco™ to be a cigarette alternative that is designed to emulate a tobacco cigarette, but without any tobacco or nicotine. Other consumer product categories have had their legacy incumbents disrupted by innovations in delivering desirable alternatives for meat, dairy, sugar, and even beer and wine. Consumers seem to be embracing this approach to positive changes in which they keep their habits such as eating meat or drinking milk while quietly cutting out the things they wish to avoid, and I believe this trend can carry over to tobacco as well. Over one billion tobacco users worldwide3 have one thing in common; they are consuming nicotine, a drug that is effectively useless. The molecule in our tobacco-free and nicotine-free cigarettes is delivered in a near-identical format to legacy tobacco products, and I strongly believe that smokers would be eager to make the switch if presented with the option. The early-stage market research results for Beyond Tobacco™ reflect an extraordinary reception of the product among smokers, and I am very eager to be in the driver's seat of Taat as we approach the planned launch of Beyond Tobacco™ in Q4 2020.'"

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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…"

Turning Point Brands, Inc. (NYSE: TPB), a leading provider of Other Tobacco Products ("OTP") and adult consumer alternatives, announced on June 10th, the acquisition of certain tobacco assets and distribution rights from Durfort Holdings S.R.L. and Blunt Wrap USA for a total consideration of $46 million.  Durfort is the long-time supplier of TPB's Make-Your-Own cigar wrap products. The transaction combines Durfort's and Blunt Wrap USA's world-class intellectual property and manufacturing know-how with TPB's market leading Zig-Zag® MYO cigar wraps brand and national distribution.  "We are pleased to enter into this transaction with our business partner," said Larry Wexler, TPB President and CEO. "In addition to the immediately accretive financial benefits, the transaction secures long-term control of our Zig-Zag MYO cigar wrap products and provides us access to a deep portfolio of tobacco products with significant immediate and future strategic value.

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."

Imperial Brands PLC (OTCQX: IMBBY) subsidiary Fontem US LLC (Fontem US) announced back in April that it had submitted Premarket Tobacco Product Applications (PMTAs) to the U.S. Food and Drug Administration (FDA) seeking authorization for the continued marketing of a wide range of its myblu electronic vaping products. Fontem US's blu products play a fundamental role in the company's goal of providing adult smokers with options that are potentially less harmful than combustible tobacco products. "We agree that the electronic vaping industry should be held to the highest product and marketing standards while providing adult smokers with alternative products that could serve the interest of the public health," said Antoine Blonde, president of Fontem US. "Fontem US looks forward to working with the FDA as the agency develops and enforces an evidence-based regulatory policy."

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