Tobacco Users Turn to CBD in Search of an Indicative Substitute

While the CBD market is still relatively new in many regions of the world, it has already experienced dramatic innovations over the past few years. The U.S. passed the Farm Bill in late 2018, which legalized the commercialization of hemp-derived CBD products and catalyzed the market. Entrepreneurs then began to develop new methods of consumption of CBD-based products, such as concentrates, extracts, edibles, beverages, tinctures and cigarettes. Overall, CBD became popular as more researchers began confirming that it offers a number of therapeutic benefits. For instance, researchers noted that CBD can alleviate minor medical conditions such as headaches or soreness as well as potentially suppress symptoms associated with severe conditions such as cancer, epilepsy, Alzheimer’s, and chronic pain. As a result, the global hemp market is projected to grow by 23.1% during the forecast period between 2019 and 2025, according to data compiled by QYR Consulting. TAAT Lifestyle & Wellness Ltd. (CSE: TAAT), British American Tobacco (NYSE: BTI), 22nd Century Group, Inc. (NYSE: XXII), Universal Corporation (NYSE: UVV), Imperial Brands PLC (OTC: IMBBY)

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. “It’s not going to be addictive. A lot of the problems we have with tobacco is if you smoke enough of it and you’re pre-disposed, you’re not going to stop. That’s unlikely to happen with hemp since there’s nothing in hemp that we’re aware of that makes people dependent,” Dr. Jordan Tishler, a medical expert at Green Flower Media and the President of the Association of Cannabis Specialists explained to FOX Business. “If you asked me would I rather have my teen smoke hemp, smoke tobacco or vape a Juul, I’d rather have her do none of the above, but the hemp cigarette seems like the least dangerous of the three because it has no nicotine.”

TAAT Lifestyle & Wellness Ltd. (CSE: TAAT) announced earlier last week breaking news regarding the, “successful completion of the first phase of initial retail market testing for Taat hemp cigarettes, which resulted in especially positive responses from users of the product. Beginning in early May 2020, “test” versions of Taat hemp cigarettes were offered for sale at more than 50 retail locations in Nevada and Southern California with an objective of soliciting feedback from users. Over the duration of this phase, users consistently gave testimonies about Taat hemp cigarettes that reflected their satisfaction with the product as an acceptable replacement for legacy tobacco products. This feedback was corroborated by a high rate of repeat purchases, which resulted in a reorder rate of more than 75% from participating retailers whose supply of Taat hemp cigarettes sold out during this first phase.

In its June 22, 2020 press release, the Company announced that its flagship brand Taat Herb Co. was preparing to launch Taat hemp cigarettes as a better-for-you alternative to traditional tobacco products. Taat hemp cigarettes are tobacco-free and nicotine-free, and are designed to emulate traditional cigarettes by replicating experiential elements to include the “stick” format, cigarette-style packaging, the taste and scent of tobacco from a proprietary flavouring blend, and an enhanced volume of smoke exhaled. To assist users in potentially attaining a seamless transition off of tobacco cigarettes, Taat hemp cigarettes contain at least 50mg of CBD per stick, which has been shown to mitigate tobacco withdrawal symptoms and reduce dependency. To also provide the product’s potential benefits to users who wish to quit menthol cigarettes, Taat hemp cigarettes are also offered in an “Menthol” flavour in addition to an “Original” tobacco flavour.

The purpose of the first phase of retail market testing of Taat hemp cigarettes was to collect responses from initial users of the product. Feedback was sought regarding users’ acceptance of Taat hemp cigarettes as an alternative to traditional tobacco, their “smokability” in comparison to traditional cigarettes or other alternatives, and the overall presentation of the product from the perspective of an early-stage user. Responses from users consistently supported that the experience of smoking Taat hemp cigarettes was comparable to traditional tobacco cigarettes. Moreover, users demonstrated a clear understanding of the potential benefits of Taat hemp cigarettes as an alternative to smoking tobacco.

Final results of research conducted in this first testing phase are expected to be made available by mid-July 2020. Subsequently, it is planned for the Company to begin a second phase of research in which an intensive series of focus groups will be held to gather more detailed responses, which can also be segmented by standard market research criteria to provide Taat Ltd potentially useful insights that can be used in the creation of positioning strategies for Taat hemp cigarettes.

Taat Ltd Founder Joe Deighan commented, ‘The first phase of testing is always the moment of truth with any new product. After years of research and development, the product’s reception by its target audience is the most informative indicator of the product’s quality, innovativeness, and relevance to the intended user base. We are ecstatic to have received such glowing responses regarding Taat hemp cigarettes as a better-for-you alternative to tobacco cigarettes, especially since such feedback was substantiated by additional purchases from the participating retailers that resulted in reorders from more than 75% of stores carrying the test product once they ran out. We believe that the results of this first phase can foreshadow similar results in the focus groups that we plan to conduct in the second phase. We look forward to holding those focus groups as early as this summer, which we hope will further contribute to our momentum leading up to our planned official launch in Q4 2020.'”

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British American Tobacco (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.”

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.

Universal Corporation (NYSE: UVV), President and Chief Executive Officer George C. Freeman, III, announced last year that the Company’s subsidiary, Universal Leaf Philippines, Inc. (“ULPI”) will increase 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. Mr. Freeman 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.  The expansion of direct contracting by ULPI will provide procurement synergies and economies of scale that will promote efficient leaf utilization of tobaccos supplied to PMFTC and our other customers, and will support the competitiveness of Philippine tobaccos in the global leaf markets. In addition, this new arrangement exemplifies our commitment to prioritize investments for the growth of our core tobacco business consistent with our capital allocation strategy.

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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