Kaival Brands Innovations Group, Inc., is the exclusive global distributor of products manufactured by Bidi Vapor, LLC (“Bidi Vapor”), including the BIDI® Stick disposable electronic nicotine delivery system (“ENDS”), which is intended exclusively for adults 21 and over.
“First and foremost, our chief concern and priority is continuing to prevent youth access to Bidi Vapor products,” said Niraj “Raj” Patel, Chief Executive Officer of Kaival Brands. “We are parents, and run our company with youth prevention as a priority. These increased precautions add levels of protection that not only help prevent our products from reaching minors, but also protect adult consumers from potentially dangerous and hazardous counterfeit products. As partners, Bidi Vapor and Kaival Brands spare no expense to go above and beyond the stringent regulatory requirements. However, with the current state of limited enforcement, it does make being one of the few companies playing by the rules challenging. Nonetheless, we will continue to hold ourselves to our own high compliance standards and will continue to be a leader for the ENDS industry, because it is the right thing to do.”
In addition to the U.S. Food and Drug Administration (the “FDA”) requirements for ENDS, including premarket authorization, all companies selling ENDS products were required to comply with the Prevent All Cigarette Trafficking, or “PACT”, Act beginning March 28, 2021. Kaival Brands prides itself as having a robust compliance process to ensure compliance with all PACT Act, licensing, tax and regulatory matters. As part of our commitment to responsible compliance efforts, Kaival Brands will only distribute the BIDI® Stick or other Bidi Vapor products to companies that provide documentation evidencing compliance with PACT Act, licensing, tax and regulatory requirements. Bidi Vapor and Kaival Brands will not do business with anyone who is not compliant and who does not have sufficient processes in place to ensure compliance with all laws, including youth access prevention measures in line with the BIDI® Youth Access Prevention Program. For these reasons, and to augment our national distribution efforts, Kaival Brands has decided to pivot and focus on national retailers and distributors who have demonstrated a robust process for compliance.
PERCEIVED LACK OF REGULATORY ENFORCEMENT
Bidi Vapor and Kaival Brands are concerned about the dramatic rise of counterfeit and other illegal ENDS products flooding the U.S. market and circumventing proper regulatory channels. In 2019, the U.S. District Court for the District of Maryland established a Premarket Tobacco Product Application (“PMTA”) deadline for currently marketed ENDS products that were first introduced to the market prior to the August 8, 2016 effective date of the FDA’s “Deeming Rule”. The court also gave the FDA one year, or until September 9, 2021, to review timely submitted applications. After that date, the FDA maintains the authority to allow ENDS products to remain on the market on a “case-by-case” basis while their PMTAs undergo scientific review. The FDA received PMTAs covering over 6 million products, mostly e-liquids used in open-system ENDS. Also, among those applications, however, are a number of disposable ENDS, which the Company believes were recently introduced to the market, well after August 8, 2016. Moreover, the Company sees many non-compliant competitors continuing to enter and saturate the market with illegal and counterfeit products that are not complying with the PMTA process and other FDA requirements, and appear to be targeting youth. These products often have discounted prices, as non-compliant companies try to sell as much product as they can before the FDA determines which ENDS products can remain on the market.
To address these challenges, the Company is working hard to raise awareness and seek enforcement against counterfeit and non-compliant ENDS products by engaging with members of the U.S. Congress, Attorneys General (“AGs”), and federal agencies, including the FDA, the Bureau of Alcohol, Tobacco, Firearms and Explosives (“ATF”), the Federal Trade Commission (“FTC”), and U.S. Customs and Border Patrol (“CBP”). In order to protect the public health, the Company believes it is critical that all of these enforcement entities understand the dangers of counterfeit, mislabeled, and non-compliant ENDS products that erode public confidence in the benefit of properly regulated ENDS products for adult smokers and tobacco users.
Kaival Brands is committed to playing by the rules regardless of enforcement levels. We believe we are positioning ourselves to remain long-term market leaders, and are focused on furthering our market-leading position in the U.S. Following re-engagement of regulatory enforcement post-COVID-19, along with consistent visibility around the PMTA by the FDA, we believe that due to our strict compliance policies and procedures, we will remain one of very few companies prepared to successfully navigate and operate in the new, heavily regulated and enforced environment. We are willing to invest and adopt these rules now, as we believe our already significant market share will grow in this new environment.
PACT ACT: Compliance with PACT Act and other State and Local Laws
As part of the “Consolidated Appropriations Act, 2021,” signed into law on December 27, 2020, Congress amended the PACT Act to apply to ENDS, which includes the BIDI® Stick. The PACT Act regulates the sale, transfer, or shipment of cigarettes, roll-your-own tobacco, smokeless tobacco, and now ENDS, for both business-to-business transactions as well as online sales. The PACT Act imposes substantial restrictions on sellers and shippers of ENDS products, including, but not limited to: registration with ATF; registration with state Tobacco Tax Administrators, and monthly reporting requirements to state and local Tobacco Tax Administrators. Delivery sellers are subject to substantial additional restrictions, including, but not limited to, compliance with state excise tax collection requirements, licensing requirements, shipping, and packaging requirements. Companies were required to comply with PACT Act requirements beginning on or about March 28, 2021.
KAIVAL BRANDS’ STRINGENT COMPLIANCE MEASURES
Kaival Brands has adopted the following compliance measures:
Kaival Brands is committed to complying with all federal and state laws associated with the distribution of ENDS products and ensuring that the BIDI® Stick is marketed responsibly only to adult consumers. Kaival Brands is committed to these principles notwithstanding the current environment pursuant to which many companies continue to distribute non-compliant ENDS products, including products that were not on the market on August 8, 2016 and for which no PMTA has been submitted, as well as products that continue to be marketed and sold online without collection of excise taxes.
IMPACT OF Shipping Restrictions
The Consolidated Appropriations Act, 2021 also extended existing restrictions applicable to the mailability of cigarettes and smokeless tobacco via the United States Postal Service (“USPS”) to ENDS products. The non-mailability restrictions of ENDS products will be effective upon promulgation of yet-to-be issued regulations.
While the non-mailability restrictions recently passed by Congress are only applicable to shipments of ENDS products via the USPS, major carriers, including FedEx and UPS, have decided to no longer ship ENDS products. With limited carriers willing to ship ENDS products to smaller retailers, Kaival Brands has experienced some shipment interruptions for a small portion of its retail customers while it works to service these customers. Other than this limited impact, Kaival Brands continues to ship to a majority of its customers with little interruption.