BIG ASIAN MONEY INVESTS IN A BIG IDEA–EARLY

TAAT Wellness and Lifestyle (TAAT:CSE) just got an investment of $6.75 million from a group of investors including Debbie Chang, who is one of the founders of Horizon Ventures in Hong Kong.

 

The press release said it was a personal investment, but I think it’s important for investors to understand the context here. Horizon Ventures is a famous venture capital group, and includes Li Ka-Shing, an equally famous Hong Kong billionaire (Canadians would best know Li Ka-Shing as majority owner of Husky Energy HSE-TSX).

 

Having ANYONE from Horizon Ventures associated publicly with your company is…well, I don’t want to get into hyperbole. It’s positive. This is a group known for serious due diligence, and investing in disruptive technologies at early stages.

 

All of a sudden the big run in TAAT’s stock becomes a bit clearer to me. There is no doubt CEO Setti Coscarella can convince anyone who will listen that he can make TAAT a global cigarette brand, and the market for cigarettes is some $800 billion.

 

TAAT is launching a cigarette with no nicotine and no tobacco—so they don’t have the taxes of regular cigarettes, and can both market their product more freely and have much lower prices than other brands.

 

If TAAT can get 100 million smokers off nicotine and tobacco, a lot more people than shareholders will be better off. (It’s very odd to think of a cigarette company as a perfect ESG investment, isn’t it??)

 

It truly has the potential to be disruptive—and quickly. Coscarella clearly convinced a very powerful shareholder group of this, driving the stock to $4 on tens of millions of shares (and causing a short squeeze along the way).

 

The announcement of Chang’s investment—among a group of investors—leads me to think where that powerful group may have come from! And that group would only be buying the way they did—if they thought the stock was going a lot higher.

TAAT makes more sense for Asia, the smoking capital of the world. 

 

For Coscarella, The Big Picture looks like JUUL, the vaping company that in three years went from being nobodies to having a $40 billion valuation. That puts TAAT’s $200 million market cap in perspective.

 

But the marketing rollout this fall will start small—in just one US state: Ohio. Here’s what small looks like by the way:

Ohio has about 2 million smokers. Canada has 4 million as a country, and Coscarella says Canada is a $7-8 billion market on 4 million smokers. 

 

So Ohio is a big, concentrated market. Here’s Coscarella’s back-of-the-napkin math:

 

“Now you have 2 million smokers. You have about 10,000 convenience stores that sell cigarettes in Ohio.

 

“Each store would service approximately 200 smokers or so. If we got ONE out of those 200 smokers to buy TAAT instead of their regular brand of cigarettes we’re a $10 million a year business.

 

“What do you think my chances are getting one out of 200 people to buy TAAT when I’ve got a value proposition in terms of getting them off of a nicotine addiction and pricing it cheaper than their regular pack of cigarettes?

 

“Now imagine what happens if I get two or three or five, I don’t need all 200. I don’t need a hundred. I need single digits. And this thing is a home run and that’s just Ohio. So for as much as people might think, okay, it’s a $200 million company based on the market cap. That’s nothing.

 

“So that’s sufficient to go out and commercialize a state like Ohio, start making a bit of a dent, and traditionally the rule of thumb in tobacco is if you can hit a 0.4, so it’s 0.4% market share on your product within the first six months, you’re on your way to success.

 

“The industry would typically achieve that 0.4% purely on price. Well, I’m going in with a price they can’t compete with and I have the ability to market. So my confidence level in cracking through that 0.4% market share, pretty high.

 

“So yeah, TAAT has run up to a $250 million market cap in a few months, but we haven’t even lit the match yet.”

 

“I’m start getting calls from other distributors in other States already. We haven’t even proactively targeted them yet. We’re getting calls from people around the world. “Hey, we want to distribute your product. Hey, we want it in the UK, hey we want it in Germany. Hey, we want it in Australia. Hey, I want it here.”

 

“So again, we haven’t even started yet and people are starting to pull. When we can show that there’s sell-through in this market, we’re just going to need resources to fill orders. We’re not going to have to sell a damn thing.

 

“The vast majority of people that I’ve given this product to like it, let alone I haven’t talked to a smoker that said “Nah, I would never try that.”

 

“So I would say that the market acceptance potential is even higher than that of Beyond Meat, because with Beyond Meat you have people that’ll just steadfastly say, no, I’m not going to try it. I had a whole bunch of conversations today with people like, “Oh, you know, I’m from Texas. I see it at the grocery store, but I just can’t bring myself to buy it.”

 

“We’re not going to have that here because every smoker is looking for either a way out of the nicotine addiction or something new to try. Which is why they all tried vape or alternative nicotine delivery systems.

 

“So we’re not going to have an issue with the initial trial. And when they try it, I think a significant portion of them will end up sticking with it.

 

“One, because they can help relieve themselves of a nicotine addiction. And two, it will just end up being cheaper than what they’re spending anyway.”

 

Now, with a select group of Asian investors including Horizon Ventures’ Debbie Chang, Coscarella has the funding to give the initial Ohio market a great chance for success. In addition to this $6.75 million, TAAT forced the early exercise of roughly $3 million in warrants. So there’s a big treasury to help get the TAAT product known.

 

Big Money has arrived into a Big Idea at a very early stage. To me that means if Ohio is a success, the Market will quickly price in future growth.

 

DISCLAIMER–I am long TAAT stock. In the past 12 months, TAAT Wellness and Lifestyle has been a corporate client of the OGIB Corporate Bulletin, a sister service to Investing Whisperer.