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Poda Holdings and the heat not burn revolution in smoking

  • Owner of proprietary technology in the heat not burn market
  • Beyond Burn pods are versatile alternative to vaping
  • Non-nicotine applications – e.g. in the cannabis and healthcare area
  • Environmentally friendly alternative to cigarette butts
  • Cost-effective competitor to Big Tobacco’s heat not burn products

Vancouver-based Poda Holdings, Inc. (CSE: PODA) (FSE: 99L) (OTC: PODAF), after six years of developing and securing patents for its ‘heat-not-burn’ (HNB) smoking products, has launched its global commercialisation strategy.

Poda’s immediate focus is to expand its distribution channels in Europe and Asia, while in North America it is working to develop distribution channels in the Beyond Burn, THC and CBD space. Poda is also working to obtain patents in the US and Europe for its proprietary closed-ended pods. With over $1m already spent on securing patents, Poda now has all patents for the Canadian market, with patents pending in over 60 other markets, including the US. The coming months will also see Poda ramping up its Poda Pod production capacity from 400,000 units per month to 10 million units per month to supply its new markets.

The distribution strategy effectively launched earlier this month, when Poda announced the delivery 500,000 ‘Beyond Burn’ Poda Pods to a customer for distribution into the Asian and European markets.

Mass market production coming online

CEO Ryan Selby said the order “marks the beginning of large-scale sales of Poda’s products”. Supplies of the Pods come from a pilot production facility in China, which currently produces nearly 400,000 Poda Pods per month. As soon as the main production facility is brought on stream, Selby expects to be able to make monthly deliveries of 10 million Pods. He said: “I look forward to an exciting 2022 as we, through our strategic subsidiaries, continue to grow our production capacities and sales volumes and expand our operations into markets around the globe.”

The ‘Beyond Burn’ Poda Pods contain a tobacco-free blend of pelletized tea leaves infused with synthetic nicotine. They have been developed as a reduced risk alternative to traditional smoking products, and to mimic the sensory experience of traditional cigarettes, but without the smoke, the ash, the smell or the tobacco.

Selby said the Pods have a unique design, as they are “the first and only cigarettes to have a completely closed end, resulting in a zero-clean experience. What this means to consumers is a consistent quality product that provides a pleasurable experience each time the PODA system is used.”

Disruptive technology in the fast-growing HNB space

He added: “Our competitors cannot achieve the same experience level, given the open-ended cigarette ashes on the heating element, requiring cleaning after only a few uses. We strongly believe our technology is disruptive in the multi-billion HNB space. Our focus is now on increased capacity and distribution, and we continue to utilize the capital raised as a public company to achieve our objectives.”

Estimates of the size and potential of the HNB market vary according to parameters used, but its rate of growth presents a clear opportunity both for Poda and investors. Technavio, a market research company, says the HNB tobacco products market has the potential to grow by $26bn during 2021-25, with a CAGR of 26.4%. More widely, a report by Grand View Research finds that the global nicotine replacement therapy market size (including both HNB tobacco and e-cigarettes) is expected to reach $148bn by 2028, growing at a CAGR of 16.3% from 2021 to 2028. The growth drivers of this market, Grand Review Research says, are “increasing government initiatives to promote nicotine replacement therapy products for reducing mortality due to smoking and diseases associated with it.”

For Poda, the benchmark is Philip Morris International (PMI), which manufactures IQOS, another HNB product. Last year, PMI sold some 85 billion HNB tobacco sticks and, as of Q2 2021, it has acquired more than 20 million users of IQOS. Just in Q2 this year, PMI sold more than 24 billion units of its IQOS-compatible HEETS tobacco sticks and is on track to sell over 100 billion HEETS sticks this year. According to PMI’s ‘smoke free future’, HNB products would almost entirely replace traditional cigarettes within 20 years. With the number of tobacco smokers estimated to be 1.3 billion, that represents a significant opportunity for the HNB sector.

Other tobacco giants are either pinning their hopes on e-cigarettes or working on their own proprietary technology for the HNB space, but none has been able to challenge PMI’s primacy in the HNB market. For those still without HNB technology, an acquisition of Poda might represent a quicker route to the HNB market.

High level of ESG compliance

A key element in the PODA founding vision, since it was incubated in early 2015, has been that the product should comply with environmental, social and governance (ESG) standards. To be environmentally friendly, the PODA Pods are fully bio-degradable, whereas cigarette butts contain non-biodegradable cellulose acetate filters and are one of the largest plastic pollutants in the world.

In terms of its social obligations, PODA says its technology reduces the health risks associated with combustible smoking products, by heating the substrate at much lower temperatures than traditional smoking products.

In terms of governance, Poda says, it is now listed on the Canadian Stock Exchange (CSE), OTC and FSE. It has developed internal policies and appointed a board of directors and global advisors with experience in practising good governance.

$20m raised in equity financing

Since listing on CSE, the company has raised approximately $20m in equity financings, securing working capital for its ongoing operations and its programme of global commercialisation.

Its advisory board comprises Jon Ruiz, a former PMI executive; Michael Nederhoff, former president of JUUL Canada, an electronic cigarette company; and Nicholas Kadysh, the former head of corporate affairs for JUUL Canada. Also on the board is Daniel Chen, CEO and founder of Shenzhen Eson Technology Co, a manufacturer and distributor of Neafs electronic nicotine-delivery products into China and other Asian markets.

In June this year, Poda and Eson signed a letter of intent on a joint development agreement, that would enable Poda to plug into Eson’s distribution network in Asia and Europe. In the year since launch in October 2020, Eson has ramped up production to sell more than 50 million units per month under the Neafs brand, to meet huge demand. The Chinese market alone represents more than 400 million smokers. Eson is currently expanding its manufacturing capacity to produce more than 250 million Neafs sticks per month.

For Poda, the agreement provides ready-made access to the Asian and European markets and represents a significant opportunity to scale up its global operations. Its products will be sold under the ‘Neafs by Poda’ brand. Eson also brings extensive experience of working with many of the biggest tobacco companies in the world, including Philip Morris International, Japan Tobacco International, Imperial, British American Tobacco, Godfrey Philips India and China National Tobacco, either licensing its products to them or working for them as original equipment manufacturer.

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This article does not constitute investment advice. Make sure you do your own research or consult a professional advisor.

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