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While the success of Beyond Meat (NASDAQ:BYND) was driven by anticipation among investors that we would be seeing wider availability of synthetic meat in fast food restaurants, at no point was the US government threatening to legislate on meat content in hamburgers. This is not the case for tobacco however, and recent moves by the Biden administration are opening up further opportunity for Beyond Tobacco.

Currently the Biden administration is deliberating over changes to US tobacco policy, among which could be a ban on menthol cigarettes and a reduction in the amount of nicotine in cigarettes. The Wall Street Journal has said, citing sources close to the Biden administration, that cigarette manufacturers could be compelled to reduce the amount of nicotine in tobacco products, making them less addictive.

The US government is also understood to be in favour of less addictive alternatives. According to the US Food & Drugs Administration, tobacco kills over 480,000 Americans every year. It is a major contributor to strokes, cancer and cardiovascular problems.

Who owns Beyond Tobacco?

The plans would be a major boost for TAAT Lifestyle & Wellness (CNCSX:TAAT / OTC:TOBAF), the Canadian-listed owner of the proprietary Beyond Tobacco material, manufactured in the US and now being distributed in stores in Ohio and online throughout most of the United States. Beyond Tobacco uses a non-tobacco mixture which does not contain nicotine and is not addictive. It is targeted specifically at smokers who are looking to kick the habit.

TAAT completed and filed its first patent application in September with the US Parent and Trademark Office to protect the proprietary refinement process of its base material, which goes into the Beyond Tobacco cigarettes. The process contributes to the aroma and the flavour, which are essential in duplicating the look and feel or real cigarettes, just as Beyond Meat has made great strides in replicating the taste of meat.

The patent sought by TAAT would grant it protection for 20 years, representing a significant competition moat, something we always like to see with corporate IP.

The feedback from consumers of Beyond Tobacco has been extremely positive, with some even saying they prefer the taste of its cigarettes to the tobacco versions.

Podcast with Joe Deighan, Founder and Director of Research at TAAT Lifestyle and Wellness

Why patents are important for tobacco industry disruptors

Patents have long played a key role in enabling the tobacco industry’s largest players to capture and maintain market share with innovations in tobacco smoking, as well as related alternatives such as denicotinised tobacco as well as smokeless and reduced risk products (“RRP”).

For instance, in 1997 Philip Morris International was granted US Patent 5684241 to alter nicotine content in tobacco plants, which reduced nicotine content by 80%. In 2012, a study published on PubMed determined that between 1997 and 2008, there were 106 US patents relating to perceivable elements of cigarette smoke (e.g., reducing quantity or visibility, improving odour), many of which were published by Big Tobacco firms to include PMI as well as Japan Tobacco International (JTI), and British American Tobacco.

“Patents are of incredible importance in this industry because when you consider that the global market for tobacco is worth more than $800 billion, you’re not just protecting years or decades of research and hard work, you’re also protecting the ability to recover your investment and earn a profit,” said Setti Coscarella, Chief Executive Officer of TAAT. “The company has been on the path to commercialization for just a matter of months, which followed a lengthy period of research and development for Beyond Tobacco cigarettes. As confident as I may be that the truly ‘magic’ parts of this product would be nearly impossible for anyone to duplicate, anybody who has worked in this industry knows that patents can be extremely cost-effective, given how expensive not having a patent can be in some cases.”

Coscarella explained that this is especially so when production scales up, and proprietary techniques will inevitably need to be shared with third-party vendors at some point. Keeping proprietary methods secret is something you can control on a small scale – but when working towards doing business on a global scale, that type of control is out of the question, which means companies need to plan accordingly as early as they can by filing and diligently prosecuting a patent for the important parts of a product and its manufacturing process.

“With that in mind, getting a patent filing in motion was one of the top items on my agenda when I got hired on as CEO,” Coscarella added. “I’m glad that our patent application is off the ground as we work towards finalizing our execution strategies for the launch of Beyond Tobacco cigarettes.”

While the Biden plan for Big Tobacco has yet to be fully exposed to daylight and inevitable scrutiny (and Big Tobacco CEOs reach for the phone to call their lobbyists in Washington DC), investors are pondering the implications for large tobacco companies in what is an incredibly important market for cigarettes.

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Please note this article does not constitute investment advice. Investors are encouraged to do their own research beforehand or consult a professional advisor.

Stuart Fieldhouse

Stuart Fieldhouse

Stuart Fieldhouse has spent 25 years in journalism and marketing, including as a wealth management editor for the Financial Times group, covering capital markets and international private banking, and as an investment banking correspondent for Euromoney in Hong Kong. He was the founder editor of The Hedge Fund Journal.

Stuart has worked at CMC Markets, supporting the re-launch of its global financial spread betting and CFD trading platforms. He is also the author of two books on trading, published by Financial Times Pearson. Based in The Armchair Trader’s London office, Stuart continues to advise fund managers, private banks, family offices and other financial institutions.

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