By Elliot Schleicher, Senior Staff Writer, Online Media Group, Inc.
View original article here.
Quitting smoking cigarettes is hard; just ask any smoker. Aided by a sharp decline in China, worldwide volumes of combustible cigarettes declined 2.1% in 2015 from 2014, the biggest year-over-year drop in over 2 decades. Data shows that while slowing from its initial triple-digit growth, the electronic cigarette and vapor market continues to experience a strong annual growth rate of 21%, reaching $8 billion in sales last year, suggesting that smokers are turning to alternatives to kick their combustible cigarette habit.
According to a landmark report by the UK’s Royal College of Physicians, e-cigarettes are much safer than smoking combustible cigarettes and smokers should be “reassured and encouraged” to use them because they supply nicotine without all the other toxins in traditional cigarettes. The report followed a previous report from Public Health England showing that e-cigarettes are 95% less harmful than tobacco.
Globally, smoking tobacco is one of the leading causes of sickness and death, claiming more than six million lives each year, inclusive of about 600,000 non-smokers exposed to second-hand smoke.
“There is an ongoing debate on regulations and the safety of e-cigarettes and vaporizers that independent studies, honestly, should have laid to rest,” commented J. Graham Simmonds, Chairman and CEO of the award-winning e-liquid manufacturer Gilla Inc. (OTCQB: GLLA) in a phone conversation. “The numbers speak volumes regarding public adoption of e-cigs and vaporizers, which my experience says is because users are realizing that they can drastically reduce their exposure to toxins and even wean themselves completely off nicotine.”
Gilla manufactures, markets and distributes generic and premium branded e-liquid used in vaporizers, e-cigarettes and other vaping hardware and accessories throughout the U.S., Canada, China and Europe. E-liquid is the product that is heated by an atomizer in vaping devices to deliver the sensation of smoking. Flavors of e-liquids can vary tremendously and nicotine levels can range from that of a traditional cigarette down to zero, allowing the user to slowly reduce nicotine exposure as desired.
Gilla’s portfolio includes Craft Vapes, Craft Clouds, Vape Warriors, Miss Pennysworth’s Elixirs, The Mad Alchemist, Replicant and Coil Glaze e-liquid brands, which recently won the best in show e-liquid award at the Canadian Vape expo. In a 10,000 square foot facility in Florida, Gilla’s team of mixologists have more than 500 recipes for different flavors for both its own and customer’s brands.
For now, the U.S. is easily the largest e-cig market in the world, commanding about 43% of the $8 billion market in 2015. As major tobacco companies like Altria Group Inc. (NYSE: MO) and Reynolds American, Inc. (NYSE: RAI) face declining cigarette consumption, they are trying to get a piece of the e-cigarette market that Euromonitor International forecasts to grow to $20 billion by 2020. Because of their dominance of the convenience store distribution channel, big tobacco is mostly focused on so-called “cig-a-likes,” e-cigs that resemble traditional cigarettes.
“The problem with cig-a-likes is that they have limited power, limited flavors and a lower conversion rate compared to vaporizers,” said Simmonds. “There is an even stronger growth curve for premium e-liquid products and our plans are to become the dominant player in that fragmented market, while building additional revenue servicing the needs of private label customers in the e-cig business.”
Cig-a-likes present little competition to e-liquids in “vape shops,” which is primarily where e-liquids and vaporizers are sold to consumers looking for a higher quality product. More than half of the world’s 19,000 vape shops are located in the U.S. Sales for e-liquids in the United States were $500 million in 2015 and forecasted to grow at a 35% compounded annual growth rate to reach $2.8 billion by 2025.
Expanding Into the Global Market
Gilla is not waiting for the market to come to them; as Simmonds is employing an aggressive international growth strategy. In addition to the manufacturing facility in Florida and offices in California and Toronto, Canada, the company broadened its international footprint by forming Gilla Europe Kft., hiring a leading e-cig sales and distribution management team accessing markets in over 25 European countries, and taking over the offices and 20-person staff in Budapest, Hungary along with logistics and warehousing services in Slovakia. The moves in Europe have given the company a formidable presence as the acquired distribution platform had built sales in excess of $3 million annually.
To enter the fast-growing Chinese market, Gilla inked an exclusive distribution agreement in May with an unnamed “leading manufacturer of e-cigs and vaping hardware.” A confidentiality agreement keeps the name of the distributor hush, but it was disclosed that the company has over 5,000 employees and annual sales in excess of $275 million. The deal gives the distributor exclusive rights to market all of Gilla’s products in all of it retail and online channels in China and calls for the partners to develop new e-liquid flavors catering to the Chinese market. Per the agreement, the distributor must purchase a minimum of $5.5 million of Gilla products over three years to keep its exclusivity in China; an order amount that neither party seems to think will be an issue to achieve.
Adding to an already impressive team, Gilla in February hired vape industry vet Austin Hopper as Managing Director of North America. Hopper didn’t come alone; he brought his sales team that has achieved over $2 million in monthly sales of e-liquids.
These new sales channels should further catalyze a growing revenue stream. In the first quarter, ended March 31, 2016, the company reported record revenue of $1.4 million, an impressive 300% jump from Q4 of 2015. Gross profit was 37% as high margins from the company’s premium e-liquid streams were moderated by private label sales, and while net loss was $905,868 for the quarter, this was mostly attributable to the addition of Gilla Europe and expanding the company’s internal sales force.
Investors in similar sized companies Electronic Cigarettes Intl Group (OTCMKTS: ECIG) and mCig Inc. (OTCMKTS: MCIG) may want to take a deeper look at Gilla. CEO Graham Simmonds has said that with those Q1 expenses in the rear view mirror, the company is on track to become cash flow positive in the second half of 2016.
- On 12th July 2016