This Technology Will Change The World
What if there was a way for billions of people around the world to live a healthier and longer life? Health. It is the single most important aspect of our lives. Yet we consume mass amounts of toxins and poisons everyday. We drink alcohol, eat processed foods, and smoke billions trillions of cigarettes. All of these things, in a warped sense of reality, bring pleasure to our lives - yet destroys it at the same time.
But, what if there was a way to consume alcohol without the toxic affects? What if there was a way to eat processed foods without all of the cancer-causing effects? What if there was a way to smoke cigarettes without the 7000 plus chemicals infused into a smoker's body every time he takes a puff?
We would live longer. We would be healthier. And we would get to spend more of our lives, enjoying our lives.
One of the Most Disruptive Sectors You Have Not Even Heard Of
I am about to introduce you to the story of an extremely successful man who wanted to make a difference when he watched his father die from smoking. This is a story of his quest into one of the most disruptive, profitable, and fastest-growing sectors in the world. It is something you have probably begun to see everywhere, yet you do not even notice it -especially from an investment standpoint.
Not only has this sector doubled in size, year-over-year, its playing in a massive $720 billion market. This new revolution is so disruptive that even tech moguls like millionaire Sean Parker of Napster and Facebook fame, Paypal co-founder Peter Thiel, and music superstars like Bruno Mars, have invested millions into the sector.
I am not talking just a few million. Earlier this year, one private company in this sector raised $75 million. Bernie Herzog, a senior analyst at Wells Fargo, says there is already $250 million dollars spent every year in research and development alone.
This profitable new sector is revolutionizing something that has remained relatively unchanged for the last few centuries. It will do what LED has done for television. It will do what Tesla has done for electric cars. It will do what 3D printing is doing for printers. It will do what energy drinks have done for the beverage industry. And, more importantly, it could potentially prolong the lives of millions.
That's right. I am talking about something that looks like a cigarette, smokes like one, and even feels like one.
Over the last few hundred years, cigarettes have only become worse. Tobacco companies have added more chemicals as the years have gone by, and more chemicals means more harm.
Cigarettes contain over 7,000* chemicals including:
- Carbon Monoxide (found in car exhaust)
- Arsenic (rat poison)
- Ammonia (found in window cleaner)
- Acetone (found in nail polish remover)
- Hydrogen Cyanide (gas chamber poison)
- Napthalene (found in mothballs)
- Sulphur Compounds (found in matches)
- Formaldehyde (used as embalming fluid)
- Butane (lighter fluid)
- Benzene (an industrial solvent, refined from crude oil)
- Cadmium (used in batteries)
- Formaldehyde (used in mortuaries and paint manufacturing)
- Polonium-210 (a highly radioactive element)
- Chromium (used to manufacture dye, paints and alloys)
- Polycyclic aromatic hydrocarbons (a group of dangerous DNA-damaging chemicals)
- Nitrosamines (another group of DNA-damaging chemicals)
- Acrolein (formerly used as a chemical weapon)
You get the point...
*Cigarette smoke may actually contain between 10,000 and 100,000 chemicals, but only about 7,000 have been identified.
The following quote comes via lung.ca:
"When you smoke, all of these chemicals mix together and form a sticky tar. The tar sticks to the cilia (tiny hairs) that line the insides of your lungs. The cilia help to clean out dirt and germs from your lungs. If the cilia are covered in tar, they cannot do their job properly, and germs, chemicals, and dirt can stay in your lungs and cause diseases."
While society is embracing change toward healthier lifestyles, through the removal of trans fats and such, the tobacco industry is the one industry that has actually got worse over the years. Until now.
What if there was a way to smoke a cigarette without 7000 chemicals or the tar that sticks to your cilia? There is. It is an electronic cigarette. An electronic cigarette has roughly four chemicals: nicotine, propylene glycol, glycerin, and flavorings. And the water vapour that causes the smoke has between 10-20 chemicals.
I am not a doctor. I am not a chemist. But what I do know are numbers and, clearly, less is better.
Four chemicals vs. 7000 plus ... take your pick.
A Real Cigarette Replacement?
First of all, there has not been enough research to prove that it is a better alternative to smoking cigarettes. Nor is there enough proof that it will prolong lives. Those are just my opinions.
While electronic cigarettes have been around for some time, it is far too young in its infancy to make such claims. You can bet it will be under major scrutiny, just as energy drinks have been. However, when you compare traditional cigarettes with electronic cigarettes or "e-cigs", the differences are remarkable. Many who switched from traditional cigarettes to electronic cigarettes quickly notice a drastic change in respiratory benefit.
While research is limited, current facts show that smokers who try e-cigs, and stay with them, experience over a 57% reduction in the use of real tobacco, and 20% of them quit altogether. That is at least double the success rate of any kind of smoking cessation device, such as nicotine gum or patches.
I am 100% against smoking. If I had a choice, I would ban smoking completely. I am speaking directly from personal experience - one that is almost identical to the man I am about to introduce. But I have to face reality.
The Reality of Smoking
In 2011, 19% of all Americans were smokers. According to the World Health Organization,"Tobacco caused 100 million deaths in the 20th century. If current trends continue, it may cause one billion deaths in the 21st century. Unchecked, tobacco-related deaths will increase to more than eight million per year by 2030."
Sadly, the reality is that tobacco usage is not slowing down. Every day, 4,000 young Americans under the age of 18 smoke their first cigarette; 1,000 of them become new daily cigarette smokers. Once they start, they can not stop - even if they want to.
Approximately 69% of adult smokers want to quit completely, and approximately 52% of smokers attempted to quit in 2010. The majority of smokers wanting to quit have tried gums and other products to help. But most smokers say they "need" the action of smoking, and need to "feel" the smoke going down into their lungs in order to stop the cravings. That is why an electronic cigarette is the most disruptive technology in the tobacco product space. It looks, feels, tastes, and smokes like a traditional cigarette, but without the smoke, chemicals, and tar.
There is no smoke, just water vapour, and no smoke means there is also no second-hand smoke.
No Second-Hand Smoke
I am angered when I take my 9-year-old son to the movies and there is a group of people smoking outside the front doors that we have to walk through.
Second-hand smoke causes serious cardiovascular and respiratory diseases, including coronary heart disease and lung cancer. In infants, it causes sudden death. In pregnant women, it causes low birth weight.
Here are more facts:
- Almost half of children regularly breathe air polluted by tobacco smoke in public places.
- Over 40% of children have at least one smoking parent.
- Second-hand smoke causes more than 600,000 premature deaths per year.
- In 2004, children accounted for 28% of the deaths attributable to second-hand smoke.
No child should have to breathe in second-hand smoke.
There is no second hand smoke with e-cigs.
Small, But Growing Fast
Bernie Herzog believes that sales of e-cigs will surpass sales of traditional cigarettes within the next 10 years, reaching sales of up to $360 billion (maybe more, given we are likely to see our dollars worth a lot less in ten years).
Since current world production of cigarettes is estimated to be a whopping 5.5 trillion cigarettes per year, that is a lot of potential.
What started out as a trend about ten years ago is now well on its way to becoming a staple consumer product. This sector is growing so fast that even experts have revised their estimates this year on numerous occasions. Earlier this year, it was estimated that the sales of e-cigs would be around $1 billion. In September, Bloomberg pegged sales at $2 billion:
Today the number has been revised 3x to $3 billion for the year, according to Bloomberg.
It is no wonder why big tobacco firms are beginning to invest millions of dollars in the technology, while swallowing up the little e-cig guys in the process.
Lorillard, one of the world's biggest tobacco distributors acquired “blu e-cigs” last year for $135M - blu only had revenues (not earnings) of $40M.
They also just bought U.K-based SKYCIG in October for 30 million pounds (about $49 million), with an incentive to offer an additional 30 million pounds ($49 million) more in 2016 if the company meets certain financial performance benchmarks.
Just a few months ago, Dragonite International Limited sold its E-Vapor Business for $75 million to Fontem Ventures B.V., a wholly-owned subsidiary of Imperial Tobacco Group plc. (ITG), another major tobacco powerhouse (Davidoff, JSP, etc.)
Acquisitions in this space have been on fire in the last few months. Over the next year, there is going to be an incredible M&A surge in this sector as Big Tobacco continues to pursue new e-cig revolution.
Change or Die
The tobacco sector has not changed in hundreds - if not thousands - of years. The world is looking for a healthier alternative and society is beginning to outcast smokers. If Big Tobacco does not move forward with this shift, they are going to end up like traditional phone-book companies who did not latch onto the internet revolution, or end up like Blockbuster, who did not latch onto the convenience of streaming video.
Here is the problem. There really is not a great way for investors to play in this sector. The leading e-cig companies are private, or already owned by big tobacco firms. Unless you have Sean Parker and Peter Thiel-type money, or have access to private funds, there really is not much to choose from.
There are a number of e-cig makers springing up all over the place. There are even a few penny stocks floating around looking to take advantage of the booming marketplace. But the majority of them will fail because it is a big boy’s field, and Big Tobacco is already attempting to control the sector.
Right now, there are only two pure-play electronic cigarette companies that are publicly traded. But there is only one that is worth a look. This small company has big company potential written all over it. More specifically - and more importantly - the man behind the helm has experience in growing companies fast. He is a specialist when it comes to growth, helping build some of the biggest companies in the world. I think it is extremely important to know the man behind this company, before you learn about the company itself.
The First Introduction
Early summer, I was introduced to Brent Willis and his team for my premium letter, Investmentdiary.com
Brent presented me with the opportunity to invest in his newly-formed company, as part of a small invite-only investor presentation road show. I was lucky to get the invite.
Behind closed doors, Brent and his team talked about the electric cigarette opportunity -which I already knew was massive. I had been briefed prior to the meeting on Brent's vast and successful resume, but I wanted to know more. More specifically, I wanted to know why someone in his position would want to run such a small company. Furthermore, he did not need my money. I could smell this from a mile a way.
At our round-table, closed-door meeting, I asked Brent to elaborate on his resume. He smiled, but simply replied, "I am lucky to have been a part of many success stories." That was it. Are you kidding me?!? That was all I got?!? With that reply, I remained skeptical (that's my job). Why on earth is he here raising such a small amount of money, when he could likely find millions elsewhere? I was not going to let that go.
So I asked, as politely as I could, "If you have got all these relationships and have done so well, why don't you just skip the line and get these big name distributors to put your product on their shelf."
He responded, as politely as he could, "The distribution world, like everything, relies on relationships. If you want to succeed, you have to build your relationships from the ground up. If you skip the hard-working guys on the ground, you are essentially insulting them and their livelihood. However, if you build the relationships by not going through the backdoor, your products will be much more successful." In a world where everyone takes a shortcut, that made a lot of sense. I stopped pushing.
As the meeting drew to a conclusion, I was excited. These guys had a great team, a great product, and a vast network. I could tell these guys were going to make a big splash in the sector. As we were leaving, I shook Brent's hand and thanked him for his presentation. As I walked away, he leaned over and jokingly whispered in my ear, "If all else fails, I can always go straight to the top." I could not help but smirk.
Since I did not get his detailed resume in the meeting, I dug deeper myself. When I did, I began to realize why he brushed off his resume. If we focused on it, we would have been there all day.
This guy's resume is stacked.
Meet Brent Willis
When Brent graduated from high school, he had the choice of going to MIT, a world-renowned university, or U.S. Military Academy at West Point. To challenge himself, he decided to go to West Point - on a full scholarship. After he graduated, he began his career as a Second Lieutenant in the United States Army where he spent four years serving his country. He immediately became the commanding officer of a company in the 1st Calvary Division and was responsible for more than 200 soldiers in combat deployment. That is leadership.
Following deployment, he attended the Nuclear Biological and Chemical Warfare School, and then the U.S. Army Officers Advanced Course.
This guy was so good at what he did that he was hand-selected to be the only Future Concepts Officer for Air Defense at the Pentagon. Here, he worked on prestigious projects as Strategic Defense Initiative (Star Wars) and numerous other compartmentalized (black ops) programs including the Army Robotics Initiatives and Unmanned Aerial Vehicle initiatives.
He authored the Counter-Air Concept to change the role of Air Defense, which was later adopted as doctrine.
He has received numerous decorations: two Meritorious Service Medals, two Army Commendation Medals, the Army Achievement Medal, and the Airborne Parachutist badge during his military career. He was honorably discharged with the rank of Captain - generally considered to be the highest rank a soldier can achieve while remaining in the field.
Once Brent left the army, his drive for success did not stop. It seems this guy just conquers, moves on to the next challenge, and conquers again.
Following the U.S. Army, Brent entered the commercial sector, where he started working at Kraft Inc., while attending the University of Chicago MBA program (graduating top of his class, of course.)
At Kraft Foods, Inc., Brent managed a number of Kraft's brands, developed Category Management in the USA, led numerous acquisitions, and joint ventures in Japan, Korea, Indonesia, and others, and launched the Kraft Brand in China.
After conquering Kraft, Brent served as a President in Latin America for The Coca Cola Company where he led his Division to the #2 ranking worldwide of all Coca Cola Company operating units and led the largest turnaround in Company history.
After conquering Coca Cola, he became the CEO of Cott Corporation, now the world's largest retailer brand-beverage company, where he played a pivotal role in the company's turnaround. He left Cott to become the Global CCO, President, and on the Board of Management for InBev - a major beer distributor.
At InBev, he developed and implemented the strategy, the top-line growth initiatives and the acquisitions that led the Company to share price appreciation of more than 400% and transformation into the world's largest beer company. During his time, he helped the Company lead 39 acquisitions in 36 months. He was the guy that actually named InBev, InBev. InBev acquired Anheuser-Busch in 2008 to become the world's largest beer distributor. You may know the Company for its famous brands such as Budweiser, Corona, Stella Artois, Beck's, Brahma, and Alexander Keith's. Brent remained with the Company for a brief time, serving on the Board of Directors for the newly formed company, AmBev. AmBev is worth nearly $70 billion today.
After his many successes, Brent wanted to do something different - to make an impact.
It Is Personal
Brent could remember his dad smoking 3 packs a day and always smelling like cigarettes. His father's excessive smoking led to lung cancer, which then spread to brain cancer, and then spread to cancer throughout his body. He was with his father the day he died, and he remembered that even as his father was dying, he had to have one last cigarette.
Brent made the commitment that if there was anything that he could do, he was going to make a difference. Smoking is extremely harmful - not just to smokers, but their family and friends. I lost my father the same way Brent did.
I want to emphasize this because its one of the main reasons why I think Brent will take his new company to the next level. Throughout Brent's whole life, he has been successful. This time, it is personal.
Victory Electronic Cigarettes
US Stock Symbol: ECIG
Victory Electronic Cigarettes (ECIG) is one of only two pure-play electronic cigarette companies that are publicly traded.
Victory Electronic Cigarettes (ECIG) began in late 2010, initially as an online company. This year, under the leadership of Brent Willis, the Company launched its first expansion to retail, which has been met with unprecedented success and consumer response.
The Company is showing a striking resemblance to “blu electronic cigarettes”, which was acquired for $135 million, at four times revenue. Blu was created in 2009, initially as an online company. Two years later, it went from online sales to retail sales, secured one major account with Walgreens, and was acquired by Lorillard when it hit revenues of $40 million.
Victory is just beginning to hit retail shelves after two years of online sales. That means sales will likely increase very quickly - especially with Brent at the helm leading major distribution agreements around the world.
Acquire and Conquer
Brent is going to grow Victory Electronic Cigarettes exponentially by using his acquisition skill sets, while signing deals with distributors all over the world. The Company just announced revenues of $0.83 million last quarter, with gross margins at approximately 44%. That does not sound like much, but this is where the Company is about to turn the corner. None of the revenues in their recent financial statement include shipments to newly-gained international or U.S. national accounts.
Last month, Brent signed a comprehensive distribution agreement spanning Central America with Quipo S.A. de C.V. and entered into a major distribution agreement with one of the largest distributors to the convenience store industry in the USA, serving nearly 30,000 retail stores.
Victory has just begun to distribute product through CST Brands, a leading national convenience retailer with over 1,900 locations.
When these distribution agreements unfold, sales for Victory could soar dramatically. Brent has also told me that he is in talks with many others, but could not disclose the details.
I expect Brent to go non-stop . He led 39 acquisitions in 36 months to create the world's largest beer company. If he can do even a small fraction for Victory, what he did for the Army, Kraft, Coca Cola, Cott, and Anheuser-Busch InBev, he is going to make a lot of people a lot of money.
The tobacco industry is a $720 billion market. E-cigs is expected to overtake traditional tobacco sales and has far greater margins for retailers.
Since there are only two pure-play e-cig companies, Victory is the one company that I will be watching very closely. I think the stock is expensive at these levels as a result of what appears to be a really small float, and it seems that no one wants to sell stock. Keep this in mind because that means we can see big price action swings. The current valuation is huge, but so are companies in the 3D printing space, which trade at ridiculous multiples.
3D Systems Corp., the leader in the 3D printing space, currently trades at more than a 163.16 P/E. That means investors are paying $163 for every dollar that the Company earns.
I believe the e-cig revolution will revolutionize the tobacco industry, just as 3D printing is revolutionizing the printing space.
I would like to see Victory do a big raise and go for a NASDAQ listing in conjunction with that raise - that way, we will see better liquidity and easier access to their stock.
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