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Targeting the High Margin, High Growth Vapor Industry

KALISPELL, MT / ACCESSWIRE / August 10, 2016 / In this article we will take a look at Gilla Inc. (OTCQB: GLLA), a global leader in the manufacturing and distribution of generic and premium E-liquid brands and proprietary recipes for the vapor industry. E-cigs represent a burgeoning industry growing at 24% CAGR, reaching $7 billion globally in 2015, which is still only 2% of the estimated $315 billion annual worldwide revenues from combustible cigarettes.

Recently, CEOLIVE.TV took the time to interview Graham Simmonds, CEO and Chairman of Gilla Inc. In the below interview, Mr. Simmonds makes a number of very well articulated points about the E-cig industry, Gilla's business model, and the unique opportunity that his company holds.

(Please visit http://gilla.com/?page_id=4124 for additional information)

Consolidating Brands Under A Single Platform

With the vapor industry growing at an annual compounded rate of 24% CAGR, and an industry size that is only 2% of the combustible cigarette market, one can see that there is huge potential for growth. According to Mr. Simmonds, Gilla has set up their business model to replicate the very successful strategy of the $70 billion giant Diageo plc (NYSE: DEO), the maker of Bailey's, Ketel One, Smirnoff, Crown Royal, and Guinness among many others, a company whose products consists of "brands from more than 200 sites in over 30 countries". Not coincidentally, Gilla's product line consists of approximately 14 marketed brands which are sold in over 25 countries.

Mr. Simmonds goes on to say, "Our model is not unique, we're really taking a page out of the book of other companies that have been in the bottling industry, when you look at spirit companies, liquor companies, soda pop beverage manufacturers, as well as companies in the beer industry, they are all consolidating brands under a single manufacturing platform, with a single sales and marketing platform, it really is a proven model."

Many people may not know for example that the Corona Beer and Black Velvet Canadian Whisky brands are owned by international conglomerate Constellation Brands, Inc. (NYSE: STZ), or that Coca-Cola (NYSE: KO) is the maker of Odwalla juices and Dasani bottled water. By consolidating multiple brands under a single distribution and sales network, these multi-billion dollar companies have been able to provide a one-stop platform that is easy to work with, and clearly successful.

Asia's Massive Vapor Potential

On May 17th, 2016, Gilla announced it had signed an exclusive distribution agreement with a Chinese distributor who currently does approximately $275 million in annual sales. As part of that agreement, the distributor is required to purchase a minimum of $5.5 million worth of Gilla product in the next three years. As it was stated in the Gilla press release, "Given the size of the Chinese market and the increasing demand for USA made E-liquid, the Company and the Distributor believe these numbers to be very achievable."

If the minimum purchase amount of $5.5 million were evenly achieved over the next three years, it would result in approximately $458k in sales per quarter over the next 12 quarters. With Gilla reporting $1.35M in sales last quarter, this agreement alone represents a 34% increase from current revenue levels, it is no wonder that Mr. Simmonds also gave this guidance in the same press release, "Given our strong revenue growth, we continue to make progress on our goal of achieving positive cash flow during the second half of 2016."

Under the terms of the agreement, Gilla has granted the exclusive distribution rights to all of its E-liquid products, including the award winning Coil Glaze E-liquid brand, and their just announced three new E-liquid brands now available in the United States market. As well, Gilla's E-liquid brands will be marketed to Chinese domestic vape shops and on the most visited Chinese online E-cigarette websites.

Gilla has also agreed to jointly develop E-Liquid flavors that will be designed to satisfy the Chinese palate. Just like with many other products, the Chinese are looking to Western companies to provide a higher quality product then what is readily available in China; hence the increasing demand for "USA made E-liquid".

With Asia having an estimated 300 million combustible cigarette users in 2016, a tremendous opportunity for further expansion exists in the region. In Malaysia for example, 50% of the adult population currently smokes. Mr. Simmonds mentions that Gilla is looking in the near term to target the international markets including South Korea and Russia.

The European Market

In January of this year, Gilla announced that they had formed Gilla Europe, which included a 20 - person team headquartered out of Budapest, Hungary, which was already accessing over 25 countries and covering 30 languages. According to the press release, "This distribution platform was providing exclusive services to a leading cig-a-like E-cig brand and had built its sales to a peak level of over $3 million per year."

The press release continues with, "Our existing customer relationships should provide immediate revenues to Gilla and quickly advance Gilla's international expansion." This appears to have held true with the previously mentioned $1.35M revenue figure for Q1 2016.

With news of expansion into the United Kingdom (UK) just this last month, Gilla continues to execute on their plan of bringing a quality portfolio of products to the global market. Having already sold more than 14,000 bottles of their Coil Glaze brand in just a few short months, Gilla made a decision to bottle and box the product locally in the UK, cutting down notably on lead times for delivering product to the estimated 2.1 million E-cig users in the UK.

Summary

E-cigarettes are generally regarded as a safer way to consume nicotine than by combustible cigarettes, with a 2015 study done in the U.K. showing them to be 95% less harmful than combustible tobacco. As well, a more recent article titled "E-Cigarettes May Help More Than They Hurt" in Bloomberg pointed out an interesting result of studies, "Researchers in the U.S., Australia, and Canada have devised a model showing that, among people born after 1996, the option of using E-cigarettes may end up triggering a 21 percent reduction in smoking-attributable deaths and a 20 percent decrease in life-years lost."

With a leading portfolio of branded E-liquid products under their own manufacturing in the vaping industry, Gilla is able to present distributors with a full slate of products while offering the convenience of using a single manufacturer.

To learn more about Gilla Inc., please visit http://gilla.com/?page_id=4124.

Disclaimer:

Except for the historical information presented herein, matters discussed in this release contain forward-looking statements that are subject to certain risks and uncertainties that could cause actual results to differ materially from any future results, performance or achievements expressed or implied by such statements. Tamarack Advisors is not registered with any financial or securities regulatory authority, and does not provide nor claims to provide investment advice or recommendations to readers of this release. For making specific investment decisions, readers should seek their own advice.

SOURCE: Tamarack Advisors

ReleaseID: 443509

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