35 Comments
Feb 26Liked by Devin LaSarre

Good article as always,

I ordered a few times from them already. They delivered exactly what ordered and fast (and you get a little candy with it). The problem with the stock is that i don't see the long term moat.

The question i ask myself is: Would i order online if every supermarket or gas station would have a wide array of nicotine pouches to offer? In Germany nicotine pouches are forbidden in retail, but you can order them legally from Sweden, Denmark etc. in normal quantities.

I understand why a German like me orders there (no legal alternative), but not why someone from Denmark, Sweden, Poland etc. orders online (more choices of flavors?).

If they would be sold at every supermarket, corner store, gas station etc. Would i not just simply buy them there while filling up my car?

I don t know one person ordering cigarettes online. Prices are fixed and you get them in every small village via vending machines ( ok, no niche brands. But brands like Marlboro, Lucky Strike, Camel, Pall Mall etc.).

I wish you all a good start to the week :).

Greetings Ulrich

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Physical retail has limits due to their footprint and the economics of stocking additional NP SKUs vs maintaining wide arrays of other products to maximize foot traffic and cross-selling opportunities within stores. There are also additional costs with physical, wholesaler markup, and distribution must take product to thousands of stores. While convenience stores are very convenient, all of those costs lead retail ASP to be significantly higher than Haypp's prices. Conversely, as Haypp grows, it can not only maintain lower prices but drive them down even further, ideally widening gross while still sharing some of the savings with the consumer. Additionally, most store clerks aren't ultra knowledgeable about the product category and they are dealing with lines of customers they need to service quickly. Online, you have immense information concerning all product nuance. The migration from physical to online is not exclusive to NP. It actually mirrors dynamics within the premium cigar space, as I covered in my Scandinavian Tobacco Group thesis. Consumers want better prices and want to explore wider variety as they become more knowledgeable - online is the place that happens.

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Feb 27Liked by Devin LaSarre

I understand the additional costs of phyisical retail. But in Germany we have the rule of same prices for cigarettes, cigarillos, pipe tobacco etc. everywhere. They cost the same at every gas station, convenience store etc. nationwide. A pack of a pack of Marlboro is the same everywhere. It s forbidden to sell Marlboro cigarettes cheaper at the Internet.

Why should the government not do the same to nicotine pouches?

It s very likely that the government is going to rule for a fixed price for these products too.

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As of right now, its online sales cannot be shipped from within Germany, so Haypp sells and ships from Sweden. I know they have also added express shipping options to speed up time to delivery within Germany. Certainly there are risks as specific parties within the EU have taken very different approaches to next-gen nicotine products. But Haypp has highlighted drafted legislation in Germany that would treat the pouch category favorably relative to other product categories. Within the EU, there will also be potential changes from TPD3 and the tobacco excise directive. We'll have to see exactly how that all shakes out.

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Mar 5Liked by Devin LaSarre

Also, is the US market (most important) going to have fixed prices? I know they vary a ton here especially by state but also my intuition is that people still don’t order much online

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There are no fixed prices in the US. Several brand owners have engaged in discounting and various promotional strategies to spur consumer trial and adoption. It remains to be seen exactly how NGP prices evolve, largely contingent on the extent the FDA authorizes new products. You are correct that online sales are a low % of total NP category sales in the country. Something interest to consider is that, if retail prices were to rise, whether from manufacturers taking prices or excise taxes increasing, consumers would become more price-conscious and would likely transition to online channels at a faster pace.

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If I understand slide 9 of their latest presentation correctly, in the US they represent 55% of nicotine pouches online sales and 3% of all nicotine pouches sales. This would imply about 6% of nicotine pouches are sold online in the US.

For comparison, in Norway more than 20% of pouches are sold online, and in Sweden that’s more than 30%.

https://hayppgroup.com/app/uploads/2024/04/Haypp-LD-Micro-FINAL.pdf

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Correct! So you can have a view on the category growth rate country by country, as well as potential shift from physical to online to determine Haypp's NP trajectory. It only takes a small additional shift to online layered on top of the category growth rate to come up with some fairly radical numbers.

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Feb 26Liked by Devin LaSarre

Hallo Ulrich. Hinzukommt, dass Zyn zb bereits einen eigenen Online shop hat. Warum sollten die big tabaccos einen externe shop präferieren...

Wie hast du die Tabak Aktien gespielt? Ich tue mir schwer mit der Gewichtung. Zu viele Firmen haben zu viele einzigartige Nichen. Scandinavian Tobacco Zigarren, BAT IMP alte zigaretten, MO usa play, PMI neue Produkte,...

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Feb 27Liked by Devin LaSarre

I hold BAT, Scandinavian Tobacco and bought Imperial today.

BAT and Imperial are worldwide and i think dynamics and regulation will differ from country to country. They trade at 6 to 7 times Free Cashflow, so i think there is a big margin of safety.

With Scandinavian i see a lot of potential with their cigar business. Plus pipe tobacco and cigars are treated different by the regulator (no tobacco tax for cigars in some US states). Scandinavian doesn't have to print horror picture on cigar and pipe tobacco packaging in Germany. So i think Scandinavian has not so much headwinds as the big cigarrete players.

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Feb 27Liked by Devin LaSarre

Why not also MO pure play USA with BUD stake and on! nicotine pouches no2. In USA?

I Think the same. In my opinion BAT, IMP and scandinavian Tobacco are must haves.

Do you reinvest the dividend in these stocks ?

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Feb 25Liked by Devin LaSarre

On the Haypp Group website, in the Excel spreadsheet entitled "Selected-KPIs-and-financial-statements-Q120-Q423", in the tab entitled "5_BSheet", under net debt, the line entitled "Bank Overdraft" is relatively large each quarter, with an ending balance on 31 Dec '23 of SEK136Mn. In the same Excel spreadsheet, in the tab entitled "6_CF", under "Cash flow from financing activities", the line entitled "Change bank overdraft" is also quite large, with quarterly amounts [in SEK millions] of -41.9, -43.3, -24.9 and 21.8. Why does Haypp overdraft its account(s)? What are the constraints on such overdrafts and how long may they continue?

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I can not speak to specifics on the constraints and limits, but this is largely related to managing working capital. Sales are high-velocity, with rapid inventory turnover.

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Feb 26Liked by Devin LaSarre

Understood. Would not working capital, however, generally be financed with factoring finance, other debt, equity, or some combination thereof? Does use of bank overdraft(s) here, in material amounts over an apparently extended period of time, come together with certain constraints on such use?

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I don't see concerns regarding liquidity, if that's what you're getting at. There are costs, but the very low working capital ratio provides efficiency benefits, and again, it's high turnover and non-cyclical, so very predictable. If there are specific concerns, I'd encourage you to reach out to IR - they would likely provide wonderful context.

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Feb 25Liked by Devin LaSarre

just awesome. Do you think that all the big guys will have their own Online Shop like Zyn.com etc?

It would be great to do a blog post about position sizing in this tobacco market. There are cigars (Scandinavian Tobacco), New Products (PMI), cigarettes (BAT, IMP), online retailer (Haypp). How do you size the position when each of these "Tobacco" companies have a unique niche/position?

Thanks so much!!

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Swedish Match (now under PMI) actually partners with Scandinavian Tobacco to operate the ZYN ecom platform. It isn't farfetched to see all kinds of other partnerships spring up to leverage existing infrastructure footprints and teams with the technical abilities. Haypp is unique in that it has its robust Insights data and solutions tailored for product trials, launches, etc, and connecting with adult consumers in a way that other platforms can't. They are an important partner for brand owners, and that importance grows as they grow.

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Feb 25Liked by Devin LaSarre

Thank you for this writeup.

Jason has an incredible knack for capturing these sorts of megatrends.

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Glad you enjoyed it. Jason and his family are incredibly talented and are wonderful people all around.

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Fascinating write up

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Thank you, Vickram. Glad you enjoyed it.

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Mar 6Liked by Devin LaSarre

Thanks a lot for publishing.

Regarding Germany; it´s officially illegal to buy in physical stores, yes. However, most people I know get them from small stores (kiosk / Späti) anyway. I wonder if consumption would fall if German legislators decide to forbid this "illegal" otc selling and consumers would have to order online. Definetly not the driving force of the thesis, but I believe good to have in mind.

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Great observation. I think that ultimately total usage would decrease and growth would slow, but a good chunk would migrate to online channels, likely to the benefit of Haypp.

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Feb 27Liked by Devin LaSarre

Hello everyone.

Do you guys reinvest the dividend in these tobacco stocks or do you „cash out“ via the dividend and invest in other assets.

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Feb 25Liked by Devin LaSarre

Thank you Devin. You mention that they carefully select the suppliers they want to work with. Doesn’t it bother you that they stock products like Elf Bar in the UK?

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I'll admit that my initial reaction to the announcement of branching into vape and seeing Elf Bar listed on respective sites was not positive. However, my perspective on Elf Bar is largely warped from my US-centric understanding. Is the Elf Bar parent company wholly responsible for its disproportional underage usage prevalence? There are importers, wholesalers, and the retailers themselves that have distinct responsibilities. A great deal of volume also appear to be counterfeit, which further muddies the waters. If a brand owner is looking to become more responsible, working with Haypp is an ideal start due to their transactions being 100% age verified. I'm still on my toes about it but trust management to continue to do what is in the best interest of the company and shareholders.

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Feb 28Liked by Devin LaSarre

Elfbar is very popular in Germany. Some vapes even advertise with famous rap stars on their package ( the FDA would love that ^^).

Tobacco regulation is very different from country to country. For example in italy you can t buy cigarettes at supermarkets. You only can buy them at small stores and bars that have a special tobacco licence.

As i know in the United States every state has it s own tobacco taxes and so prices differ. In Germany for example you have the same price for the same cigarettes. A pack of Lucky Strike is 9 Euro. In all 16 states and it s the same price in online stores. But i can only speak for Germany. But the state seems to not want any bargain prices in the market.

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Feb 25Liked by Devin LaSarre

Wow! Good job!

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Thanks for reading

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Feb 25Liked by Devin LaSarre

Great discovery and writeup. Glad to be a subscriber! Thanks for your efforts.

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Thank you. Never hesitate to reach out

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Devin, at their 2023 CMD, they show that NPs are ideal e-goods based on 5 characteristics (slide 10). They compare that to pharmaceuticals which also score well on the same characteristics. You’ve been covering Logista extensively. IIRC Logista has been expanding into pharmaceuticals. Couldn’t Logista expand into NPs? Maybe I’m confusing B2B (Logista) with B2C (Haypp).

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Logista is expanding into all NGPs, but they are recorded in its "tobacco and related products" reporting. AFAIK, the company has not spoken about the product category specifically, but has mentioned both HTP and Vape market growth as being highly beneficial for their business.

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As others have commented, this is a fantastic piece. The H215 letter is a nice touch. I hadn’t heard about Haypp (my brain keeps reading “Happy”!) Thank you Devin.

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Thanks, Tian. This company is very different than most of the ones I cover, and is certainly special.

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