Setti Coscarella on the Better Way to Smoke | #HashtagFinance

CSE's Phillip Shum chats with TAAT Lifestyle & Wellness Ltd. (CSE:TAAT) CEO Setti Coscarella about their objective to introduce an innovative, experience-driven alternative to tobacco cigarettes for tobacco smokers who aspire to leave nicotine behind.

Here's an overview of what they cover in this episode of #HashtagFinance:

0:35 - Introducing Setti and the TAAT mission
1:57 - Setti’s background with Phillip Morris’ heat - not burn - product (IQOS)
4:15 - How Hemp/CBD cigarettes emulate a tobacco/nicotine smoke
7:43 - Manufacturing and marketing differences between hemp and tobacco cigarettes
11:53 - Recently secured manufacturing partner and patent filing
14:42 - Where TAAT is currently being sold and tested
16:37 - What you didn’t know about the tobacco industry 
18:35 - Setti’s goals as the new CEO of TAAT
19:45 - TAAT’s opportunity in the 900Bn global tobacco market

Related links
https://thecse.com/en/listings/life-sciences/taat-lifestyle-wellness-ltd
https://taatusa.com/

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Transcript

Speaker 1: 0:00

Hey, it's James here welcoming you to this presentation of the hashtag finance podcast. This is just a reminder that if you like video, all of our CEO and expert interviews are featured on the hashtag finance playlist on CCTV, including the show that you were about to listen to remember that a CSC space TV on YouTube. And finally, this is just a friendly reminder that the views information or opinions expressed during the podcast are solely those of the individuals involved and do not necessarily represent those of the Canadian securities exchange and its employees. So happy listening, and now enjoy the show. Hashtag find it presented to you by the Canadian securities exchange exchange for entrepreneurs with your host Phillip Shaw.

Speaker 2: 0:52

Hi, welcome to another edition of hashtag finance. My name is Phillip[inaudible]. I'm the director of listings development here in Toronto, Canada, and I'm pleased to have SEDI KAUST Carella who is CEO of tap lifestyle and wellness, a ticker symbol CSC, colon T a T. Welcome SETI.

Speaker 3: 1:16

Thank you always great to be here,

Speaker 2: 1:18

Uh, for our, for, for our viewers who don't know much about tat could you just briefly, um, summarize what the company does?

Speaker 3: 1:27

Sure. So we are an alternative cigarette, so we use a different organic base than tobacco. And what we're able to do is give smokers a similar, if not better experience to smoking a tobacco based cigarette without the addiction that comes with consuming nicotine. So we deliver a different molecule that when experienced, I think smokers will come to enjoy far better than what it is they're currently doing.

Speaker 2: 1:58

Uh, you recently joined tattoo. I understand as CEO. Uh, so maybe, uh, introduce yourself and give us a bit about your background.

Speaker 3: 2:06

Sure. So as you said, my name is, uh, steady cost Corolla, uh, prior to joining tat I was working at Phillip Morris in Canada. So my primary responsibility there was on figuring out how to properly commercialize our new heat, not burn a product, which is called ECOS. So I spent a number of years working with a lot of smokers to understand what pain points they have, why they choose the products they choose, what kind of cues they would look for in making, uh, alternative decisions. And what it taught me was that a lot of smokers are looking for alternatives to continuing to smoke cigarettes. And you've seen whether it's on the heat, not burn side or the vape side. There's been a lot of traction in those categories with smokers, looking for a way to get away from smoking. The problem for the vast of them is that one, the experience of using a heat, not burn product or a vape is not as conducive to a combustible cigarettes. So they don't like it as much. And it always feels like a bit of a compromise for them. And to the vast majority of smokers just hate the fact that they're addicted to nicotine and none of these products are able to tackle that product, but not problem. So when I saw the opportunity at tat with what they had, I thought that there was a real shot at tackling a very, very big problem, which is about 1.3 billion people in the world that are addicted to nicotine in some way, shape or form. And we could give them a product that could help leave their nicotine addiction behind while still delivering it in a way that they've become accustomed to. So what are the, the hallmarks with TAC is we've been able to engineer a proprietary process to take what currently is a hemp base and have it tastes exactly if not better than a tobacco based cigarette.

Speaker 2: 4:06

Exactly. Uh, and potentially better than it's a tobacco cigarette I think is better,

Speaker 3: 4:12

But I'll let the consumers then come back and tell me whether they think it's better as well.

Speaker 2: 4:15

So, I mean, with the experience of smoking a hemp cigarettes. So tell me about that. Like, so flavor wise is good. You, you get the same, uh, kick so to speak because I'm not a smoker, but, uh, I understand that in certain individuals get a certain feel when they, when they draw down on that cigarette.

Speaker 3: 4:36

Yeah. Actually I'll show you one. So this is one of the prototypes that we've got from Las Vegas, where a production facility is. So you can see, it looks exactly like a cigarette, which looks like a cigarette you're right. Yeah. So it's not like a pre roll or anything like that. It's this is a cigarette. So density the way it smokes, the volume of smoke, the taste, the experience, the whole ritual of smoking remains intact. Where when you look at a lot of other alternative nicotine delivery systems, the ritual is broken as well as the taste experience. So for us, we wanted to try to keep as much of that intact, like I said, as possible. And that's what I think we were able to achieve with this. Now, the, the chemical that we deliver, uh, which would be CBD would give consumers something that resembles the effect of nicotine plus a lot more because nicotine itself is a fairly ineffective drug. It doesn't do anything other than keep you addicted. There's no efficacy to it at all. Whereas CBD has a lot of antianxiety properties. So for a smoker, if they were to switch over to a product like tat the CBD would counter counteract the withdrawal symptoms you would experience for not having nicotine plus give you a whole host of other, uh, benefits. So when I've given it to smokers, after using a couple of, they kind of look back at me and say, wow, I actually just feel good.

Speaker 2: 6:11

You're calm, you're chilled out relaxed.

Speaker 3: 6:14

And, and I think that's an experience that when a smoker tries our product, if that's the outcome they have, and that's the experience they have, I think they'll continue to use our product over any cigarettes.

Speaker 2: 6:25

And then these parts, this particular strain of CBD, uh, I mean, there's different types of, um, different types of, uh, strange that are out there. Uh, I mean, aside from providing that capability to be able to allow people to feel more chilled, is there a possibility for a pain relief, uh, additive as well?

Speaker 3: 6:46

Well, from that standpoint, you would be looking at CBG. Now, CBG is the molecule that's formed and then splits off into CBD and THC. So CBG can have some pain relief elements with it as well, but they're still conducting a number of clinical studies to figure out exactly how it achieves that. So for us, we're focusing on the CBD part of it. And coupled with a base that tastes, feels and smokes exactly like tobacco. I think it becomes a very, uh, interesting value proposition for them

Speaker 2: 7:26

Consumer. Okay. And there is no THC in these cigarettes. I, I suspect just to clarify,

Speaker 3: 7:32

Yes. So these would be below the legal threshold, which is 0.3%, which is 0.3%. It's less than that.

Speaker 2: 7:40

Okay. Uh, so since you've actually shown us one of the actual, uh, products itself, explain to us how was the manufacturing in the marketing HAMP cigarette different from let's say a normal cigarette?

Speaker 3: 7:54

Well, first of all, the supply chain is much different. I mean, you're working with a plant that has different properties than tobacco does. So, you know, the there's certain things that you need to take into account like the oils and whether it would stay in the paper, uh, whether it can gum up the machine. So there's certain processing that needs to happen beforehand that you wouldn't necessarily do on the tobacco side. Um, and then from a manufacturing standpoint, it's understanding how a cigarette is actually constructed. You know, when I got here and I started explaining it to some of the team members, or one of them said, wow, study, it's actually pretty complicated to make a cigarette. I said, yes, if it were easy, there'd be more than five people doing it right.

Speaker 2: 8:41

More than like 80% of the market, I suspect. You're right.

Speaker 3: 8:45

So, I mean, it's not as easy as a lot of people think. I mean, there's a lot of technical things that come into play. So the pressure drop how it feels in someone's mouth. The, the amount of smoke with that comes, how much air are you going to mix it with the way that the paper burns are there certain elements of the paper that'll, um, cause it to not burn if nobody's pulling on it so that it doesn't burn anyone's house down, um, the type of filter, the firmness of the filter, whether you have other ingredients in the filter. I mean, so there's a hundred different things that you basically need to figure out to create a product that will have a fit with the consumer that we're going after. And, you know, coming from the tobacco business, I kind of understand a good chunk of that. And then working with our manufacturing partner, we're able to come up with a construction that I think the market will find very familiar.

Speaker 2: 9:35

Okay. So you've addressed the, a, that part of the question for manufacturing, but what about from a marketing standpoint?

Speaker 3: 9:42

So from a marketing standpoint, the marketing regulations on tobacco tend to be quite onerous for this particular product. The marketing restrictions wouldn't apply because the way the regulations are written, they're written around tobacco and nicotine. And this product doesn't have either one of those now, just because you have the freedom to, do you have the potential freedom to do whatever you like doesn't mean that you should. I take a look at a company like Juul who did extraordinarily well in a very short period of time. And they found themselves in a similar regulatory space that we do now when they launched in 2015, with that Liberty came a little bit of, um, I like to call it stepping over the line. So they would run ads that would otherwise be shown on Nickelodeon and telephone. They would go into junior high schools to educate students on not starting smoking, but if you're going to smoke anyway, you might as well use the Juul. That's the kind of stuff that starts pissing people off. So learning from those mistakes and having worked in the tobacco industry long enough, uh, I think I have a pretty good feel in terms of what we should be doing and what we shouldn't be doing. And when I take a look at the market, this product is designed for people who currently smoke. I'm not looking to recruit new people to the category. There's already a billion and a half people that smoke around the world. I mean, there's plenty of people within the market that we can help solve a problem for. I don't need to go find new people who don't have that issue and then give them a solution to a problem they don't have. So for us, that's where we're going to be focusing a lot of our efforts and in doing so, I think we can stay on side of the regulations and actually work with regulators because for them, their biggest issue. And the thing they're trying to solve is that they don't want the next generation of people growing up, being addicted to nicotine because our product wouldn't be addictive. We can help solve that problem.

Speaker 2: 11:43

That's great. That's great. That's a, it sounds like a potentially massive market. Um, so I've in preparation for this interview. I, I did some research about company and I'm wondering if you can maybe talk about the last two press releases that the company is put forth.

Speaker 3: 12:00

Sure. So a few days ago we announced that we had secured our manufacturing partner. So this partner already contract manufacturers for one of the large tobacco companies in the world. They have state-of-the-art machines. Uh, they can easily achieve a rate of 2000 cigarettes a minute and do it at a very, very high quality. They've been in the business for decades. I couldn't imagine getting a better partner than them, so we're very happy to bring them on board. And we've already started working with them on the final designs for the product so that we can launch towards the end of Q four and then on Friday, uh, we, I think we released it on Tuesday, but on Friday we announced that we had filed for patent. So one of the things that I was really pushing for the, as soon as I joined was okay, let's take a look at this process. I think there's some, uh, novel next to it that we can take, uh, an existing organic base and augment the flavor to the point where it tastes like something else. And I've never seen that in the market. I mean, the conventional wisdom of tobacco is that nothing's going to taste like tobacco until we've got this product and now tastes like tobacco. And when I took a look at the vape industry, one of the things that I think they all missed was while they were working on patenting, certain technologies in the hardware, I think it would have been really interesting if they could have patented the flavors, because that way, if you get used to a particular flavor, you're only going to be able to use it with that device. Otherwise, the device is so inexpensive that I can replace it quite easily. And if somebody comes with a marginally better value proposition with a taste profile, that's similar to the one that I want. There's no stickiness to that particular technology. So I try to look at whether we could do something like that. And then we were able to put something together where the process by which we take something that tastes and smells like him, which would otherwise taste and smell like cannabis and engineer it to the point where now tastes and smells like tobacco. Hmm. That's not something anybody has been able to do. So we wanted to make sure that we could protect that intellectual property and ensure that even if somebody were able to figure it out, which I think is going to be challenging for someone to do, but even if they were, they wouldn't be able to do it by law.

Speaker 2: 14:35

Right. And that, uh, that's with the us patent office. Yes. Okay. Great. Okay. So that's, that sounds really interesting. Actually. I'm glad to hear that. Uh, so let me ask you about where you're selling this product. And so we've got a couple of test

Speaker 3: 14:52

Markets now that we were just testing the initial blend in Nevada and a Southern California handful, like 50, 60 stores. Right. So just have it in store, get some consumer feedback tweak. I mean, when you're launching, when you're, you're launching a consumer packaged good, like this is, I mean, it's always an iterative process. I mean, it's important to listen to your consumers, understand what their feedback is, what they like, what they don't like. And then our job becomes trying to make sense of it all so that we can get a product that the vast majority of people would otherwise like. So with those learnings where we're able to, uh, re-engineer a bit of the product. So the first phase product I thought was good, but, uh, there were some things that could have been improved. And I think what the product we're going to be launching, uh, later this year, it's exactly where it should be now. And that's what we patented. So in terms of launching, we'll be looking at a couple of key markets in the United States. And, and basically what that's going to do is allow us to get into the distribution channels, put it on the shelves and then build out the appropriate infrastructure to help get it off the shelf. So there's basically two pieces to the equation. Um, getting the product on the shelf is important and understanding your consumer so that you can put together the right marketing initiatives to help get the product off the shelf and start getting repeat purchase. That's all the stuff that we're going to be doing in our, uh, in our markets when we launched towards the end of the year and on the back of those learnings, I think we'll be able to put together a very compelling story for expansion throughout the United States, and then started looking at international expansion as well.

Speaker 2: 16:29

I suspect you're just going to focus on one facet of the U S first out of the Northeast West coast, East coast or whatever the case is. Right, right. Um, all right. So, so that's really interesting. Thank you for that. So let me just kind of take a step back. So if I was to say, um, if there's one thing that most people don't know about the cigarette industry, because I will personally say that I've never met very many, I you're probably the first person I've ever met in the tobacco industry or what, from the tobacco industry unicorns like that, I guess. Huh? Yeah. Yeah. But what would it be? What would the one thing that most people not know about the industry that you think people should know?

Speaker 3: 17:12

Um, I think a lot of consumers are normally concerned with the price of cigarettes as they keep going up every year. Uh, but I don't think many consumers understand what the tax rate is on tobacco. So I'll give you an example in Canada, about 70 to 75% of the price of a cigarette is tax. And that goes straight to the government and 75% almost makes you ask the question who who's in the tobacco business, but

Speaker 2: 17:40

Yeah. So the accurate average pack is, uh,

Speaker 3: 17:43

How much you're looking at it, or at least in Toronto, you'd be looking at about$14.

Speaker 2: 17:50

Okay. So like 12, 11 to$12, essentially it goes to the Canadian government. Okay.

Speaker 3: 17:57

Yeah. Um, so I think a lot of consumers don't understand what the tax rate would otherwise be on tobacco and because the product doesn't have the same, uh, excise taxes that tobacco would have to pay, we're able to offer this solution to a consumer at a very competitive price so that we can basically democratize it. So it doesn't matter what brand of cigarettes you're smoking. We give you a solution at a far cheaper price that can help you leave that nicotine addiction behind

Speaker 2: 18:33

Good stuff. Okay. So I'm moving forward. So now that you're CEO, so what are some of the major projects that you're looking to achieve over, over the short term?

Speaker 3: 18:43

Well, I mean, one of the first things that I wanted to do when I started was figure out if we can get the process on the base cigarette material, uh, to be a bit better, which we did, and then figure out the patent, which we did signed the manufacturing, which we did. And now we're looking at, uh, partnering with a regional distributor so that we can get the product on the shelf. And we're very close to finalizing that. And then we'll be looking to, uh, build out the appropriate, uh, marketing strategy and tactics so that we can properly deploy and again, help get the product off of the shelf. And I think if we're able to demonstrate that we know what we're doing when it comes to that, we're able to go back, you know, raise a larger round, uh, compared to the private place around that. We'll be closing shortly. And then with that capital to start building out an even more fulsome team to start tackling wider parts of the United States, and then start looking at, uh, expanding overseas.

Speaker 2: 19:41

Sounds like you're going to be very, very busy over the next little while. Um, so just kind of like in summary then, um, moving forward, you've already talked quite a bit about some of the things that are pending, but what else do you want to say to our viewers here on a CSE, a TV?

Speaker 3: 19:58

Well, I, you know, the way I looked at it, especially when I was at Philip Morris and one of the main reasons why I jumped over there, there really hasn't been, you can almost liken it to a junior mining or junior oil and gas, but there hasn't been a junior tobacco company that was investible. I remember when the last time something like that happened. And really the last company that did something extraordinary was Juul, but it was private. So for an opportunity like this to really go after what is otherwise a$900 billion industry globally, there aren't very many publicly traded vehicles that an investor would have an opportunity to participate in. So when I saw that opportunity for me to come in and help lead this company to that goal, I mean, it was a no for me. And that's why I took the position, uh, for the investor. I think obviously always, you know, do your due diligence and do your research. But from my standpoint, I think it's an extraordinary opportunity and I look forward to the, uh, to the coming years in terms of growing this. Okay.

Speaker 2: 21:08

Uh, well on that note, um, I want to thank you for your time study. Uh, once again, it's a Phillips from here from the CSC, uh, the listings development director out of Toronto with steady cost Corella who is CEO of, uh, tat lifestyle and wellness. Ticker symbol is T a T on the Canadian securities exchange. Once again, thanks again, SETI. Uh, appreciate it. And good luck.

Speaker 1: 21:36

Hey, it's James here reminding you that if you just enjoyed this episode of hashtag finance, there's a lot more, make sure you subscribe to this show available on Apple podcasts, Spotify, SoundCloud, Stitcher, and Google podcast shows coming out at least twice a week. So please do not miss out. Also, if you're on Instagram, please, don't forget to follow us at Canadian exchange. That's all one word Canadian exchange we're hosting live daily content with great guests, discussing the capital markets, entrepreneurship, investing, and much more, and finally feel like video. Please subscribe to CSC space TV, that CSC space TV on YouTube. You can find more great stuff, including exclusive series content like cannabis month, 2020, and our new series investing in psychedelics as always. Thank you for listening.