British American Tobacco: Clearing the Air - [Business Breakdowns, EP.162]

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May 8, 2024

Evan Tindall, co-founder and CIO of Bireme Capital, dives into the intricate world of British American Tobacco, unpacking its historical evolution from Native American roots to today’s nicotine pouch trend. He explores the regulatory maze confronting reduced-risk products and discusses innovative marketing strategies in a heavily restricted landscape. Tindall also sheds light on the financial dynamics of the company and the enduring demand for nicotine, despite the rise and fall of the vaping craze, revealing hidden opportunities for investors.

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ANECDOTE

Buck Duke's Monopoly

Buck Duke bought the first cigarette rolling machines, drastically increasing production and reducing costs.
He used advertising to build early brands, ultimately forming the American Tobacco Company, a near-monopoly.

INSIGHT

BAT's Origins

British American Tobacco (BAT) was initially a joint venture between American and Imperial Tobacco to manage overseas sales.
This strategy allowed each company to maintain domestic monopolies while expanding globally.

INSIGHT

Regulation as a Moat

Advertising bans, while seemingly negative, prevent new entrants and solidify market share for incumbents like BAT.
Heavy taxation, primarily by states, significantly contributes to the price of cigarettes.

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Today, we are breaking down British American Tobacco. Regardless of your views on tobacco as a product, the market is one of the oldest in the world. My guest for today is Evan Tindall, co-founder and CIO of Bireme Capital, and he helps us cover how the tobacco market has evolved.

We go way back in time, discussing how the product itself has evolved from smoking pipes to cigarettes to what we're seeing today - the nicotine pouch market and all the craze around it. We also cover how you evaluate a company where the market outlook is so uncertain. Please enjoy this breakdown of British American tobacco.

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Show Notes

(00:00:00) Welcome to Business Breakdowns

(00:05:18) The Rich History of Tobacco and British American Tobacco

(00:10:25) The Evolution of Tobacco Products and Market Dynamics

(00:13:46) Regulatory Landscape and Its Impact on Tobacco Industry

(00:16:04) The Rise of Next-Generation Tobacco Products

(00:18:44) Market Trends and the Future of Tobacco Consumption

(00:28:57) Challenges and Opportunities in the Tobacco Industry

(00:31:34) Investment Perspectives and the Future of British American Tobacco

(00:36:07) Investors Shying Away From Owning Tobacco Companies

(00:42:32) Effects of The Vaping Phenomenon

(00:44:29) Lessons Learned From British American Tobacco