Company: KAVL
Filing Date: 2025-02-10
Form Type: 10-K
Source: 0001731122-25-000185
Chunk: 164

Company: Kaival Brands Innovations Group, Inc.
Filing Date: 2025-02-10
Form: 10-K
Item: Item 1A
Chunk 164
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 channels, which will have a material adverse effect on our business, results of operations and financial condition.

Competition from illicit sources may have an
adverse effect on our overall sales volume, restricting the ability to increase selling prices and damaging brand equity. 

Illicit trade and tobacco trafficking in the form
of counterfeit products, smuggled genuine products, and locally manufactured products on which applicable taxes or regulatory requirements
are evaded, represent a significant and growing threat to the legitimate tobacco industry and significant, and unfair, competition that
we are faced with. Moreover, factors such as increasing tax regimes, regulatory restrictions, and compliance requirements are encouraging
more consumers to switch to illegal, cheaper tobacco-related products, and providing greater rewards for smugglers. All of these factors
based on illicit trade have had and may continue to have an adverse effect on our overall sales volume, may restrict the ability to increase
selling prices, damage our brand equity, and may lead to commoditization of our products. If we are unable to manage the risks posed by
illicit competition, our results of operation and overall business may suffer.

Our products are regulated by the FDA, which has broad regulatory
powers. Increases in tobacco-related taxes have been proposed or enacted and are likely to continue to be proposed or enacted in numerous
jurisdictions. 

Tobacco products, premium cigarette papers, and tubes
have long been subject to substantial federal, state, and local excise taxes. Such taxes have frequently been increased or proposed to
be increased, in some cases significantly, to fund various legislative initiatives or further disincentivize tobacco usage. Since 1986,
smokeless products have been subject to federal excise tax. Federally, smokeless products are taxed by weight (in pounds or fractional
parts thereof) manufactured or imported. Any increases in tobacco-related taxes may materially adversely affect the demand for our products.

The market for ENDS products is subject to a
great deal of uncertainty and is still evolving. 

ENDS products, having recently been introduced to
market over the past 10 to 15 years, are at a relatively early stage of development, and represent core components of a market that is
evolving rapidly, highly regulated, and characterized by a number of market participants. Rapid growth in the use of, and interest in,
ENDS products is recent, and may not continue on a lasting basis. The demand and market acceptance for these products is subject to a
high level of uncertainty. Therefore, we are subject to