22nd Century Group Reports Business Highlights and Financial Results for the Fourth Quarter and Full Year 2021

  • Secured FDA MRTP Authorization for VLN® King and VLN® Menthol King Reduced Nicotine Content Cigarettes
  • Advancing to U.S. Pilot Market Launch in Chicago
  • Announced Circle K as First VLN® Retail Trade Partner
  • Announced South Korea as the First International VLN® Launch
  • Commenced Hemp/Cannabis Revenue in the Fourth Quarter of 2021
  • Full Year Net Sales Up 10.1% Year-Over-Year

BUFFALO, N.Y., March 01, 2022 (GLOBE NEWSWIRE) -- 22nd Century Group, Inc. (Nasdaq: XXII), a leading agricultural biotechnology company focused on tobacco harm reduction, reduced nicotine tobacco, and improving health and wellness through modern plant science, today reported results for the fourth quarter and full year ended December 31, 2021, and provided an update on recent business highlights. The Company will host a live audio webcast today at 10:00 a.m. ET.

“The past several months were incredible as 22nd Century transforms from a pure science and contract manufacturing company into a company selling branded VLN® cigarettes, licensing valuable biotechnology IP, and supplying highly specialized plant lines in large and dynamic global end markets,” said James A. Mish, chief executive officer of 22nd Century Group. “We secured our highly-anticipated FDA MRTP designation on December 23, and immediately moved to launch our VLN® pilot program by the end of March. The first VLN® cigarettes packaged with the FDA’s added claim of ‘Helps You Smoke Less’ rolled off our manufacturing lines in late January. Additionally, we have finalized our point-of-sale materials to educate adult smokers about how to use VLN® to change their relationship with highly addictive nicotine cigarettes, and we have worked alongside Circle K to prepare for our first launch in more than 150 metro Chicago stores before rolling VLN® out nationwide. Our mission is to get this product as quickly as possible into the hands of adult smokers, 70% of whom want to quit and are looking for new and innovative products to help them smoke less.

“We remain committed to making VLN® products readily available to as broad a market as possible, including both U.S. and international markets,” Mish added. “We expect our first global market shipment and revenue to South Korea will commence by the end of March, and we are dedicated to exploring licensing of our VLN® tobacco and IP as well as partnerships that can help expand the availability of VLN® and reduced nicotine content products across all markets.”

“Rather than creating or sustaining nicotine addiction like every other product in the tobacco category, VLN® is a combustible tobacco cigarette designed to help adult smokers smoke less, which makes it the most potentially disruptive product to hit the tobacco industry in decades,” said Michael Zercher, Chief Operating Officer. “With over 70% of adult smokers wanting to quit and 60% of adult smokers in our studies telling us they are likely to use VLN®, we look forward to bringing VLN® to market and doing our part to reduce the harm caused by smoking.”

Recent Key Financial and Business Highlights

Tobacco Franchise

  • Secured the world’s first and only MRTP designation for a combustible cigarette for VLN® King and VLN® Menthol King 95% reduced nicotine content cigarettes, announced December 23, 2021, by the FDA.
    • FDA proactively added “Helps You Smoke Less” evidence-based headline claim to Company’s requested claims
  • Announced Circle K will be the VLN® pilot launch partner, initially selling in more than 150 Chicago retail stores to optimize 22nd Century’s marketing mix ahead of full national launch.
    • VLN® will be positioned in the premium pricing segment of the cigarette market, with corresponding margins.
    • State regulatory approval process is underway for tobacco sales authorizations.
    • Advancing discussions with multiple additional retail trade partners to expand the regional and national sales reach of VLN®.
  • The Company continued the international launch process for VLN®, identifying South Korea as the initial launch market.
    • First shipment expected by the end of March.
    • The South Korean market includes a well-developed interest in alternative tobacco products, an ideal market in which to test VLN®’s global appeal.
    • Continuing launch process in additional markets in Asia and Europe with limited regulatory barriers while also leveraging VLN®’s MRTP authorization toward seeking approval in additional markets with higher regulatory barriers.
  • Advancing discussions with tobacco and pharmaceutical companies toward licensing and strategic partnerships to scale VLN®’s market penetration.
  • 22nd Century Group continued its support of transformative public health policies to ban menthol in cigarettes and mandate reduced nicotine content in all tobacco products.
    • The Company could have the only combustible menthol cigarette exempt from the FDA’s proposed menthol cigarette ban, providing a critical off-ramp to help current menthol smokers smoke less. The FDA has submitted their proposed rule to prohibit menthol cigarettes to the Office of Management and Budget at The White House.
    • 22nd Century would have the only cigarette able to meet the reduced nicotine content product standard on day one under the FDA’s Comprehensive Plan requiring that all cigarettes be made “minimally or non-addictive.”
    • Applauds the confirmation of Dr. Robert Califf, a long-time proponent of the reduced nicotine mandate and menthol ban, as FDA commissioner.
    • Received a new purchase order for 3 million research cigarettes, including menthol, to be delivered in March 2022 for use in studies underpinning FDA’s proposed reduced nicotine content and menthol ban proposals.
  • Reported record full-year tobacco contract manufacturing revenue of $30.9 million, up 10.1% year-over year, and record full year manufacturing gross margin of approximately 7.0%.
    • Increased sales to the new export customer secured in July 2021.
    • Secured an additional new contract manufacturing customer in October 2021, now in full production for 2022.
    • Began investment of $1.6 million into expansion of the Company’s existing manufacturing operations, currently representing 1% of the cigarette market, with the ability to expand to 3% of the market.
    • Commenced production of VLN® reduced nicotine content cigarettes for commercial sale in 2022.
  • Readying for the largest VLN® tobacco growing year ever contracted to support expansion in both the U.S. and international markets, including launch of the Company’s new southern hemisphere capabilities to facilitate year-round growing of VLN® tobacco. The growing program will include our proprietary, non-GMO VLN® varieties grown at commercial scale, including bright and burley varieties, to enable production of our VLN® 2.0 American blend cigarettes beginning in 2023.

Hemp/Cannabis Franchise

  • The Company generated the first revenue from its hemp/cannabis IP and plant lines beginning in the fourth quarter of 2021.
    • Announced a three-way non-exclusive license of the Anandia biosynthesis IP jointly owned with Aurora Cannabis Inc. to Cronos Group Inc., intended to assist in the advancement of biosynthetic cannabinoids.
    • Sold the first hemp biomass from the proprietary 22nd Century crop harvested at Needle Rock Farms. Additional biomass was sent for refinement into distillates for sale in the first quarter 2022.
  • 22nd Century Group received USDA Organic Certification under 7 CFR Part 205 for its hemp production at Needle Rock Farms. USDA Organic Certification will allow 22nd Century to command a premium in price and margins for its raw materials.
  • The Company is now preparing plant lines for a considerably expanded growing program in 2022 aligned to specific buyer interest in each plant line placed into the field.
  • Announced an industry-first breakthrough in hemp/cannabis plant transformation with our partner KeyGene, expanding the Company’s capabilities in modifying the principal genes controlling cannabinoid synthesis.
  • Moved into a new lab facility located in Maryland, which will enhance the Company’s relationship with its partners and key governmental agencies such as the NIH, NIST and FDA.

Hops Franchise

  • The Company continued to advance its entry into the $500 billion per year global specialty hops market, its third and newest alkaloid plant franchise and closely related to hemp/cannabis.
  • 22nd Century is targeting monetization of hop plant varieties and IP with upfront license fees expected to begin in late 2022 to early-2023.
  • The Company is advancing discussions with multiple significant hops growers and consumer product partners to develop specific desired traits in leading hops strains using the Company’s extensive alkaloid experience and proprietary technologies.

Corporate Business Highlights

  • Richard Fitzgerald joined the Company as its Chief Financial Officer, effective November 15, 2021, expanding the Company’s financial and strategic capabilities as it works to rapidly scale the business across all three of its plant franchises.
  • Company CEO James A. Mish was appointed to 22nd Century Group’s Board of Directors, enhancing the Board’s depth of experience in the commercialization of science-driven consumer products as the Company prepares to launch its first reduced nicotine content tobacco products and commercially modified hemp/cannabis plant lines.

Full Year 2021 Financial Results

  • Net sales for 2021 were $30.9 million, an increase of 10.1% from 2020. The increase was due to an increase in contract manufacturing sales.
  • Gross profit for 2021 was $2.1 million, compared to $1.4 million in the prior year. Gross margin in 2021 increased to 6.7%, from 5.1% in the prior year.
  • Total operating expenses for 2021 increased to $30.5 million compared to $20.6 million in the prior year, driven by:
    • Sales, general and administrative expenses increased by $10.9 million compared to the prior year period. This was driven primarily by higher personnel, insurance, investor relations and corporate communications expense, strategic consulting expense, intellectual property license fees, and marketing costs. These investments were deployed to support, evaluate, and prepare for future opportunities as the Company moves quickly to market readiness in both tobacco and hemp/cannabis.
    • Research and development expense for 2021 declined by $0.9 million compared to the prior year. This favorability was primarily driven by a tobacco leaf inventory impairment in the prior year period which did not reoccur in the current year period, and lower personnel costs and contract costs partially offset by patent fees. The Company’s R&D investments are expected to grow in future quarters as the Company continues to accelerate the development of new, highly-differentiated hemp/cannabis plants and expand its R&D efforts in hops.
  • Operating loss for 2021 was $(28.4) million, compared to $(19.2) million in the prior year period. This was primarily driven by an increase in SG&A, offset by higher gross profit and lower research and development expense.
  • Net loss in 2021 was $(32.6) million, an increase of $12.9 million, representing a net loss per share of $(0.21). This compares to 2020 net loss of $(19.7) million, or $(0.14) per share.
  • Of the $12.9 million increase in net loss, $6.6 million of the change was due to a non-cash unrealized loss related to fair value adjustments for investments in Aurora Cannabis stock warrants and Panacea Holdings common stock.

2021 Fourth Quarter Financial Results

  • Net sales for the fourth quarter of 2021 were $8.0 million, an increase of 8.9% from $7.3 million in the prior year period. The increase was due to an increase in contract manufacturing sales.
  • Gross profit for the fourth quarter of 2021 was $387 thousand, compared to $588 thousand in the prior year period, due to the favorable effect of a large customer order that benefitted last year’s fourth quarter.
  • Total operating expenses for the fourth quarter of 2021 increased to $9.4 million compared to $6.8 million in the prior year period. This was driven by the following:
    • Sales, general and administrative expenses increased by $2.9 million compared to the prior year period.
    • Research and development expense for the fourth quarter of 2021 was favorably lower by $323 thousand compared to the prior year period.
  • Operating loss for the fourth quarter of 2021 was $(9.0) million, compared to $(6.2) million in the prior year period. This was primarily driven by an increase in SG&A and reduction in gross profit, offset by lower research and development expense.
  • Net loss in the fourth quarter of 2021 was $(14.0) million, representing a net loss per share of $(0.09). This compares to the fourth quarter of 2020 net loss of $(6.4) million, or $(0.05) per share.
  • Of the $7.6 million increase in net loss, $5.1 million of the change was due to a non-cash unrealized loss related to fair value adjustments for investments in Aurora Cannabis stock warrants and Panacea Holdings common stock.

Balance Sheet and Liquidity

  • For the full year 2021, net cash used in operating activities was $22.8 million, compared to $15.6 million in the prior year period.
  • The Company ended the year with a cash position of $48.7 million as of December 31, 2021, and the Company’s continued initiatives to manage expenses relative to net sales revenue should provide the Company with additional runway to execute for the foreseeable future.

Fourth Quarter Earnings Conference Call
22nd Century will host a live webcast today at 10:00 a.m. ET to discuss its fourth quarter and full year 2021 financial results and business highlights. During the webcast, James A. Mish, chief executive officer of 22nd Century Group, together with Michael Zercher, president and chief operating officer, and Richard Fitzgerald, chief financial officer, will review the Company’s 2021 financial results and provide an update on progress made in each of the Company’s three franchises.

Following prepared remarks, including an accompanying slide presentation, the Company will host a Q&A session, during which management will accept questions from interested analysts. Investors, shareholders, and members of the media will also have the opportunity to pose questions to management by submitting questions through the interactive webcast during the event.

The live and archived webcast, interactive Q&A, and slide presentation will be accessible on the Events web page in the Company's Investor Relations section of the website, at https://www.xxiicentury.com/investors/events. An archived replay of the webcast and the event transcript will also be available shortly after the live event has concluded.

About 22nd Century Group, Inc.
22nd Century Group, Inc. (Nasdaq: XXII) is a leading agricultural biotechnology company focused on tobacco harm reduction, reduced nicotine tobacco and improving health and wellness through plant science. With dozens of patents allowing it to control nicotine biosynthesis in the tobacco plant, the Company has developed proprietary reduced nicotine content (RNC) tobacco plants and cigarettes, which have become the cornerstone of the FDA’s Comprehensive Plan to address the widespread death and disease caused by smoking. The Company received the first and only FDA MRTP authorization of a combustible cigarette in December 2021. In tobacco, hemp/cannabis, and hop plants, 22nd Century uses modern plant breeding technologies, including genetic engineering, gene-editing, and molecular breeding to deliver solutions for the life science and consumer products industries by creating new, proprietary plants with optimized alkaloid and flavonoid profiles as well as improved yields and valuable agronomic traits.

Learn more at xxiicentury.com, on Twitter @_xxiicentury, and on LinkedIn.

Learn more about VLN® at tryvln.com.

Cautionary Note Regarding Forward-Looking Statements
Except for historical information, all of the statements, expectations, and assumptions contained in this press release are forward-looking statements. Forward-looking statements typically contain terms such as “anticipate,” “believe,” “consider,” “continue,” “could,” “estimate,” “expect,” “explore,” “foresee,” “goal,” “guidance,” “intend,” “likely,” “may,” “plan,” “potential,” “predict,” “preliminary,” “probable,” “project,” “promising,” “seek,” “should,” “will,” “would,” and similar expressions. Actual results might differ materially from those explicit or implicit in forward-looking statements. Important factors that could cause actual results to differ materially are set forth in “Risk Factors” in the Company’s Annual Report on Form 10-K filed on March 11, 2021. All information provided in this release is as of the date hereof, and the Company assumes no obligation to and does not intend to update these forward-looking statements, except as required by law.

Investor Relations & Media Contact

Mei Kuo
Director, Communications & Investor Relations
22nd Century Group, Inc.
(716) 300-1221

Darrow Associates Investor Relations
Matt Kreps
T: 214-597-8200

($ in thousands, except per-share data)

 December 31,  December 31, 
 2021    2020
Current assets:     
Cash and cash equivalents$1,336  $1,029 
Short-term investment securities 47,400   21,313 
Accounts receivable, net 585   2,159 
Inventory, net 2,881   2,034 
Prepaid expenses and other assets 2,183   1,806 
Total current assets 54,385   28,341 
Property, plant and equipment, net 5,841   2,483 
Operating leases right-of-use assets, net 1,723   247 
Intangible assets, net 7,919   8,211 
Investments 2,345   6,536 
Other assets 3,741   5,876 
Total assets$75,954  $51,694 
Current liabilities:     
Notes payable$596  $539 
Operating lease obligations 308   247 
Accounts payable 2,173   1,116 
Accrued expenses 1,489   931 
Accrued payroll 2,255   2,208 
Accrued excise taxes and fees 1,270   1,691 
Accrued severance 217   339 
Deferred income 119   272 
Total current liabilities 8,427   7,343 
Long-term liabilities:     
Operating lease obligations 1,432    
Severance obligations 21   241 
Total liabilities 9,880   7,584 
Commitments and contingencies (Note 12)     
Shareholders' equity     
Preferred stock, $.00001 par value, 10,000,000 shares authorized     
Common stock, $.00001 par value, 300,000,000 shares authorized     
Capital stock issued and outstanding:     
162,872,875 common shares (139,061,690 at December 31, 2020)     
Common stock, par value 2   1 
Capital in excess of par value 244,247   189,439 
Accumulated other comprehensive (loss) income (162)  74 
Accumulated deficit (178,013)  (145,404)
Total shareholders' equity  66,074   44,110 
Total liabilities and shareholders’ equity$75,954  $51,694 

($ in thousands, except per-share data)

 Three Months Ended Year Ended
 December 31,  December 31, 
 2021    2020    2021    2020
Sale of products, net$7,960  $7,308  $30,948  $28,111 
Cost of goods sold (exclusive of depreciation shown separately below):           
Products 7,573   6,720   28,879   26,673 
Gross profit (loss) 387   588   2,069   1,438 
Operating expenses:           
Research and development 972   1,416   3,256   4,090 
Research and development - MRTP 2   (119)  18   38 
Sales, general and administrative 8,050   5,160   25,881   14,971 
Impairment of intangible assets 78   30   78   176 
Depreciation 172   215   633   688 
Amortization 145   134   615   658 
Total operating expenses 9,419   6,836   30,481   20,621 
Operating loss (9,032)  (6,248)  (28,412)  (19,183)
Other income (expense):           
Unrealized gain (loss) on investments (4,954)  128   (6,994)  (434)
Impairment of Panacea investment    (679)     (1,741)
Gain on Panacea investment conversion       2,548    
Realized gain (loss) on short-term investment securities    5      5 
Gain on the sale of property, plant and equipment          1 
Interest income, net 49   407   321   1,751 
Interest expense (14)  (18)  (58)  (72)
Total other income (expense) (4,919)  (157)  (4,183)  (490)
Loss before income taxes (13,951)  (6,405)  (32,595)  (19,673)
Income taxes 14      14   38 
Net loss$(13,965) $(6,405) $(32,609) $(19,711)
Other comprehensive income (loss):           
Unrealized gain (loss) on short-term investment securities (135)  (59)  (236)  72 
Reclassification of (gain) loss to net loss    (6)     (5)
Other comprehensive income (loss) (135)  (65)  (236)  67 
Comprehensive loss$(14,100) $(6,470) $(32,845) $(19,644)
Net loss per common share - basic and diluted$(0.09) $(0.05) $(0.21) $(0.14)
Weighted average common shares outstanding - basic and diluted (in thousands) 162,768   138,813   156,208   138,813 

Below is a table containing information relating to the Company’s Adjusted EBITDA for the three months and year-to-date ended December 31, 2021 and 2020, including a reconciliation of net (loss) income to Adjusted EBITDA for such periods.

 Quarter Ended
 December 31, 
 Dollar Amounts in Thousands ($000's)
              $ Change 
 2021 2020  fav / (unfav)
Net loss$ (13,965) $ (6,405) $ (7,560)
Impairment of intangible assets 78   30   48 
Impairment of Panacea investment    679   (679)
Unrealized loss (gain) on investment 4,954   (128)  5,082 
Amortization and depreciation 317   349   (32)
Equity-based employee compensation expense 1,111   491   620 
Interest (income)/expense, net (35)  (389)  354 
Adjusted EBITDA$ (7,540) $ (5,373) $ (2,166)

1Fav = Favorable variance, which increases Adjusted EBITDA; Unfav = unfavorable variance, which reduces Adjusted EBITDA

  Year-to-date Ended
  December 31, 
  Dollar Amounts in Thousands ($000's)
                  $ Change 
  2021 2020  fav / (unfav)
Net loss $ (32,609) $ (19,711) $ (12,898)
Impairment of intangible assets  78   176   (98)
Impairment of Panacea investment     1,741   (1,741)
Unrealized loss (gain) on investment  6,994   434   6,560 
Gain on Panacea investment conversion  (2,548)     (2,548)
Amortization and depreciation  1,248   1,345   (97)
Equity-based employee compensation expense  3,983   1,654   2,329 
Interest (income)/expense, net  (263)  (1,680)  1,417 
Adjusted EBITDA $ (23,117) $ (16,041) $ (7,076)

1Fav = Favorable variance, which increases Adjusted EBITDA; Unfav = unfavorable variance, which reduces Adjusted EBITDA

Adjusted EBITDA, which the Company defines as earnings before interest, taxes, depreciation and amortization, as adjusted by the Company for certain non-cash and non-operating expenses, as well as certain one-time expenses, is a financial measure not prepared in accordance with generally accepted accounting principles (“GAAP”). In order to calculate Adjusted EBITDA, the Company adjusts the net (loss) income for certain non-cash and non-operating income and expense items listed in the table above in order to measure the Company’s operating performance. The Company believes that Adjusted EBITDA is an important measure that supplements discussions and analysis of its operations and enhances an understanding of its operating performance. While management considers Adjusted EBITDA to be important, it should be considered in addition to, but not as a substitute for or superior to, other measures of financial performance prepared in accordance with GAAP, such as operating loss, net (loss) income and cash flows from operations. Adjusted EBITDA is susceptible to varying calculations and the Company’s measurement of Adjusted EBITDA may not be comparable to those of other companies.