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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): November 8, 2022
22nd Century Group, Inc.
(Exact Name of Registrant as Specified in Charter)
Nevada |
001-36338 |
98-0468420 |
(State or Other Jurisdiction of Incorporation) |
(Commission File Number) |
(I.R.S. Employer |
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500 Seneca Street, Suite 507, Buffalo, New York (Address of Principal Executive Office) |
14204 (Zip Code) |
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Registrant’s telephone number, including area code: (716) 270-1523 | ||
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
☐ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
☐ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
☐ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
☐ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
Trading symbol |
Name of each exchange on which registered |
Common Stock, $0.00001 par value |
XXII |
NASDAQ Capital Market |
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter). Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Item 2.02 |
Disclosure of Results of Operations and Financial Condition |
On November 8, 2022, 22nd Century Group, Inc. (the “Company”) issued an earnings release for the quarter ended September 30, 2022. A copy of the earnings release is furnished as Exhibit 99.1 to this report.
The information in this item shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934 (the “Exchange Act”), or otherwise subject to the liabilities of Section 18, nor shall it be deemed incorporated by reference in any of the Company’s filings under the Securities Act of 1933, as amended, or the Exchange Act, except to the extent, if any, expressly set forth by specific reference in such filing.
Item 9.01(d) |
Financial Statements and Exhibits |
Supplemental financial information for earnings release dated November 8, 2022 |
104 |
Cover Page Interactive Data File - The cover page XBRL tags are embedded within the inline XBRL document |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
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22nd Century Group, Inc. |
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/s/ R. Hugh Kinsman |
Date: November 8, 2022 |
R. Hugh Kinsman |
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Chief Financial Officer |
Exhibit 99.1
22nd Century Group (Nasdaq: XXII) Reports Business Highlights and Financial Results for the Third Quarter 2022
| ● | Accelerating VLN® Sales in Colorado and Illinois, Launching in Four Corners States to Capture Market Share and Volume |
| ● | GVB Biopharma Acquisition Growing Revenue on Increased Volumes |
| ● | Third Quarter Net Sales $19.4 Million, Up 148% from the Third Quarter 2021 |
| ● | Strong Balance Sheet to Support Strategic Initiatives Including Accelerated VLN® Expansion |
BUFFALO, N.Y., November 8, 2022 (Globe Newswire) — 22nd Century Group, Inc. (Nasdaq: XXII), a leading agricultural biotechnology company dedicated to improving health with reduced nicotine tobacco, hemp/cannabis, and hops advanced plant technologies, today reported results for the third quarter ended September 30, 2022, and provided an update on recent business highlights. The Company will host a live audio webcast today at 10:00 a.m. E.T.
James A. Mish, Chief Executive Officer of 22nd Century Group, stated: “The past few months have demonstrated tremendous commercial progress in 22nd Century’s reduced nicotine tobacco and hemp/cannabis businesses. Our VLN® product launch has expanded from the exceptional pilot in Chicago to now five states. We plan to expand that base to as many as 18 states over the next twelve months. Doing so would give us access to more than half the $80 billion U.S. tobacco market and position us in most, if not all, of the states that have enacted MRTP excise tax provisions favorable to our unique product authorization. Even just a 1% share, which we view as eminently achievable based on our pilot results, would be transformative to our revenue line. The FDA is also continuing to advance its interests in transformative menthol and reduced nicotine policies, and 22nd Century is positioned at the forefront of this opportunity with the only MRTP authorized 95% reduced nicotine combustible cigarette and years of clinical research documenting the benefits of our products.
“We also reported our first full quarter of hemp/cannabis revenue benefitting from the acquisition of GVB Biopharma this spring. We are now the largest merchant market supplier of CBD in North America and positioned to grow that stake even further. We are moving quickly to complete the startup of our new Prineville crude extraction plant and secure additional certifications for our facilities that will further differentiate our products and make us the premier supplier of hemp-derived extracts and ingredients to consumer and wellness products. Success in these endeavors will enable us to increase our gross margin on this portion of our business and compete from a position of strength in a much larger active ingredient market once FDA announces its highly anticipated new product standards for the industry.
“With a strengthened balance sheet and a clear path to increased revenue and gross margins, we are excited about the path forward as we work to rapidly drive market share and create operating scale across our business units,” concluded Mish.
Recent Key Financial and Business Highlights
Tobacco Business
| ● | 22nd Century Group has moved aggressively into its commercial launch program for VLN®, leveraging its exceptional pilot results to develop an efficient, reproducible VLN® Sales Launch Blueprint that focuses resources to achieve the greatest returns. |
| o | The launch blueprint is designed to be repeatable as the Company expands VLN® availability to new markets. |
| o | The Company expects to gain significant market share in a new market based on consumer adoption. |
| o | Consumers have described VLN® as “game-changing” and “lifesaving”. |
| ● | 22nd Century has refined its VLN® rollout strategy to focus on going deeper into select geographies and markets with high cigarette volume and large adult smoker populations. |
| o | The Company estimates that every 1% share of the U.S. retail market equates to approximately $800 million in retail sales, which is $500 million in revenue for a premium cigarette manufacturer. |
| o | 22nd Century will also prioritize states with Modified Risk Tobacco Product (MRTP) state excise tax savings, which can be used toward adult consumer incentives, expand distribution, and additional programming to raise awareness, education, and trial among adult smokers of its unique products. |
| ● | 22nd Century announced that it is expanding its retail sales presence in Illinois following exceptional results in its Chicago pilot. |
| ● | The Company subsequently launched VLN® in Colorado through its expanded network of retailers and distribution partners, including Circle K, Eagle Rock Distributing Company, and Creager Mercantile. |
| o | The Colorado VLN® distribution plan includes thousands of retail sites and numerous new retailers supported by 22nd Century’s distribution partnerships. |
| o | The Company is initially acting on approximately 3,000 locations across the state where VLN® will be available. |
| ● | The Company also announced that it will launch VLN® in three additional states – Arizona, New Mexico, and Utah – covering the Four Corners region. |
| o | Expanding into the Four Corners gives VLN® access to concentrated centers of adult smokers allowing the Company to market VLN® in a streamlined and efficient manner where resources can be pooled and focused. |
| o | New Mexico and Utah have an MRTP tax benefit that 22nd Century Group can leverage similar to its activities in Colorado. |
| o | The Company is building out a network of partners and distribution resources to not only stock or distribute VLN®, but also support additional functions such as merchandising and product education to expand the awareness of VLN®’s highly differentiated value proposition in key retail channels. |
| ● | Within the next 12 months, 22nd Century Group will focus on bringing VLN® to at least 12 to 18 states, including Illinois, Colorado, Arizona, New Mexico, and Utah. |
| o | Circle K, in addition to Illinois and Colorado, also authorized VLN® to be sold in all their New Mexico stores. |
| ● | Regulatory interests for banning menthol and mandating reduced nicotine content at both the federal and state level continue to support 22nd Century Group’s approach to reducing the harms caused by smoking. |
| o | The Company believes that the FDA’s proposed menthol cigarette ban could leave VLN® Menthol King as the only combustible menthol cigarette on the market, providing a critical off-ramp to help current menthol smokers to smoke less. |
| o | 22nd Century also has the only FDA-authorized combustible cigarette able to meet the stringent reduced nicotine content product standard under the FDA’s Comprehensive Plan requiring that all cigarettes be made “minimally or non-addictive.” |
| o | In early October 2022, the Company completed the delivery of 3 million variable nicotine research cigarettes, including menthol, for use in studies underpinning FDA’s proposed menthol ban and reduced nicotine content proposals. |
| o | In late October 2022, 22nd Century Group received an order for 2.8 million variable nicotine cigarettes in coordination with the FDA, the National Institute on Drug Abuse (NIDA), and others. The Company’s research cigarettes will continue to fuel numerous independent, scientific studies to validate the enormous public health benefits identified by the FDA and others of implementing a national standard requiring all cigarettes to contain minimally or non-addictive levels of nicotine. |
| ● | To meet anticipated demand for its VLN® products in the U.S. and elsewhere, 22nd Century planted its largest ever VLN® tobacco crop in 2022, which includes the Company’s second-generation reduced nicotine tobacco plants. |
| o | VLN® 2.0 tobacco is already seeing approximately 30% higher yields, enhanced quality leaf, improved disease resistance, reduction in nutrient inputs, and increased stability across various environments and geographies. |
| o | The Company’s first grow in Chile was successful, which allow for the expansion of growing acreage in 2023 in the southern hemisphere to secure year-round growing capabilities |
| ● | Completed expansion of the Company’s existing manufacturing operations and increased capacity by 25%, including installation of a new production line and initiation of a second shift. |
Hemp/Cannabis Business
| ● | 22nd Century Group acquired GVB Biopharma (GVB), a global-scale specialty ingredient supplier and contract development & manufacturing organization (CDMO), on May 13, 2022. The acquisition expanded 22nd Century’s hemp/cannabis research and development (R&D) activities to include a revenue-producing business positioned for growth. |
| o | GVB is the largest merchant market provider of cannabinoid extracts and isolates in North America with a focus on cannabidiol (CBD) and cannabigerol (CBG) extracted and refined at industrial scale into distillates (highly pure, liquid form cannabinoids with 70% to 90% purity) and isolates (highly pure powder firm cannabinoids (96% to 98.9% purity). |
| o | GVB is widely regarded as a best-in-class operator with a leading position in the hemp-derived active ingredients market, with around 15% market share and growing. |
| o | From 2020 to 2021, GVB’s total cannabinoid production increased by 200%, and from 2021 to 2022, production increased by 100%. The Company expects further production of crude extraction to increase with its Prineville facility ramping up throughout 2023. |
| ● | GVB gives 22nd Century control of the full vertical product cycle and provides the Company with the most complete hemp/cannabis solution in the world, from receptor science and transformative plant genetics to finished ingredients and CDMO-formulated products that meet the most exacting standards required by global consumer products and pharmaceutical companies. |
| ● | GVB is advancing its facilities certifications to further differentiate its products and access new, high-value isolate and distillate market opportunities. |
| o | During the quarter, GVB passed the NSF International Audit with a grade A, and no deficiencies were found, and obtained a renewal of its cGMP registration for Dietary Supplements Registration for its manufacturing facilities. NSF is one of the largest third-party compliance and standards organizations globally. It provides testing, auditing, and certification services, assuring suppliers that an independent organization has reviewed a product or system to comply with specific standards for safety, quality, sustainability or performance. GVB’s CGMP registration encompasses dietary supplements, dietary ingredients, and functional food facility certification. With this audit and certification secured, GVB will pursue pharma-grade manufacturing. |
| o | GVB plans to submit a Drug Master File (DMF) to the FDA to produce and supply cannabinoid-based active pharmaceutical ingredients (APIs) for the medical and pharmaceutical industries requiring the highest quality cannabinoids in the U.S. |
| o | GVB will also be pursuing The International Council for Harmonisation of Technical Requirements for Pharmaceuticals for Human Use (ICH) Q7 international pharma-grade audit standard certification so it can supply naturally derived hemp/cannabis APIs to companies globally. |
| ● | GVB operates three manufacturing facilities across Nevada and Oregon. GVB’s new Prineville, Oregon facility is one of the largest hemp extraction plants in the world, with expected CBD crude production capacity exceeding 15,000 kg/month at full operations, which will further improve gross margin on all GVB cannabinoid products. |
| ● | GVB’s capabilities add sizeable commercial scale to 22nd Century’s existing hemp/cannabis franchise. The Company plans to generate cash flow from GVB’s operations which will ultimately become a net cash contributor to 22nd Century overall and help fund not only hemp/cannabis franchise growth but also VLN® expansion. |
Corporate Business Highlights
| ● | Lucie S. Salhany was appointed to the Company’s Board of Directors in September 2022, extending her experience in positioning unique products for successful launch, corporate strategy, and entrepreneurial ventures to help raise 22nd Century’s profile in tobacco harm reduction and the hemp/cannabis industry. |
| ● | The Company announced that the position of president and chief operating officer was eliminated, effective September 30, 2022. James A. Mish assumed the responsibilities of corporate president, and operations have been integrated into the tobacco and cannabis business teams. |
Third Quarter 2022 Financial Results
| ● | Net revenues for the third quarter of 2022 were $19.4 million, an increase of 148.2% from 2021. The increase was due to increased contract manufacturing volumes as well as the addition of GVB Biopharma revenue for the full third quarter. |
| o | Revenue from tobacco-related products was $11.5 million, an increase of 47.7% from 2021 primarily driven by volume increases in the number of cartons sold, price increases, and favorable mix for filtered cigar and cigarettes (including export cigarettes). |
| o | Revenue from hemp/cannabis-related products was $7.8 million, compared to $0 in the prior year third quarter. |
| ● | Gross profit for the third quarter was $619 thousand, an increase of 111.9% compared to $292 thousand in the prior year third quarter. |
| ● | Total operating expenses for the third quarter of 2022 increased to $15.9 million, compared to $7.9 million in the prior year quarter, driven by: |
| o | Sales, general and administrative expenses increased by approximately $7.7 million compared to the prior year period. This was driven primarily by the acquisition of GVB and higher strategic consulting and marketing, legal, and personnel costs as we continue to expand the launch of VLN® and build our executive management team. |
| o | Research and development expenses increased by approximately $287 thousand, compared to the prior year period, driven by personnel expenses and costs associated with the Company’s research programs. |
| ● | Operating loss for the third quarter of 2022 was $15.3 million, compared to $7.6 million in the prior year period. |
| ● | Net loss was $13.1 million, representing a net loss per share of $0.06. Adjusted EBITDA was a loss of $11.0 million. See the tables included in this release for a reconciliation of Adjusted EBITDA (a non-GAAP measure) to net loss. |
Balance Sheet and Liquidity
| ● | As of September 30, 2022, the Company had $43.7 million in cash, cash equivalents, and short-term investment securities. |
| ● | The Company is selectively deploying capital to accelerate the launch of VLN®, expand tobacco manufacturing operations, invest in GVB’s production capacity, and increase inventory levels to meet the growing demand for both hemp/cannabis and tobacco products and for research and development. |
| ● | 22nd Century’s cash requirements are anticipated to decrease, reflecting higher sales volume of higher margin contract manufacturing operations (CMO) cigarettes and VLN® products through fiscal 2023, and continued organic growth of GVB’s operations, providing adequate liquidity from the current balance sheet to complete its planned strategic initiatives. |
Third Quarter Earnings Conference Call
22nd Century will host a live webcast today at 10:00 a.m. E.T. to discuss its third quarter 2022 financial results and business highlights. During the webcast, James A. Mish, chief executive officer of 22nd Century Group, together with John Miller, president of 22nd Century’s tobacco business, and Hugh Kinsman, chief financial officer, will provide an update on the Company.
Following prepared remarks, 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 by submitting them through the interactive webcast.
The live webcast, interactive Q&A, and slide presentation will be accessible in the Events section on 22nd Century’s Investor Relations website at https://www.xxiicentury.com/investors/events. An archived replay of the webcast 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, on LinkedIn, and on YouTube.
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 1, 2022 and in the Company’s Quarterly Reports filed on May 5, 2022 and August 9, 2022, respectively. 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
22nd Century Group, Inc.
Director, Communications & Investor Relations
mkuo@xxiicentury.com
Darrow Associates Investor Relations
Matt Kreps
T: 214-597-8200
mkreps@darrowir.com
22nd CENTURY GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(amounts in thousands, except per-share data)
|
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September 30, |
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December 31, |
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2022 |
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2021 |
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ASSETS |
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|
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Current assets: |
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|
|
|
|
Cash and cash equivalents |
|
$ |
2,364 |
|
$ |
1,336 |
Short-term investment securities |
|
|
41,357 |
|
|
47,400 |
Accounts receivable, net |
|
|
4,953 |
|
|
585 |
Inventory |
|
|
12,264 |
|
|
2,881 |
Prepaid expenses and other current assets |
|
|
3,463 |
|
|
2,183 |
Total current assets |
|
|
64,401 |
|
|
54,385 |
Property, plant and equipment, net |
|
|
18,279 |
|
|
5,841 |
Operating lease right-of-use assets, net |
|
|
2,429 |
|
|
1,723 |
Goodwill |
|
|
33,748 |
|
|
— |
Intangible assets, net |
|
|
18,336 |
|
|
7,919 |
Investments |
|
|
981 |
|
|
2,345 |
Other assets |
|
|
4,002 |
|
|
3,741 |
Total assets |
|
$ |
142,176 |
|
$ |
75,954 |
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS' EQUITY |
|
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|
|
|
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Current liabilities: |
|
|
|
|
|
|
Notes and loan payable |
|
$ |
5,825 |
|
$ |
596 |
Operating and finance lease obligations |
|
|
927 |
|
|
308 |
Accounts payable |
|
|
5,787 |
|
|
2,173 |
Accrued expenses |
|
|
2,468 |
|
|
1,489 |
Accrued payroll |
|
|
1,043 |
|
|
2,255 |
Accrued excise taxes and fees |
|
|
1,525 |
|
|
1,270 |
Deferred income |
|
|
693 |
|
|
119 |
Other current liabilities |
|
|
397 |
|
|
217 |
Total current liabilities |
|
|
18,665 |
|
|
8,427 |
Long-term liabilities: |
|
|
|
|
|
|
Notes payable |
|
|
220 |
|
|
— |
Operating and finance lease obligations |
|
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1,592 |
|
|
1,432 |
Other long-term liabilities |
|
|
611 |
|
|
21 |
Total liabilities |
|
|
21,088 |
|
|
9,880 |
Commitments and contingencies (Note 9) |
|
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|
|
|
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Shareholders' equity |
|
|
|
|
|
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Preferred stock, $.00001 par value, 10,000,000 shares authorized |
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Common stock, $.00001 par value, 300,000,000 shares authorized |
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|
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Capital stock issued and outstanding: |
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|
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215,301,603 common shares (162,872,875 at December 31, 2021) |
|
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|
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|
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Common stock, par value |
|
|
2 |
|
|
2 |
Capital in excess of par value |
|
|
333,124 |
|
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244,247 |
Accumulated other comprehensive loss |
|
|
(507) |
|
|
(162) |
Accumulated deficit |
|
|
(211,531) |
|
|
(178,013) |
Total shareholders' equity |
|
|
121,088 |
|
|
66,074 |
Total liabilities and shareholders’ equity |
|
$ |
142,176 |
|
$ |
75,954 |
22nd CENTURY GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(Unaudited)
(amounts in thousands, except per-share data)
|
|
Three Months Ended |
|
Nine Months Ended |
||||||||
|
|
September 30, |
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September 30, |
||||||||
|
|
2022 |
|
2021 |
|
2022 |
|
2021 |
||||
Revenue, net |
|
$ |
19,383 |
|
$ |
7,811 |
|
$ |
42,905 |
|
$ |
22,988 |
Cost of goods sold |
|
|
18,764 |
|
|
7,519 |
|
|
41,086 |
|
|
21,733 |
Gross profit |
|
|
619 |
|
|
292 |
|
|
1,819 |
|
|
1,255 |
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
Sales, general and administrative |
|
|
14,569 |
|
|
6,830 |
|
|
31,355 |
|
|
17,846 |
Research and development |
|
|
1,318 |
|
|
1,031 |
|
|
4,355 |
|
|
2,789 |
Total operating expenses |
|
|
15,887 |
|
|
7,861 |
|
|
35,710 |
|
|
20,635 |
Operating loss |
|
|
(15,268) |
|
|
(7,569) |
|
|
(33,891) |
|
|
(19,380) |
Other income (expense): |
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized loss on investments |
|
|
(345) |
|
|
(1,900) |
|
|
(2,046) |
|
|
(2,040) |
Gain on Panacea investment conversion |
|
|
— |
|
|
— |
|
|
— |
|
|
2,548 |
Realized loss on short-term investment securities |
|
|
(35) |
|
|
— |
|
|
(143) |
|
|
— |
Interest income, net |
|
|
113 |
|
|
52 |
|
|
211 |
|
|
272 |
Interest expense |
|
|
(148) |
|
|
(23) |
|
|
(230) |
|
|
(44) |
Total other income (expense) |
|
|
(415) |
|
|
(1,871) |
|
|
(2,208) |
|
|
736 |
Loss before income taxes |
|
|
(15,683) |
|
|
(9,440) |
|
|
(36,099) |
|
|
(18,644) |
Benefit for income taxes |
|
|
(2,581) |
|
|
— |
|
|
(2,581) |
|
|
— |
Net loss |
|
$ |
(13,102) |
|
$ |
(9,440) |
|
$ |
(33,518) |
|
$ |
(18,644) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per common share - basic and diluted |
|
$ |
(0.06) |
|
$ |
(0.06) |
|
$ |
(0.18) |
|
$ |
(0.12) |
Weighted average common shares outstanding - basic and diluted (in thousands) |
|
|
210,131 |
|
$ |
162,721 |
|
$ |
185,269 |
|
$ |
153,998 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive loss: |
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized loss on short-term investment securities |
|
|
(19) |
|
|
(28) |
|
|
(488) |
|
|
(101) |
Reclassification of losses to net loss |
|
|
35 |
|
|
— |
|
|
143 |
|
|
— |
Other comprehensive income (loss) |
|
|
16 |
|
|
(28) |
|
|
(345) |
|
|
(101) |
Comprehensive loss |
|
$ |
(13,086) |
|
$ |
(9,468) |
|
$ |
(33,863) |
|
$ |
(18,745) |
Reconciliations of Non-GAAP Measures
Below is a table containing information relating to the Company’s Net loss, EBITDA and Adjusted EBITDA for the three and nine months ended September 30, 2022 and 2021, including a reconciliation of these Non-GAAP measures for such periods.
|
|
Quarter Ended |
|||||||
|
|
September 30, |
|||||||
|
|
Dollar Amounts in Thousands ($000's) |
|||||||
|
|
(UNAUDITED) |
|||||||
|
|
|
|
|
|
|
|
|
$ Change |
|
|
2022 |
|
2021 |
|
|
fav / (unfav) |
||
Net loss |
|
$ |
(13,102) |
|
$ |
(9,440) |
|
$ |
(3,662) |
Interest (income)/expense, net |
|
|
35 |
|
|
(29) |
|
|
64 |
Amortization and depreciation |
|
|
1,068 |
|
|
341 |
|
|
727 |
Benefit for income taxes |
|
|
(2,581) |
|
|
— |
|
|
(2,581) |
EBITDA |
|
$ |
(14,580) |
|
$ |
(9,128) |
|
$ |
(5,452) |
Adjustments: |
|
|
|
|
|
|
|
|
|
Equity-based employee compensation expense |
|
|
2,247 |
|
|
1,119 |
|
|
1,128 |
Unrealized loss (gain) on investment |
|
|
345 |
|
|
1,900 |
|
|
(1,555) |
Inventory step-up |
|
|
978 |
|
|
— |
|
|
978 |
Adjusted EBITDA |
|
$ |
(11,010) |
|
$ |
(6,109) |
|
$ |
(4,901) |
1Fav = Favorable variance, which increases EBITDA and Adjusted EBITDA; Unfav = unfavorable variance, which reduces EBITDA and Adjusted EBITDA
|
|
Year-to-date Ended |
|||||||
|
|
September 30, |
|||||||
|
|
Dollar Amounts in Thousands ($000's) |
|||||||
|
|
(UNAUDITED) |
|||||||
|
|
|
|
|
|
|
|
|
$ Change |
|
|
2022 |
|
2021 |
|
|
fav / (unfav) |
||
Net loss |
|
$ |
(33,518) |
|
$ |
(18,644) |
|
$ |
(14,874) |
Interest (income)/expense, net |
|
|
19 |
|
|
(227) |
|
|
246 |
Amortization and depreciation |
|
|
1,992 |
|
|
932 |
|
|
1,060 |
Benefit for income taxes |
|
|
(2,581) |
|
|
— |
|
|
— |
EBITDA |
|
$ |
(34,088) |
|
$ |
(17,939) |
|
$ |
(16,148) |
Adjustments: |
|
|
|
|
|
|
|
|
|
Equity-based employee compensation expense |
|
|
4,566 |
|
|
2,871 |
|
|
1,695 |
Gain on Panacea investment conversion |
|
|
— |
|
|
(2,548) |
|
|
2,548 |
Unrealized loss (gain) on investment |
|
|
2,046 |
|
|
2,040 |
|
|
6 |
Inventory step-up |
|
|
978 |
|
|
— |
|
|
978 |
Adjusted EBITDA |
|
$ |
(26,498) |
|
$ |
(15,576) |
|
$ |
(10,922) |
1Fav = Favorable variance, which increases EBITDA and Adjusted EBITDA; Unfav = unfavorable variance, which reduces EBITDA and Adjusted EBITDA
Notes regarding Non-GAAP Financial Information
In addition to the Company’s reported results in accordance with generally accepted accounting principles in the United States of America (“GAAP”), the Company provides EBITDA and Adjusted EBITDA.
In order to calculate EBITDA, the Company adjusts net (loss) income by adding back interest expense (income), provision (benefit) for income taxes, and depreciation and amortization expense from intangible assets. Adjusted EBITDA consists of EBITDA adjusted by the Company for certain non-cash and non-operating expense, including adding back equity-based employee compensation expense, (gain) loss on investments, inventory step-up amortization, and any unusual or infrequently occurring items.
The Company believes that the presentation of EBITDA and Adjusted EBITDA are important financial measures that supplement discussion and analysis of its financial condition and results of operations and enhances an understanding of its operating performance. While management considers EBITDA and Adjusted EBITDA to be important, these financial performance measures 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) income, 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.
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XXII THIRD QUARTER EARNINGS PRESENTATIONNOVEMBER 8, 2022 |
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CAUTIONARY NOTE ON FORWARD-LOOKING STATEMENTSThis presentation contains forward-looking statements concerning our business operations, and financial performance and conditions, as well as our plans, objectives, and expectations for our business operations and financial performance and conditions that are subject to risks and uncertainties. All statements other than those of historical fact are forward-looking statements. These types of statements typically contain words such as “aim,” “anticipate,” “assume,” “believe,” “could,” “due,” “estimate,” “expect,” “goal,” “intend,” “may,” “objective,” “plan,” “potential,” “positioned,” “predict,” “should,” “target,” “will,” “would” and other similar expressions that are predictions of or indicate future events and future trends. Forward-looking statements are based on current expectations, estimates, forecasts, and projections about our business, the industry in which we operate, and our management’s beliefs and assumptions. 2These statements are not guarantees of future performance or development and involve known and unknown risks, uncertainties, and other factors that are in some cases beyond our control. All forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those estimated. The contents of this presentation should be considered in conjunction with the risk factors, warnings, and cautionary statements contained in the Company’s annual, quarterly, and other reports filed with the U.S. Securities and Exchange Commission. We undertake no obligation to publicly update or revise any forward-looking statement as a result of new information, future events, or otherwise, except as required by law. |
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3FOCUSED ON COMMERICAL TRANSFORMATION IN 3Q Leveraging exceptional VLN® pilot results, moving aggressively into multi-sate commercial launch program Focused on launching VLN® in at least 12 to 15 states within the next 12 months –now in 5 states with proven launch templateEvery 1% share of the U.S. retail market equates to approximately $800 million in retail sales, which is $500 million in revenue for a premium cigarette manufacturer.Advancing GVB’s capabilities to further differentiate its products, access new market opportunities and drive growthPassed NSF International Audit for pharma-grade manufacturingSubmitted Drug Master File to FDA to produce and supply APIs for medical and pharmaceutical industryPursing ICH Q7 international certificationFocused on revenue opportunities and expanding marginsPlan in place to generate positive cash flow and EBITDA from GVB’s operations to fund hemp/cannabis franchise growth and VLN® expansion $10.0 $11.5 $7.9 3Q224Q213Q211Q22$4.52Q22$7.8M$8.0M$9.0M$14.5M$19.4M +149%YoY Hemp/CannabisTobacco Revenue, net (in millions)3 3Q ‘22 gross profit margin includes ~$1 million inventory adjustment related to the GVB acquisition accounting. |
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TobaccoHemp/Cannabis Financials 4 |
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IMPLEMENTING VLN® SALES LAUNCH BLUEPRINT IN NEW MARKETSLeveraging exceptional pilot results and moving aggressively into commercial launch program PhaseStatusPhase 1 –Initial Pilot: Initial launch, media support and general awareness Exceeded internal expectationsPhase 2 –Targeted Offers: Test marketing targeted offers to drive increased share through trial and repeat purchase Exceeded internal expectationsPhase 3 –Go to Market: Build share and expand launch to additional markets and retailers across the convenience, grocery, and drug store channelsRefined and accelerated strategy; expanded to 5 states; adding new distribution and retail partners 5 Exceptional pilot results documented the power of “Awareness, Education, and Trial” go-to-market strategyAdding distribution partners with extensive retail coverage for each new state launchExpanding retail channel with new logos willing to commit to a “go where we go” relationship5 |
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5 CURRENT STATES = ~7% OF U.S. CIGARETTE SALES6 1.Pack Volume2.Retail SalesSource:CDC; Current Cigarette Use Among Adults (Behavior Risk Factor Surveillance System) 2019; World Population Review Cigarette Prices by State; Internal DocumentsAt approximately 382M packs sold, just a 1% market share equates to ~3.8M VLN® packs sold Colorado Total cigarette pack sales: 130M / $1,039M% of adult smokers: 13.5%Utah Total cigarette pack sales: 45M1/ $373M2% of adult smokers: 7.9%Arizona Total cigarette pack sales: 160M / $1,364M% of adult smokers: 14.9%New Mexico Total cigarette pack sales: 48M / $405M% of adult smokers: 16.0%Illinois Total cigarette pack sales: 253M / $2,569M% of adult smokers: 14.5% 22nd Century Group intends to grow its U.S. launch, total of 12 to 18 states within the next 12 months. |
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7 JUST 18 STATES = 53% OF TOTAL U.S. CIGARETTE SALESAt approximately5.0B packs sold, just 1% market share equates to ~50M VLN® packs sold Favorable MRTP Excise Tax StatuteProspective Priority Launch State Source:CDC; Current Cigarette Use Among Adults (Behavior Risk Factor Surveillance System) 2019; World Population Review Cigarette Prices by State; Internal Documents*State with MRTP Tax BenefitPotential VLN® Distribution: MRTP States + Adjacent State Opportunities State% of Adult SmokersPack Volume(Packs, M)Retail Sales($B)AZ15%160M$1.4BCO*14%130M$1.0BCT*12%65M$0.8BFL15%513M$3.9BGA16%398M$2.5BIL15%253M$2.6BIN19%328M$2.3BKY*24%295M$2.0BMI*19%351M$2.9BNC*19%500M$3.3BNM*16%48M$0.4BNY13%180M$2.2BOH21%467M$3.7BSC18%215M$1.5BTX15%736M$5.6BUT*8%45M$0.4BWA*13%124M$1.3BWI15%184M$1.6BTotal-4,989M$39.4B |
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8TARGETED APPROACH TO HIGHEST VOLUME AND HIGHEST POPULATED COUNTIES TO MAXIMIZE RESOURCES AND REACH Population DensityPopulation % within top 10 counties82.5%# of counties to reach 80% of population10% of counties to reach 80% of population 15.6% A significant proportion of adult smokers can be reached by focusing on a small number of counties within a state, allowing us to market VLN® in a streamlined and efficient manner. Source:CDC; Current Cigarette Use Among Adults (Behavior Risk Factor Surveillance System) 2019; World Population Review Cigarette Prices by State; Internal Documents Concentration of Adult Smokers% of adult smokers within top 10 counties78.7%# of counties to reach 80% of adult smokers11% of counties to reach 80% of population 17.2%Colorado –64 Counites |
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PopulationTotal = 18.5MMAdults = 13.4 MMAdult Smokers= 3.0 MMREGIONAL RATIONALE: COVERING FOUR CORNERS Accelerating rollout in additional targeted markets 9Total Cigarette Market=~$3.2 BillionMore Than7,400 Targeted Stores3 States with MRTP Tax SavingCO $6.50 / cartonNM $5.00 / carton UT $4.25 / cartonDistribution NetworkTraditional and Non-Traditional Distribution & Retail Partners Source:Internal Documents; World Population Review Cigarette Prices by State |
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Completed a 25% capacity expansion, including a new production line Added a second shift to enhance production throughputVLN® 2.0 tobacco seeing ~30% higher yields, enhanced quality leaf, improved disease resistance, reduction in nutrient requirements, and increased stability across various environments and geographies. Successful first grow in Chile; expanding growing acreage in 2023 and adding southern hemisphere acreage to secure year-round growing capabilities SCALING MANUFACTURING & GROWING PROGRAMS TO MEET ANTICIPATED DEMAND FOR VLN®10 |
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REGULATORY ENVIRONMENT FAVORS VLN®FDA continues to advance its proposed menthol ban andreduced nicotine content mandate.State and local governments are taking direct action.VLN® Menthol King cigarettes could be the onlycombustible menthol cigarette on the market exempt from the menthol ban.The science shows a reduced nicotine mandate would help all smokers more easily quit smoking or migrate to less toxic products.22nd Century’s research cigarettes continue to fuel numerous independent scientific studiesto validate the enormous public health benefit identified by the FDA from implementing a nicotine standard.11 |
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TobaccoHemp/Cannabis Financials 12 |
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Grow to positive cash flow and EBITDA from GVB operations 13GVB ACCELERATES HEMP/CANNABIS REVENUE GROWTH Plant Profile/ RoadmapPlant BiotechnologyPlant Breeding & TrialsIngredient Extraction, Purification, and Finished ProductsCommercial PartnersCannaMetrix’shigh-throughput proprietary, human cell-based assay technology serves as a roadmap for developing new plant lines with tailor-made profiles.Established proprietary bioinformatics platform and cutting-edge molecular breeding platform in partnership with KeyGene; capabilities include genetic engineering and plant line developmentMultiple partnerships with top global breeders provide 22nd Century with both northern and southern hemisphere, indoor and outdoor, year-round plant breeding and trial capabilities.Hemp-derived active ingredients extractor and finished products manufacturer providing customers with bulk ingredients and white label products22nd Century offers an end-to-end, high-value add solution for leading nutraceutical, consumer products, and pharmaceutical companies entering the ascendant cannabis market.FewDozens (Few are advanced)FewDozens (Very few are reputable and with scale)ThousandsNumber of Participants The addition of GVB positions 22nd Century as one of the largest, if not the largest, CBD suppliers to the North American merchant market. |
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Investing modest additional capital expenditure to significantly expand capacity and revenue support growth TheCompanycurrentlyoperates:Prineville, Oregon:World-scalecrude extraction capacity in excess of 15,000 kg/month at full capacity (operational December 2022)Grass Valley, Oregon:30,000 sq ft; refinement facility Las Vegas, Nevada: 40,000 sq ft; used for Private Label/Contract ManufacturingGVBsourceshempfromtrustedagricultural partners who adheretoGVB’srigorousqualityparameters.14 WORLD-SCALE MANUFACTURING CAPACITY Refinement Facility | Grass Valley PrivateLabel/Contract Manufacturing | Las VegasCrude Extraction | Prineville |
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POSITIONING GVB FOR GLOBAL LEADERSHIP 15Capacity expansion plus industry leading certifications positions GVB as the supplier of choice.Prineville extraction facility will greatly reduce crude costs and support increased isolate margins at our Grass Valley facility. Prineville to come online during Q4 2022 / Q1 2023 and steadily scale production volumes throughout the year.FDA has committed to advance regulatory standards and product recommendations on CBD use in consumer and nutraceutical products.This standard will open the massive consumer products market that is already developing –22nd Century will lead in certified facilities. Pursuing pharmaceutical grade API and additional certifications differentiating GVB distillates and isolates 15 |
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GVB OFFERS OF BEST-IN-CLASS CANNABINOIDS AND CANNABINOID INFUSED PRODUCTS CannabinoidAbbreviationCannabidiol IsolateCBD IsolateCannabidiol Broad Spectrum DistillateCBD BSDCannabigerol IsolateCBG IsolateCannabidiol Crystal Resistant DistillateCBD CRDCompliant Broad-Spectrum DistillateCompliant BSDCannabidiol THC-Free CrudeCBD THC-Free CrudeUK Compliant Broad-Spectrum DistillateUK Compliant BSDCannabinol IsolateCBN IsolateCannabichromene IsolateCBC IsolateCannabidiolic Acid CBDAKey Cannabinoids GVB has the capabilities to produce a large array of cannabinoids CBD Isolate White Label Contract Manufacturing Product OfferingTincturesGel CapsulesGummiesMintsTabletsTopicalVape Pens 16 |
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TobaccoHemp/Cannabis Financials 17 |
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THIRDQUARTER2022FINANCIALHIGHLIGHTS1.Grossprofitmarginiscalculatedbydividinggrossprofit by netrevenues. NetRevenuesGrossProfitGrossProfit Margin1OperatingLoss3Q2022$19.4M$619K3.2%$(15.3)M3Q2021$7.8M$292K3.7%$(7.6)M +148%QoQNetRevenues: $7.8Mdue to acquisition of GVB –first full quarter of GVB revenue+112% increase QoQgrossprofit18 |
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TOBACCO REVENUE & PROFIT BREAKDOWN Tobacco3Q 20223Q 2021Change %Unit sales11.6M1.1M45%Net revenue$11.5M$7.8M48%Gross profit $636K$292K118%Gross profit margin25.5%3.7%180 bps19Net revenue and gross margin expansion QoQ were primarily driven by:Volume increases in the number of cartons soldPrice increasesFavorable mix, including export cigarettes1.Tobacco unit sales volume is measure in cartons2.Grossprofitmarginiscalculatedbydividinggrossprofit by netrevenues3.Contract manufacturing operations (CMO)Opportunity for additional tobacco net revenue growth and margin expansion with:Increased sales volume of higher margin CMO cigarette customers Accelerated VLN® launch driving increased revenue and margin contribution from premium VLN® products |
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HEMP/CANNABIS REVENUE & PROFIT BREAKDOWN Hemp/Cannabis3Q 20223Q 20212Change %Unit sales123,71912,99683%Net revenue$7.8M$6.3M25%Gross profit$(17K)$697KNM320Net revenue growth QoQ primarily driven by:Addition of GVB contributionSignificant GVB organic revenue volume growth QoQQ3 2022 pro forma gross margin was approximately 8.1% compared with 9.7% prior year. Additional hemp/cannabis opportunity driven by:Organic growth reflecting continued strong customer demandIncreased profit margin from vertical integration with new Prineville crude extraction facility becoming fully operational 1.Hemp/cannabis unit sales volume is measured as kilograms.2.GVB acquisition occurred on May 13, 2022. All prior period results are provided for illustrative purposes only. These pro forma results do not purport to be indicative of the results that would have been obtained, or to be a projection of results that may be obtained in the futures. Refer to Q3 2022 Form 10-Q Note 2 of the Condensed Consolidated Financial Statements for description of pro forma adjustments as required under U.S. GAAP.3.Not meaningful; the percentage change is determined to be not meaningful to the analysis provided |
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GVB ACQUISTION Q3 ‘22 purchase price allocation –May 13, 2022 acquisition date Adjusted 3Q ‘22(in millions)Current assets, excluding inventory$ 3.4Inventory$ 5.3Other assets$ 0.5Property, plant & equipment and ROU lease asset$ 12.6Goodwill$ 33.7 Tradename$ 4.6Customer lists$ 5.8Accounts payable and accrued expenses($ 2.9) Leases and other liabilities($ 2.6) Deferred tax liability($ 2.7)Bridge loan($ 4.3) Fair value of net assets acquired$53.421•During 3Q ‘22, the fair values of assets acquired and liabilities assumed were adjusted to reflect ongoing acquisition valuationanalysis procedures of property and equipment, intangible assets, deferred taxes, and working capital adjustments. These adjustments resulted in a combined reduction to goodwill of $10.5M. •The amounts reported are considered provisional as the Company is finalizing the valuations that are required to allocate thepurchase price through the measurement period, which remains open as of September 30, 2022. As a result, the allocation of the provisional purchase price may change in the future, which could be material. |
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SUMMARY BALANCE SHEET ITEMS Balance sheet date as of:(in millions)3Q 20224Q 2021Cash and cash equivalents1$ 43.7$48.7Total assets$ 142.2$76.0Total liabilities$ 21.1$9.9Total shareholders' equity$ 121.1$66.1 22•Strengthened balance sheet during 2022•Strong working capital as of September 30, 2022•In October 2022, paid outstanding principal and interest of certain GVB Bridge Notes; expected refinancing of remaining portion•Recognized $44.2M of goodwill and intangible assets as a result of GVB acquisition1.Cash and cash equivalents includes short-term investment securities.Strength of balance sheet supports our near-term strategic initiatives including accelerating VLN® launch, meeting increased customer demand for GVB products, and continuing to prioritize key R&D projects to support our three plant science businesses. |
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23FOCUSED ON INITIATIVES TO DRIVE GROWTH Leveraging exceptional VLN® pilot results, moving aggressively into multi-sate commercial launch program Focused on launching VLN® in at least 12 to 15 states within the next 12 months –now in 5 states with proven launch templateEvery 1% share of the U.S. retail market equates to approximately $800 million in retail sales, which is $500 million in revenue for a premium cigarette manufacturer.Advancing GVB’s capabilities to further differentiate its products, access new market opportunities and drive growthPassed NSF International Audit for pharma-grade manufacturingSubmitted Drug Master File to FDA to produce and supply APIs for medical and pharmaceutical industryPursing ICH Q7 international certificationFocused on revenue opportunities and expanding marginsPlan in place to generate positive cash flow and EBITDA from GVB’s operations to fund hemp/cannabis franchise growth and VLN® expansion Hemp/CannabisTobacco Revenue, net (in millions)23 |
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Questions & Answers QA24 |
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CONTACT INFORMATIONINVESTOR RELATIONS & MEDIA CONTACTMei Kuo22nd Century Group, Inc. Director, Communications & Investor Relations mkuo@xxiicentury.com Matt Kreps Darrow Associates Investor Relations T: 214-597-8200mkreps@darrowir.com |
