22nd Century (XXII) About to Experience a Growth Spurt with New Initiatives on the Horizon
XXII transacts an immediately accretive deal in the cannabis sector.
Good day everyone,
We are initiating coverage on 22nd Century Group, Inc. (NYSE: XXII), a leading plant-based, biotechnology company that is focused on tobacco harm reduction, very-low nicotine content tobacco, and hemp/cannabis research.
Current price $3.82/share
Outstanding shares (est.) 162M
Shares in float (est.) 141M
Institutional ownership 28.9%
Revenues (ttm) 27M
Our last report on XXII was in April when the company shares were at $5.15, and we saw them move to $5.62/share. We looked at what’s new at XXII and coupled with the current lower share price, prompted this report. When we look the company stock chart, we see the company shares trading below their 50 DMA of $4.48 and a current RSI (14) of 35.41 and we believe those data indicate a “buying the dip” opportunity.
A month ago, XXII completed a $40M capital raise. “This straight common equity financing will accelerate our ongoing strategic objectives and enable us to continue to advance across each of our three plant franchises. With our recently announced initiatives to strengthen and maximize multiple revenue opportunities in our hemp/cannabis franchise, we are now squarely positioned in the mainstream of the cannabis equity space,” said James A. Mish, chief executive officer of 22nd Century Group.
It was just on June 25th that CEO James Mish out lined the path forward for the company in a letter to shareholders. He pointed out that “political momentum in our favor. We have seen renewed interest in and support for a menthol ban on tobacco products, a reduced nicotine mandate requiring that all cigarettes be made “minimally or non-addictive” based on their nicotine content and, with 36 states now legalizing cannabis in some form, major progress on potential reform to hemp/cannabis regulation.” We urge you to read that recent letter to shareholders, it almost has a “swagger” to it and we liked that.
Mr. Mish further stated “22nd Century offers the FIRST and ONLY reduced nicotine content combustible cigarette product authorized for sale by the FDA, and our pending MRTP authorization will allow us the headline marketing claim that our industry-disrupting cigarettes contain “95% Less Nicotine. We have expanded our VLN® tobacco growing program for the current crop year to support anticipated demand.” Advertising cigarettes is pretty much illegal but if the FDA wants VLN cigarettes in the hands of smokers, what is the point of not advertising them?
The global market for cigarettes is estimated to be over $700 billion. That means that each 1% of the cigarette market share represents $7 billion in revenues.
On their cannabis/hemp business:
The company is also stepping up its involvement in the cannabis sector telling shareholders “We have expanded and advanced our successful plant research partnerships with KeyGene and CannaMetrix and established strategic partnerships with two leading and soon to be announced, alkaloid-based plant breeders in the northern and southern hemispheres, providing for year-round growing capabilities.”
22nd Century Group has now secured all key partnerships needed to maximize and support each of the five components in the upstream segment of the cannabinoid value chain: plant profiling (CannaMetrix), plant biotechnology (KeyGene), commercial-scale plant breeding; plant cultivation (Needle Rock Farms and breeder network), and ingredient extraction/purification (Panacea). In doing so, they have built a unique ability to accelerate the delivery of valuable, commercial-scale plant lines and intellectual property.
A new Canadian subsidiary, 22nd Century Canada, was launched in May to serve as a base for all XXIIs expanded activities in tobacco and hemp/cannabis products.
In further news on the XXII cannabis business, the company announced it has signed a definitive agreement to restructure its strategic investment in Panacea Life Sciences, Inc. 22nd Century’s existing $7 million note in Panacea will be exchanged for ownership of Needle Rock Farms, located in a prime Colorado hemp/cannabis growing location and valued at $2.2 million. The Company will also receive a new $4.3 million note and $500,000 in Panacea equity.
In addition, $7.0 million in Panacea Life Sciences Series B Preferred Stock held by 22nd Century will be converted into 91 million shares of Exactus, Inc. (OTCQB: EXDI), as part of a business combination transaction via share exchange with Panacea under which Panacea will become publicly traded. The transaction is expected to be immediately accretive to 22nd Century.
The recent dilutive cash raise of $40M stings for many investors but in this case, we believe it was a necessary move to facilitate the growth initiatives coming for the company. Too often we see these cash raises with the purpose of “general corporate expenses” but XXII has told us exactly what they need to spend money on.
The initiatives we’ve reiterated above may cause a growth in company revenues in the near-mid term particularly with the potential sales of their VLN cigarette product line and the accretive equity stake in Exactus. We are excited to see the company developing their cannabis business and are looking forward to seeing initiatives there.
What is equally exciting is the potential for catalysts generated by company announcements in the near term. We recommend that as part of your due diligence, you read the recent letter to shareholders in its entirety.
The Traders News Group
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