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. XXII owns or controls the rights to commercialize over 200 issued and pending patents related to the tobacco plant.
22nd Century Group’s over 200 patents on the tobacco plant could be on the cusp of being with billions following a potential government mandate regarding nicotine levels in tobacco products.
Current price $5.15/share
Huge markets involved
When we look at the company stock chart, we see that XXII shares have been on a nice run thus far in 2021 gaining over 100%. That’s a nice gain but we believe the value of XXII could be headed for the stratosphere. When you hear their story, you may agree with us. We think this week could be a big one for XXII shares.
XXII started a decade ago with the intent to grow genetically engineered tobacco with a drastically lower nicotine level, and they have done exactly that, creating an FDA approved cigarette they call Moonlight or Very Low Nicotine (VLN) cigarettes. VLN tobacco has 0.5mg of nicotine per gram, the tobacco used in a Marlboro has about 20mg of nicotine per gram. Nicotine is the addictive compound in cigarettes.
But big tobacco did not come knocking at their door, they didn’t seem to have interest in a tobacco leaf absent the addictive nicotine compound. XXII’s biggest customer so far has probably been the US government who have purchased over 3.6 million VLN cigarettes and invested over $100M in government agency studies of the XXII technology.
XXII has been working steadfastly with the FDA and the Congress for years determining the value to America of cigarettes with extremely low levels of nicotine. The US government is fully aware of what XXII has been working toward.
Recent reports in the media (WSJ) indicate that the Biden Administration is actively considering moving forward the Advance Notice of Proposed Rulemaking (ANPRM) that will require Big Tobacco to reduce the amount of nicotine in all combustible cigarettes sold in the United States to be “minimally or non-addictive”. Make no mistake, the US government is making this move because they know the technology exists to do it thanks to XXII.
The US Congress has been trying to implement control over nicotine levels in all tobacco products and vapes in a stated effort to severely limit youth smoking. Speaker Pelosi is known to hand signs and ban smoking all over the Capitol. One obstacle in this Congressional debate, supported by several members of Congress, and opposed by the tobacco lobby, is specifying a level of nicotine.
Many in congress want the FDA to first determine the desired level of nicotine. The XXII Moonlight cigarettes (FDA approved) have 0.2 to 0.5 mg of nicotine. Thus far, legislation regulating nicotine has passed the House, but has fizzled beyond that.
In congressional hearings, the CEOs of big tobacco have told congress they are struggling to reduce nicotine in their products because they keep running into patents held by XXII, and the company won’t share their process.
XXII owns or controls the rights to commercialize over 200 issued and pending patents. In a February letter to shareholders, the company stated: “22nd Century is in a very enviable – and near standalone – position to capitalize on the global combustible market that is valued at more than $700 billion annually. Having the only combustible cigarette with a modified exposure claim authorized by the FDA would serve as a catalyst for 22nd Century’s commercial sales, as achieving even 0.25% share of the U.S. tobacco market would result in a substantial increase in revenue and market capitalization for the company. This will be our home run.”
Cigarette smoking remains the leading cause of preventable disease and death in the United States. Smoking-related illness in the United States costs more than $300 billion each year, including: Nearly $170 billion for direct medical care for adults. More than $156 billion in lost productivity, including $5.6 billion in lost productivity due to secondhand smoke exposure.
The global tobacco market is $817B but we want to focus on tobacco companies with a significant level of U.S. sales as they would be most impacted by an FDA move to reduce nicotine content:
British American Tobacco- Revenue: $35.71 billion– Kent, Lucky Strike, and Dunhill
Philip Morris Inc.- Revenue: $79.82 billion– Marlboro
Altria Group- Revenue: $25.576 billion -JUUL, Copenhagen, Skoal
Universal Corporation- Revenue: $1.9 billion– Raw tobacco leaf
What would the American cigarette market look like if the proposed nicotine mandate went into effect? XXII is prepared to begin producing VLN cigarettes on a large scale within 90 days of that event. Could the company generate $135B of VLN cigarettes, for the domestic market, with their own tobacco, quickly?
The company will host a live audio webcast on Thursday, May 6, 2021, at 10:00 AM ET to discuss its 2021 first quarter results. You can access the webcast at www.xxiicentury.com/investors/events.
With 22nd Century’s breakthrough molecular breeding technology, they can dramatically improve the development process time that it takes to develop new, high-value hemp/cannabis cultivars. In a recent research report, Prohibition Partners estimates that legal cannabis sales in North America alone reached approximately $18.1 billion in 2020 and is projected to rise to $39.1 billion by 2025. XXII is working with multiple partners in developing modified hemp/cannabis products and that’s another story by itself.
We don’t know where the potential ANPRM will take XXII, but we expect there could be a significant benefit to shareholders. Some potential scenarios could be:
XXII exploits the assets it has and grows its modified tobacco and manufactures VLN cigarettes. In their Power Point presentation, available on their website, the company claims they are prepared to make that happen.
XXII could also be presented with an exit scenario by one of the big tobacco companies, creating a benefit to shareholders. A potential suitor for XXII would possibly gain control over the company’s 200 patents and patents pending.
Another scenario would be the licensing of the company’s technology to ALL the tobacco companies that want it. This scenario could generate a steady income for XXII for as long as the patents were protected.
XXII is finally coming into its own after a decade of hard work developing their products. They have been meticulous in protecting their technology. With an $800B worldwide tobacco market and the potential to save the US up to $300B in healthcare costs, the potential for XXII seems unlimited and the timing appears to be perfect!
Together We’re Strong,
The Traders News Group
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