22nd Century Group (XXII) Reports Second Quarter 2023 Financial Results

In this article:
22nd Century Group, Inc22nd Century Group, Inc
22nd Century Group, Inc
  • Second Quarter 2023 Net Revenues Increased 62% to $23.4 Million

  • Launched VLN® Sales in California, Texas and Florida

  • Delivered Record GVB Ingredient Volumes as Dominant Supplier in North America

  • Initiated Operating Cost Reduction Program Targeting $15+ Million in Annualized Savings

  • Updated 2023 Revenue Outlook to a Range of $80 Million to $90 Million to Reflect Revised VLN® Rollout Timelines and Transitioning GVB Ingredient Volumes Back to Internal Production

BUFFALO, N.Y., Aug. 14, 2023 (GLOBE NEWSWIRE) -- 22nd Century Group, Inc. (Nasdaq: XXII), a leading biotechnology company focused on utilizing advanced plant technologies to improve health and wellness with reduced nicotine tobacco, hemp/cannabis and hops, today reported results for the Second quarter ended June 30, 2023, and provided an update on recent business highlights. The Company will host a live audio webcast today at 8:00 a.m. ET.

“Our focus in 2023 remains 22nd Century’s transformation from a primary emphasis on research and development to a fully commercial enterprise providing innovative harm reduction and consumer health and wellness products to key end markets. We have now significantly advanced our commercialization plan for VLN® sales across targeted states, 14 of which are now in place and two more states scheduled in September with a new drug store customer, a diversified hemp/cannabis ingredients and distribution business and a robust license and distribution business in both tobacco and hemp/cannabis,” and said John Miller, interim Chief Executive Officer of 22nd Century Group.

“Following an initial delay in our commercial plans earlier this year, which are common on retail launches, we have now substantially expanded the availability of our FDA authorized, reduced nicotine content cigarettes VLN®, a tobacco harm reduction product unlike any other. VLN® retail outlets and points of sale increased notably in the second quarter, then more than doubled with the additional stores added in July with our launch at the #1 U.S. c-store chain and others in California, Texas and Florida. New chains continue to launch, such as our first drug store channel placement expected to commence as a five-state launch in September. With this improved reach and density, we have updated and revised our sales planning to focus on maximizing our depth and maintaining the message within these channels to demonstrate proof of concept with the new brand marketing and retail chains throughout the rest of this year. Our revised and updated VLN plan will include a more focused, cost-efficient marketing and sales effort within our footprint and a commitment to streamline our operations relative to the first half that reflected heavier investment in new systems and logistics for the launch.”

“Our hemp/cannabis ingredients, manufacturing and licensing business reported another record quarter as 22nd Century continues to consolidate and leverage its industry leadership position. We believe the record ingredient volumes reflected both overall industry growth and increasing customer preference for our products over other less reliable sources. Initial sales under our new license and distribution agreements occurred in July, with additional scale expected in the second half, which is expected to provide a new source of revenue and gross profit. The return of our in-house manufacturing capabilities is expected to mean the return of manufacturing gross profits, helping to restore our verticalized operating profile that was directly affected by the fire last November.”

“In addition to these commercial opportunities, we are also implementing programs intended to reduce our operating costs by at least $15 million on an annualized basis. Much of this will reflect efficiencies and streamlining as we conclude a period of substantial extra upfront investment undertaken in the first half of 2023 to upgrade distribution, regulatory approvals, marketing, sales and research activities in support of our VLN® launch, which we are now aligning to the more focused ongoing needs for the commercial launch,” concluded Mr. Miller.

Recent Key Financial and Business Highlights

Tobacco Business

  • Continued multi-state VLN® rollout strategy, now selling in 14 targeted states for 2023.

  • More than doubled VLN® store counts in July after strong growth through the second quarter, with VLN now available in 2,800+ stores and the three largest state markets of Texas, California and Florida.

  • Launched new VLN® educational materials, distribution resources, retail incentives and media programming targeting adult smoker and influencer audiences.

  • Continued to scale support for Pinnacle, a private label conventional premium cigarette brand selling at one of the nation's top-10 gas station convenience store chains in 20+ states.

  • VLN® pilot activities continued in international markets of Switzerland, Japan and South Korea.

  • Poised to benefit from federal, state and international regulatory interest, including the proposed FDA menthol cigarette ban expected to be updated in August 2023, among others.

Hemp/Cannabis Business

  • Shipped record cannabinoid ingredient volumes, increased more than 188% year-over-year to more than 76,000 kgs supplied, as the largest provider of cannabinoid extracts and isolates in North America focused on cannabidiol (CBD) and cannabigerol (CBG) extracted and refined at industrial scale into distillates.

  • 1H 2023 ingredient volumes in excess of 144,000 kgs have already exceeded full-year 2022 shipments of more than 112,000 kgs.

  • In July resumed production of CBD distillate products at new GVB facilities located in Oregon, which should facilitate gross margin improvement on GVB produced cannabinoid products for the remainder of 2023.

  • Commenced CBD crude extract operations, providing opportunities for additional verticalization and related gross profit improvement.

  • Contracted new growing programs to cultivate hemp biomass for extraction, designed to improve both margin on and availability of biomass volumes sufficient to meet rising customer demand, with harvests expected 2H 2023.

  • Advanced distribution and point of sale activity to initial shipments in July 2023 for three-year exclusive license and distribution agreements with Cookies and Old Pal.

  • Advanced plans to restart CBD isolate production, expected in Q1 2024, which should further improve gross margin.

Corporate Updates

  • Revised the Company’s 2023 revenue outlook from a range of $105 million to $110 million to a range of $80 million to $90 million to account for changes in the launch timeline and scope of VLN® at certain key chains in 2023, transitioning GVB volumes back to internal production and the operating cost reduction plan.

  • Announced the resignation of James A. Mish as Chief Executive Officer, and appointed John Miller, who leads the tobacco business unit, as interim Chief Executive Officer.

  • Regained compliance with Nasdaq listing qualifications per a letter dated July 19, 2023.

  • Added Wall Street veteran Andy Arno as an Independent Director and member of the Board of Directors.

  • Raised an aggregate of $19.9 million in gross proceeds in June and July 2023.

Second Quarter 2023 Financial Results

  • Net revenues for the second quarter of 2023 were $23.4 million, an increase of 61.8% from the same period in 2022.

    • Revenue from tobacco-related products was $8.1 million, reflecting the Company’s transition away from low margin filtered cigar products to focus production and capacity on higher margin products, such as VLN® and Pinnacle.

    • Revenue from hemp/cannabis-related products was $15.4 million, as volumes continued to ramp on share gains.

      • Approximately $0.6 million of additional sales initially intended for the second quarter will instead be recognized in the third quarter due to shipment cutoff timing to accommodate the Fourth of July holiday.

  • Gross profit for the second quarter of 2023 was $(2.3) million as compared to $0.9 million in the prior year period.

    • Gross profit from tobacco-related products was $(1.0) million, reflecting the aforementioned lower margin product mix.

    • Gross profit from hemp/cannabis-related products was $(1.4) million, reflecting the final quarter of primarily ingredient trading activity due to the November 2022 plant fire; the Company is restarting production in its own ingredients at new facilities.

      • Second quarter gross profit was negatively impacted by approximately $2.4 million related to the plant fire.

      • The Company believes these losses are covered by its business interruption insurance coverage and has filed litigation to enforce its claim dating to the November 2022 plant fire.

    • Gross margin is expected to improve in the second half of 2023 reflecting:

      • Improving product margin mix for tobacco products reflecting reduced filtered cigar volume

      • New in-house GVB crude extraction and distillate production capabilities as opposed to reselling activities

      • The initial harvest of hemp/cannabis biomass expected to reduce raw material expenses in the second half of 2023

      • New CDMO+D contracts to begin shipping product in the second half of 2023.

  • Total operating expenses for the second quarter of 2023 were $17.0 million, driven by the addition of GVB operations, investment in the VLN® products sales and launch and ongoing investments in back-office support.

    • The Company announced a cost reduction initiative for the second half 2023, expected to generate at least $15 million in annualized operating cost reductions

    • Cost reductions are intended to streamline the business, focusing operating activities on sustaining and growing the commercial footprint, following heavier initial investment required to support the commercial launches during 1H 2023

  • Operating loss and net loss for the second quarter of 2023 was $19.4 million, compared to $10.5 million in the prior year period.

  • Adjusted EBITDA was a loss of $16.0 million, compared to prior year loss of $7.1 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 June 30, 2023, the Company had $11.9 million in cash, cash equivalents and restricted cash.

  • Subsequently, in July 2023, the Company raised approximately $14.6 million in additional gross proceeds in equity transactions.

Second Quarter 2023 Conference Call
22nd Century will host a live webcast today at 8:00 a.m. E.T. to discuss its second quarter 2023 financial results and business highlights.
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://ir.xxiicentury.com/events-and-presentations/default.aspx. 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 biotechnology company focused on utilizing advanced plant technologies to improve health and wellness through tobacco harm reduction, reduced nicotine tobacco, hemp/cannabis and hops. 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 Modified Risk Tobacco Product (MRTP) authorization for 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 pharmaceutical 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, including but not limited to our full year business outlook. 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 9, 2023. 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
Matt Kreps
Investor Relations
22nd Century Group
mkreps@xxiicentury.com
214-597-8200


22nd CENTURY GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(amounts in thousands, except per-share data)

 

 

 

 

 

 

 

 

 

June 30,

 

December 31,

 

 

2023

 

2022

ASSETS

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

4,433

 

 

$

3,020

 

Short-term investment securities

 

 

 

 

 

18,193

 

Accounts receivable, net

 

 

8,736

 

 

 

5,641

 

Inventories

 

 

14,318

 

 

 

10,008

 

Insurance recoveries

 

 

3,000

 

 

 

5,000

 

Prepaid expenses and other current assets

 

 

6,388

 

 

 

2,743

 

Total current assets

 

 

36,875

 

 

 

44,605

 

Property, plant and equipment, net

 

 

14,401

 

 

 

13,093

 

Operating lease right-of-use assets, net

 

 

6,955

 

 

 

2,675

 

Goodwill

 

 

33,360

 

 

 

33,160

 

Intangible assets, net

 

 

21,526

 

 

 

16,853

 

Investments

 

 

682

 

 

 

682

 

Restricted cash

 

 

7,500

 

 

 

 

Other assets

 

 

3,681

 

 

 

3,583

 

Total assets

 

$

124,980

 

 

$

114,651

 

 

 

 

 

 

 

 

LIABILITIES AND SHAREHOLDERS' EQUITY

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Notes and loans payable - current

 

$

1,988

 

 

$

908

 

Current portion of long-term debt

 

 

1,960

 

 

 

 

Operating lease obligations

 

 

1,082

 

 

 

681

 

Accounts payable

 

 

6,449

 

 

 

4,168

 

Accrued expenses

 

 

6,842

 

 

 

1,428

 

Accrued payroll

 

 

2,426

 

 

 

3,199

 

Accrued excise taxes and fees

 

 

2,704

 

 

 

1,423

 

Deferred income

 

 

214

 

 

 

831

 

Other current liabilities

 

 

1,438

 

 

 

380

 

Total current liabilities

 

 

25,103

 

 

 

13,018

 

Long-term liabilities:

 

 

 

 

 

 

Notes and loans payable

 

 

185

 

 

 

3,001

 

Operating lease obligations

 

 

6,118

 

 

 

2,141

 

Long-term debt

 

 

15,326

 

 

 

 

Other long-term liabilities

 

 

5,656

 

 

 

516

 

Total liabilities

 

 

52,388

 

 

 

18,676

 

Commitments and contingencies (Note 11)

 

 

 

 

 

 

Shareholders' equity

 

 

 

 

 

 

Preferred stock, $.00001 par value, 10,000,000 shares authorized

 

 

 

 

 

 

Common stock, $.00001 par value, 33,333,334 shares authorized

 

 

 

 

 

 

Capital stock issued and outstanding:

 

 

 

 

 

 

15,926,803 common shares (14,349,275 at December 31, 2022)

 

 

 

 

 

 

Common stock, par value

 

 

 

 

 

 

Capital in excess of par value

 

 

349,206

 

 

 

333,900

 

Accumulated other comprehensive loss

 

 

39

 

 

 

(111

)

Accumulated deficit

 

 

(276,653

)

 

 

(237,814

)

Total shareholders' equity

 

 

72,592

 

 

 

95,975

 

Total liabilities and shareholders’ equity

 

$

124,980

 

 

$

114,651

 


22nd CENTURY GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(Unaudited)
(amounts in thousands, except per-share data)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Six Months Ended

 

 

June 30,

 

June 30,

 

 

2023

 

2022

 

2023

 

2022

Revenues, net

 

$

23,427

 

 

$

14,477

 

 

$

45,389

 

 

$

23,521

 

Cost of goods sold

 

 

25,772

 

 

 

13,585

 

 

 

48,911

 

 

 

22,321

 

Gross (loss) profit

 

 

(2,345

)

 

 

892

 

 

 

(3,522

)

 

 

1,200

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

Sales, general and administrative

 

 

14,540

 

 

 

8,684

 

 

 

28,771

 

 

 

15,946

 

Research and development

 

 

1,793

 

 

 

1,897

 

 

 

3,310

 

 

 

3,036

 

Other operating expense, net

 

 

675

 

 

 

787

 

 

 

1,573

 

 

 

839

 

Total operating expenses

 

 

17,008

 

 

 

11,368

 

 

 

33,654

 

 

 

19,821

 

Operating loss

 

 

(19,353

)

 

 

(10,476

)

 

 

(37,176

)

 

 

(18,621

)

Other income (expense):

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized loss on investments

 

 

 

 

 

(885

)

 

 

 

 

 

(1,702

)

Realized loss on short-term investment securities

 

 

(28

)

 

 

(108

)

 

 

(41

)

 

 

(108

)

Other income, net

 

 

16

 

 

 

 

 

 

34

 

 

 

 

Interest income, net

 

 

65

 

 

 

48

 

 

 

122

 

 

 

98

 

Interest expense

 

 

(1,193

)

 

 

(77

)

 

 

(1,614

)

 

 

(82

)

Total other expense

 

 

(1,140

)

 

 

(1,022

)

 

 

(1,499

)

 

 

(1,794

)

Loss before income taxes

 

 

(20,493

)

 

 

(11,498

)

 

 

(38,675

)

 

 

(20,415

)

Provision for income taxes

 

 

46

 

 

 

 

 

 

46

 

 

 

 

Net loss

 

$

(20,539

)

 

$

(11,498

)

 

$

(38,721

)

 

$

(20,415

)

Deemed dividend from trigger of anti-dilution provision feature

 

 

(367

)

 

 

 

 

 

(367

)

 

 

 

Net loss available to common shareholders

 

$

(20,906

)

 

$

(11,498

)

 

$

(39,088

)

 

$

(20,415

)

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted loss per common share

 

$

(1.40

)

 

$

(0.95

)

 

$

(2.67

)

 

$

(1.77

)

Weighted average common shares outstanding - basic and diluted

 

 

14,900

 

 

$

12,134

 

 

 

14,644

 

 

 

11,509

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

 

(20,539

)

 

 

(11,498

)

 

$

(38,721

)

 

$

(20,415

)

Other comprehensive loss:

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized gain (loss) on short-term investment securities

 

 

10

 

 

 

(69

)

 

 

71

 

 

 

(469

)

Foreign currency translation

 

 

42

 

 

 

 

 

 

38

 

 

 

 

Reclassification of realized losses to net loss

 

 

28

 

 

 

108

 

 

 

41

 

 

 

108

 

Other comprehensive income (loss)

 

 

80

 

 

 

39

 

 

 

150

 

 

 

(361

)

Comprehensive loss

 

$

(20,459

)

 

$

(11,459

)

 

$

(38,571

)

 

$

(20,776

)

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 six month periods ended June 30, 2023 and 2022, including a reconciliation of these Non-GAAP measures for such periods.

 

 

 

 

 

 

 

 

 

 

 

 

Quarter Ended

 

 

June 30,

 

 

Dollar Amounts in Thousands ($000's)

 

 

(UNAUDITED)

 

 

 

 

 

 

 

 

 

$ Change

 

 

2023

 

2022

 

 

fav / (unfav)

Net loss

 

$

(20,539

)

 

$

(11,498

)

 

$

(9,041

)

Interest (income)/expense, net

 

 

1,129

 

 

 

29

 

 

 

1,100

 

Provision for income taxes

 

 

46

 

 

 

 

 

 

46

 

Amortization and depreciation

 

 

1,212

 

 

 

595

 

 

 

617

 

EBITDA

 

$

(18,152

)

 

$

(10,875

)

 

$

(7,278

)

Adjustments:

 

 

 

 

 

 

 

 

 

Equity-based employee compensation expense

 

 

1,486

 

 

 

1,106

 

 

 

380

 

Needlerock Farms settlement

 

 

10

 

 

 

 

 

 

10

 

Grass Valley fire

 

 

256

 

 

 

 

 

 

256

 

Loss on change of warrant liability

 

 

584

 

 

 

 

 

 

584

 

Gain on change in contingent consideration

 

 

(217

)

 

 

 

 

 

(217

)

Acquisition costs

 

 

70

 

 

 

787

 

 

 

(717

)

Unrealized loss on investment

 

 

 

 

 

885

 

 

 

(885

)

Inventory step-up

 

 

 

 

 

978

 

 

 

(978

)

Adjusted EBITDA

 

$

(15,963

)

 

$

(7,118

)

 

$

(8,845

)

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

 

 

 

 

 

 

 

 

 

 

 

 

Year Ended

 

 

June 30,

 

 

Dollar Amounts in Thousands ($000's)

 

 

(UNAUDITED)

 

 

 

 

 

 

 

 

 

$ Change

 

 

2023

 

2022

 

 

fav / (unfav)

Net loss

 

$

(38,721

)

 

$

(20,415

)

 

$

(18,306

)

Interest (income)/expense, net

 

 

1,492

 

 

 

(16

)

 

 

1,508

 

Provision for income taxes

 

 

46

 

 

 

 

 

 

46

 

Amortization and depreciation

 

 

2,093

 

 

 

924

 

 

 

1,169

 

EBITDA

 

$

(35,090

)

 

$

(19,507

)

 

$

(15,583

)

Adjustments:

 

 

 

 

 

 

 

 

 

Equity-based employee compensation expense

 

 

2,661

 

 

 

2,319

 

 

 

342

 

Needlerock Farms settlement

 

 

756

 

 

 

 

 

 

756

 

Grass Valley fire

 

 

324

 

 

 

 

 

 

324

 

Loss on change of warrant liability

 

 

723

 

 

 

 

 

 

723

 

Gain on change in contingent consideration

 

 

(195

)

 

 

 

 

 

(195

)

Acquisition costs

 

 

139

 

 

 

839

 

 

 

(700

)

Unrealized loss on investment

 

 

 

 

 

1,702

 

 

 

(1,702

)

Inventory step-up

 

 

 

 

 

978

 

 

 

(978

)

Adjusted EBITDA

 

$

(30,682

)

 

$

(13,669

)

 

$

(17,013

)

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, acquisition costs, 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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