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Edited Transcript of XXII earnings conference call or presentation 7-Mar-19 9:00pm GMT

Full Year 2018 22nd Century Group Inc Earnings Call

WILLIAMSVILLE Mar 13, 2019 (Thomson StreetEvents) -- Edited Transcript of 22nd Century Group Inc earnings conference call or presentation Thursday, March 7, 2019 at 9:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Henry Sicignano

22nd Century Group, Inc. - President, CEO & Director

* John T. Brodfuehrer

22nd Century Group, Inc. - CFO & Treasurer

* Thomas L. James

22nd Century Group, Inc. - VP, General Counsel & Secretary

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Conference Call Participants

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* James Patrick McIlree

Chardan Capital Markets, LLC, Research Division - Senior Research Analyst of Industrial and Consumer Technology

* Robert Branciforte

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Presentation

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Operator [1]

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Good day, and welcome to the 22nd Century Fourth Quarter 2018 Business Update Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Thomas James. Please go ahead, sir.

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Thomas L. James, 22nd Century Group, Inc. - VP, General Counsel & Secretary [2]

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Thank you very much. Thank you, everyone, for joining the call today. My name is Thomas James, the Vice President, General Counsel and Corporate Secretary of 22nd Century Group. And thank you also for listening to the required legal safe harbor text that I will now read. The statements made on today's call that are not based on historical information are forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include, but are not limited to, statements regarding our company's business strategy, future plans and objectives and future results of operations or that may predict, forecast, indicate or imply future results, performance or achievements. The words estimate, project, intend, forecast, anticipate, plan, expect, believe, will, will likely, should, may or the negative of such words or words or expressions of similar meanings are all intended to identify forward-looking statements. These forward-looking statements are not guarantees of performance, and all such forward-looking statements involve risks and uncertainties, many of which are beyond our company's ability to control. Actual results may differ materially from those expressed or implied by such forward-looking statements as a result of various factors, including, but not limited to, the risk factors disclosed in our company's most recent annual report on Form 10-K for the year ended December 31, 2018, as filed with the U.S. Securities and Exchange Commission yesterday, on March 6, 2019. The company does not undertake and it disclaims any obligation to update any forward-looking statements or to announce revisions to any of the forward-looking statements.

During this call, we will also disclose certain non-GAAP financial measures, including adjusted EBITDA, which we define as earnings before interest, taxes, depreciation and amortization as adjusted by 22nd Century for certain noncash and nonoperating expenses as described in our company's earnings press release for the year ended December 31, 2018, as publicly issued yesterday, on March 6, 2019, and which is available on our company's website.

And with that, I will turn it over to our Chief Financial Officer, John Brodfuehrer.

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John T. Brodfuehrer, 22nd Century Group, Inc. - CFO & Treasurer [3]

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Thank you, Tom. Good afternoon, everyone, and thank you for participating in the 22nd Century business update call for the year 2018. For those of you that may be new to the call, my name is John Brodfuehrer, and I'm the CFO of 22nd Century Group. Today's conference call will be 1 hour in duration and will conclude promptly at 5:00 p.m. We will take questions at the end of the presentations as time permits. This afternoon, I will provide you with a summary of the company's financial results for the year ended December 31, 2018. I will now address some of our financial disclosures for the 2018 year.

First, I will discuss our net sales revenues generated from product sales. As reported in our Form 10-K filed with the SEC yesterday and stated in yesterday's press release, net sales revenue for the year ended December 31, 2018, was $26,426,000, the highest annual net sales revenue in our history, as compared to net sales revenue for the year ended December 31, 2017, of $16,600,000. The quarterly net sales revenue increased by $9,826,000 or 59.2% for the year ended December 31, 2018, as compared to the net sales revenue for the year ended December 31, 2017. The net sales revenue increase is primarily the result of additional net sales revenue generated from our contract manufacturing of cigarettes and filtered cigars during 2018 as compared to 2017.

Next, I will address our gross profit on product sales. Our factory in North Carolina continued to utilize additional production capacity that resulted in the increased net sales revenue as just discussed above. As a result, we generated gross profit on net sales revenue for the year ended December 31, 2018, in the amount of $899,000. In comparison, we experienced a gross loss on net sales revenue for the year ended December 31, 2017, in the amount of $708,000. This positive change from the gross loss to gross profit amounted to $1,607,000 for the year ended December 31, 2018, as compared to the year ended December 31, 2017, and this improvement is primarily the result of increased factory utilization.

Next, I will move on and discuss our operating expenses. Our net cash operating expenses, that exclude noncash equity-based compensation, amortization and depreciation, for the year ended December 31, 2018, was $20,388,000, an increase of $9,685,000 or 90.5% from net cash operating expenses of $10,703,000 for the year ended December 31, 2017. The increase was primarily due to increased expenses attributable to our Modified Risk Tobacco Product application with the FDA for our BRAND A Very Low Nicotine Content cigarettes. Our expenses related to the MRTP application amounted to approximately $9,800,000 for the year ended December 31, 2018.

Next, I will address our net loss. We experienced a net loss for the year ended December 31, 2018, in the amount of $7,967,000 or negative $0.06 per share as compared to a net loss of $13,029,000 for the year ended December 31, 2017, or a negative $0.13 per share, which is a decrease in our net loss of $5,062,000 or 38.9%.

The decrease in the net loss of $5,062,000 was primarily attributable to the aggregate realized gains on the Anandia/Aurora transactions in the amount of $14,493,000, an unrealized gain on the Aurora stock warrants in the amount of $284,000, an increase in net interest and dividend income of $1,176,000 and an increase in our gross profit on product sales of $1,607,000. Those numbers were partially offset by an increase in net cash operating expenses of $9,685,000 and as discussed earlier, an increase in equity-based compensation of $2,246,000 and an increase in depreciation and amortization expense of $395,000.

The significant gain on the Anandia/Aurora transactions in the amount of $14,493,000 consisted of the following 3 items: a realized gain of $4,516,000 on our equity investment in Anandia as acquired by Aurora Cannabis in the third quarter of 2018. We received 1,947,943 shares of Aurora common stock and a warrant to purchase 973,971 shares of Aurora common stock as a result of the acquisition of Anandia by Aurora. Number two, a gain of $3,830,000 on the subsequent sale of the Aurora common stock that we received in the acquisition of Anandia by Aurora, which also occurred in the third quarter of 2018. The sales of the Aurora common stock also generated $13,052,000 in net cash proceeds for the company. And thirdly, an unrealized gain in the first quarter of 2018 in the amount of $6,147,000 under U.S. GAAP accounting rules on our investment in Anandia. This amount became a realized gain upon the acquisition of Anandia by Aurora. Those 3 numbers aggregate to the $14,493,000 realized gain.

It should be noted that we still own the warrant to purchase 973,971 shares of Aurora common stock that does not expire until August of 2023. The Aurora stock warrants had a value of $3,092,000 at December 31, 2018, and we recorded an unrealized gain and the adjustment to fair value in the amount of $284,000 for the year ended December 31, 2018. And at future quarter and year-end dates, and if the warrant is still owned by us at that time, we will record the fair value of the warrant and then the unrealized gain or loss will be included in net income or loss for that quarter or year-end.

Next, I will address our adjusted EBITDA. Our adjusted EBITDA, a non-GAAP financial metric previously defined by Tom James in his opening statement, for the year ended December 31, 2018, was a negative $19,489,000 or negative $0.16 per share as compared to a negative $11,411,000 or negative $0.11 per share for the year ended December 31, 2017, which is an increase in the negative adjusted EBITDA of approximately $8,078,000 or 70.8%. This increase is primarily the result of the previously discussed increase in our net cash operating expenses of $9,685,000 and is partially offset by an improvement in our gross profit on product sales of $1,607,000.

Finally, I will discuss the cash position of the company at December 31, 2018. We continue to be in a strong cash position with cash, cash equivalents and short-term investment securities totaling $56.4 million at December 31, 2018, an amount we believe would be adequate to cover normal monthly operating expenses of approximately $850,000 and meet all current obligations as they come due for a number of years. In addition, we expect to incur an estimated amount of approximately $1.5 million in additional expenses related to our Modified Risk Tobacco Product application with the FDA by the end of the second quarter of 2019.

That concludes my remarks. Thank you for your time, consideration and continued interest in 22nd Century Group. I will now turn the remainder of this conference call over to our President and CEO, Henry Sicignano, who will provide you with the business review and update. Thank you very much.

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Henry Sicignano, 22nd Century Group, Inc. - President, CEO & Director [4]

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Thanks, John. Good afternoon, and thank you again to our conference call participants for joining us. Today, I have a host of important issues to discuss. In brief, I will discuss Dr. Scott Gottlieb's recently announced decision to resign as Commissioner of the FDA and what his departure may mean to 22nd Century shareholders; two, I'll talk a bit about the FDA's plan to dramatically reduce the nicotine content of all cigarettes sold in the United States; three, provide an update on 22nd Century's Modified Risk Tobacco Product application and its progress at the FDA; and four, perhaps most significantly, I will talk about 22nd Century's hemp/cannabis research initiatives and strategic vision. At the end of our time together, I will also briefly touch on the wholly frivolous class action lawsuits that have been filed against our company in recent weeks.

First things first. As you likely know, this week, we learned that Dr. Scott Gottlieb has decided to resign as Commissioner of the FDA. This is unfortunate. Dr. Gottlieb has moved the ball forward on a number of important FDA initiatives, including speeding the approval process for important new drugs, addressing the opioid epidemic, questioning the place for flavors in e-cigarettes and of course, in advancing the FDA's broad nicotine reduction plans across a host of tobacco products. We appreciate the work Dr. Gottlieb has done, and we will miss him as Commissioner. However, it is important to point out 22nd Century's Modified Risk Tobacco Product or MRTP application is under review at the FDA Center for Tobacco Products, also known as the CTP, not the FDA at large. Accordingly, Mitch Zeller, Director at the FDA's Center for Tobacco Products, is actually the one who is overseeing our MRTP application. It is also important to realize that the FDA's Center for Tobacco Products is the division of the FDA that is advancing the agency's plan to limit nicotine in all cigarettes sold in the U.S. to minimally or nonaddictive levels.

With respect to this larger planned national mandate, Dr. Gottlieb was a terrific champion. He was not, however, the beginning or the end of the FDA's nicotine reduction movement. Actually, the FDA began to collaborate on 22nd Century's SPECTRUM research cigarette initiative in 2011, which was 6 years before Dr. Gottlieb arrived on the scene. The FDA and various agencies of the U.S. federal government spent many tens of millions of dollars on independent research with Very Low Nicotine Content cigarettes long before Dr. Gottlieb made his historic 2017 announcement that all cigarettes in the United States should contain drastically lower levels of nicotine.

Indeed, there were many at the FDA who were working on the Very Low Nicotine initiative long before Dr. Gottlieb came into office and there are many more who will continue to work on the nicotine reduction plan after Dr. Gottlieb leaves the FDA. That said, in a March 5, 2019, New York Times article, Dr. Gottlieb indicated that he actually plans to advance the FDA's pending tobacco regulations before he leaves. And indeed, I'm quite sure that the FDA itself is absolutely committed to enacting its new rule to require that all cigarettes sold in the U.S. contain only minimally or nonaddictive levels of nicotine in order to assist the more than 30 million American smokers who are addicted to conventional cigarettes and the 2,000 youth under the age of 18 across the United States who smoke their first addictive cigarette each and every day.

Of course, the FDA's efforts to limit nicotine in all cigarettes are complemented by 22nd Century's Modified Risk Tobacco Product or MRTP initiative. In December, our company submitted a premarket tobacco application and an MRTP application to the FDA's Center for Tobacco Products for our company's proprietary Very Low Nicotine Content cigarettes. With these applications, 22nd Century is seeking the FDA's authorization to commercialize the company's Very Low Nicotine Content cigarettes under the proposed brand name VLN, and to advertise to consumers that VLN cigarettes contain 95% less nicotine as compared to the 100 leading cigarette brands in the United States.

Since the beginning of this year, 22nd Century regulatory specialists and scientists have been in virtually constant communication with FDA regulators charged with reviewing the company's PMT and MRTP applications. In fact, in the last 2 months, we have had more than 20 conversations with the FDA on matters relating to our MRTP application. We believe this is a very positive sign. While our PMTA and MRTPA efforts are independent of the FDA's planned new rule to limit the nicotine in all cigarettes to minimally or nonaddictive levels, we view the 2 initiatives as complementary and wholly reinforcing. Our Very Low Nicotine Content tobacco is the foundation of our VLN cigarettes, and at the same time, our Very Low Nicotine Content tobacco makes possible the FDA's planned nicotine reduction rule.

It is precisely because of those connections that we continue to believe that the FDA and public health will benefit from the approval of 22nd Century's PMTA and MRTPA submissions. In this way, the FDA will have a commercial Very Low Nicotine Content cigarette on the market to prove the feasibility of the agency's nicotine reduction plan and to generate real-world consumer data in support of the FDA's proposed new rule to reduce nicotine in all cigarettes sold in the United States. And of course, potentially, the world's only approved MRTP product will greatly enhance 22nd Century's commercialization efforts and will pave the way for lucrative third-party licensing opportunities.

All of that said, and as important as our tobacco initiatives are for the company and for our shareholders, our strategic initiatives in hemp and cannabis, together with significant recent legislative changes, have combined to give our biotechnology efforts a massive boost in the emerging hemp/cannabis industry. At the conclusion of 2018, more than half of U.S. states had approved the sale and use of medical cannabis, with another 10 states allowing adult recreational consumption. Even more importantly, in an effort led by U.S. Senate Majority Leader, Mitch McConnell, the U.S. federal government enacted the 2018 Farm Bill, including an important provision to legalize hemp, which is defined as a cannabis plant containing not more than 0.3% THC. The enactment of this new federal law has accelerated hemp/cannabis biotechnology developments and spurred a slew of multimillion-dollar investments in hemp/cannabis production and extraction.

22nd Century is well positioned to take advantage of the opportunities represented by these changes in the federal law. Our company's foundation in hemp/cannabis research is already well established. In 2014, a wholly owned subsidiary of 22nd Century entered into a worldwide license agreement with Anandia Laboratories in Canada, through which our company was granted an exclusive sublicense in the United States and a co-exclusive sublicense in the remainder of the world, excluding Canada, to patents and patent applications relating to the hemp/cannabis plant that are required for the production of cannabinoids, the major active ingredients in the hemp/cannabis plant. It is important to note these incredible valuable licenses survived the Aurora Cannabis acquisition of Anandia. What's more, our subsequent investments in research with Anandia generated important new cannabis strains, including one with zero-THC.

Besides Anandia, 22nd Century is entering the third year of a research agreement with the University of Virginia to optimize our company's proprietary hemp plants for growth in the historical tobacco belt states in the southern part of the United States. Further, we already possess a valuable New York State hemp research license for our research laboratory in New York.

Utilizing our proprietary technology, 22nd Century's primary mission in hemp/cannabis is to develop proprietary hemp/cannabis plant lines for important new medicines and robust agricultural crops in order to improve the health and lives of people around the world.

Going forward, I am pleased to announce 22nd Century will substantially increase the company's investment in the development of hemp/cannabis intellectual property. While our company's molecular biotechnology laboratory is an important component in achieving our mission of creating new varieties of hemp/cannabis, our strategy also includes assembling an entire network of accomplished hemp and cannabis researchers, partner companies and universities. In addition to our existing research relationships, we are currently in negotiations to enter into several new strategic alliances. 22nd Century is forming a vertically integrated hemp and cannabis nexus that combines research, production and extraction. In combining our technology with the assets and abilities of our strategic partners, 22nd Century will have access to advanced gene-editing techniques, valuable hemp/cannabis germplasm, extensive growing facilities, dozens of experienced hemp and cannabis scientists and much more.

The foundation of any biotechnology effort is the acquisition of genetic material. To this end, we have already developed or acquired exclusive rights to dozens of unique and proprietary varieties of hemp and cannabis plants, each with valuable agronomic traits and/or exceptional cannabinoid profiles. Though we are continually adding to our genetic library, we already have an incredible inventory of genetic variability, literally the building blocks for dozens of new improved plant varieties. Our library of hemp/cannabis germplasm is unique and crucial -- and of crucial importance to our research objectives. It sets us apart as a major player in the hemp/cannabis biotechnology field.

Using genome sequences from the hemp/cannabis varieties to which we have developed and/or acquired exclusive rights, we are working to identify genes responsible for regulating cannabinoid biosynthesis, drought tolerance, disease resistance, increased flower production, increased cannabinoid production and overall plant growth and yields. Currently, in our own labs, 22nd Century's working to reproduce cannabinoid biosynthesis independent of the hemp/cannabis plant. In this way, we hope to develop hemp plants that yield single high-value cannabinoids instead of the cocktail of cannabinoids produced by conventional hemp/cannabis plants. A single-cannabinoid plant that produces high levels of a rare cannabinoid would be a boon for our own extraction activities and for third-party extractors.

Each project that we initiate is expected to lead to valuable intellectual property and products. All of our hemp and cannabis research must support our mission to develop new varieties of hemp and cannabis plants to improve the health and lives of people around the world. As we assemble hemp/cannabis strategic partnerships, as we develop new biotechnology methods for manipulation of plant genes and as we create new hemp/cannabis varieties to improve lives, we will simultaneously enhance shareholder value. Although we do not intend to enter the complex regulatory arena of marketing hemp/cannabis-based consumer goods, we do plan to become a source of highly coveted hemp/cannabis genetics, plant varieties and high-value extracted cannabinoids.

Now after a discussion of such positive meaningful progress that the company has made over the last year, I'm obliged to say a few words about the wholly frivolous class action lawsuits that have been filed against the company and certain of its executive officers in recent weeks that allege violations of federal security laws. We believe that any claims alleging violations of security laws by the company and its executive officers are without merit, and we intend to vigorously defend our position. As you likely know, the lawsuits appear to be based on information taken from Seeking Alpha short articles by Fuzzy Panda Research, which were written by authors who were, admittedly, "short" in 22nd Century stock. As you realize, this means that the authors had an economic motive to suggest improper action by 22nd Century.

The lawsuits repeatedly referred to these articles without any apparent effort to determine whether the statements in the articles are accurate. For example, the lawsuits include an incomplete photocopy of an SEC response letter to a Freedom of Information Act request that misleads an uninformed reader to incorrectly believe that 22nd Century is under some sort of SEC enforcement action. Let me state unequivocally, 22nd Century has not received any notice of and the company has no knowledge of any enforcement proceeding against 22nd Century by the SEC or by any other regulator. Simply put, 22nd Century believes the statements and the charges in such class action lawsuits are, like the misleading short articles, incorrect and meritless, and the company intends to defend vigorously against these lawsuit claims.

But in spite of these legal issues, our company is really in a terrific place. Our SPECTRUM research cigarettes made possible the FDA's proposed plan to limit nicotine in all cigarettes sold in the United States to minimally or nonaddictive levels. The next step in the FDA's plan is to issue a Notice of Proposed Rulemaking or NPRM. In this notice, the FDA will spell out the proposed product specifications and the details for how the agency will implement its new nicotine reduction rule. The FDA has publicly indicated that the NPRM should be expected this year. Following the NPRM, including a public comment period, the FDA should thereafter move forward with the final rule and a time schedule for the implementation of the new rule. We believe the FDA is moving at a steady, deliberate pace in this initiative.

That said, a much sooner opportunity for 22nd Century comes in the form of our company's MRTP application for our VLN cigarettes. With 95% less nicotine than contained in conventional cigarettes, our company's proprietary VLN cigarettes are modeled after the lowest nicotine content style of our SPECTRUM cigarettes. Our recently accepted-for-review MRTP application relies on numerous independent clinical studies funded by more than $125 million from U.S. federal government agencies on our SPECTRUM research cigarettes, the same scientific studies that the FDA itself references in conjunction with its proposed new nicotine reduction rule. The review process by the FDA for our PMT and MRTP applications is already well underway. We are encouraged by the FDA's prompt attention to our applications, and we look forward to the approval and the launch of what may very well be the world's first Modified Risk Tobacco Product.

Finally, intense demand from consumers, combined with legalization victories, have resulted in a number of companies playing catch-up with massive multiyear speculative investments in cannabis. In contrast, 22nd Century has been building on a foundation in hemp/cannabis research and unique plant development for several years through our partnerships with Anandia Labs, the University of Virginia, the work done in our company's own labs and the work done with other strategic partners. We are assembling an extraordinary hemp/cannabis germplasm library of unique plants, a talented team of experienced researchers and a number of strategic corporate partners to accelerate our hemp and cannabis biotechnology. Now is clearly the time to capitalize on opportunities in hemp/cannabis. As we strive to improve the health and lives of people everywhere with our hemp/cannabis technology, 22nd Century intends to deliver very substantial value in this area for our shareholders. With so many momentous events converging for the company, we are incredibly excited for the future and we are eager to share more good news with you in the coming weeks and months.

Thank you so much for joining us today and for your continued interest in 22nd Century. At this time, I will open up the call to your questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) We'll take our first question from Jim McIlree with Chardan.

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James Patrick McIlree, Chardan Capital Markets, LLC, Research Division - Senior Research Analyst of Industrial and Consumer Technology [2]

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Can I start with expenses? So you -- last year, expenses were $25 million, give or take. But this year, you're not going to have the $10 million or so of the application expenses. But it sounds like you're going to ramp up in the hemp area. Can you just kind of help me understand how much you're going to spend on hemp and if there's anything else out there that would sop up the savings from the $10 million of the applications expenses that are going away?

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John T. Brodfuehrer, 22nd Century Group, Inc. - CFO & Treasurer [3]

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Hi, Jim, this is John. So first of all, you're right, in 2018, we had nearly $10 million spent on our MRTP application, which accounts for most of the difference between 2018 and 2017 expenses. We can't really comment at this time on the quantity of the amount of expenses that we'll spend in the hemp/cannabis area.

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Henry Sicignano, 22nd Century Group, Inc. - President, CEO & Director [4]

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It will be significantly less than the $10 million, Jim.

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John T. Brodfuehrer, 22nd Century Group, Inc. - CFO & Treasurer [5]

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So that you're right on the $10 million difference between the 2 years.

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James Patrick McIlree, Chardan Capital Markets, LLC, Research Division - Senior Research Analyst of Industrial and Consumer Technology [6]

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And now are there any other initiatives that would require a meaningful amount of expenses in 2019?

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John T. Brodfuehrer, 22nd Century Group, Inc. - CFO & Treasurer [7]

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So as we said, Jim, it could be a small amount. We anticipate approximately $1.5 million of additional expenses on our MRTP application. And at this point, we really can't comment on any other significant additional expenses.

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James Patrick McIlree, Chardan Capital Markets, LLC, Research Division - Senior Research Analyst of Industrial and Consumer Technology [8]

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Okay. Let's see. Henry, I don't want you to -- I don't expect you to be able to comment in detail about what you can do with the FDA as far as the NPRM goes. But can you talk about what it is you do to help move the process along with the MRTP and the PMTA? And it sounds like when you're looking at this year, your priorities are building out the hemp franchise and then advancing the MRTP and the PMTA. Is there anything else that is a top priority for you that you control, so again, excluding the FDA schedule on the NPRM?

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Henry Sicignano, 22nd Century Group, Inc. - President, CEO & Director [9]

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Well, those are, in fact, the top priorities. In terms of pushing the MRTP alone, the best thing that we can do is to answer all the FDA's questions on a timely basis. And having had more than 20 conversations with the FDA in the last 60 days, we think that's given us an opportunity that we didn't have in prior years, and we've really appreciated that dialogue with the FDA. So we think that's our biggest area of leverage in terms of pushing that application forward. We don't believe that we'll have any additional science to provide the FDA. So really, we're just answering questions, and we have some addendums that we're working on that will be submitted in coming weeks. But everything seems to be on pace and actually going more smoothly and quicker than we had anticipated. In terms of hemp and cannabis research, we anticipate making investments this year, and some of those investments might be multiyear investments. So I guess, stay tuned. I hope that we'll have some interesting news in the coming weeks on some of those. I guess I can't say much more than that, but we're pretty excited about the opportunities that we've been working on.

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James Patrick McIlree, Chardan Capital Markets, LLC, Research Division - Senior Research Analyst of Industrial and Consumer Technology [10]

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And as far as the decision-making for the MRTP, the FDA, you indicated, is engaging with you now about your application. Is there -- I guess, does that imply that -- does that imply anything about the likelihood of acceptance? Or is it more of they're going to get all of their information and then give you the thumbs up, thumbs down, whatever, 3 months, 6 months, 9 months from now?

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Henry Sicignano, 22nd Century Group, Inc. - President, CEO & Director [11]

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All I can say, Jim, is that we think it's a very good sign. When we submitted our preliminary application in 2015, we had very sparse dialogue. We had a meeting early on in the process, and then we didn't hear again from the agency for nearly a year. This time around, again, more than 20 conversations in 60 days. I think that speaks for itself.

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James Patrick McIlree, Chardan Capital Markets, LLC, Research Division - Senior Research Analyst of Industrial and Consumer Technology [12]

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Okay. All right. Okay. Very good. And then my last one, on the revenue. Is there any -- is there anything about the $26 million or so in revenue generated this year that would -- that was onetime-ish in nature or that would -- that has a feature to it that would suggest you can't do the same thing this year?

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Henry Sicignano, 22nd Century Group, Inc. - President, CEO & Director [13]

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No. We expect to do at least that much. So as long as we weren't to lose any contracts, and if we were to gain additional business, we would expect that number to grow.

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Operator [14]

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We'll take our next question from [Greg Edemos].

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Unidentified Shareholder, [15]

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Just -- can you just walk us through maybe your business plans, God forbid the MRTP time line or the mandate even kind of drags out longer than expected, possibly through 2020? As the dates go on, we have a pretty large cash burn, and with further expenses coming up possibly on the hemp side, I think day by day, maybe even our patents and our technology could be less valuable at the negotiating table with any type of company. Can you explain -- give us some advice on that?

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Henry Sicignano, 22nd Century Group, Inc. - President, CEO & Director [16]

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So I think you should cheer up. I mean, I think things look a lot better than you've implied. By my math, with regular operating expenses, we have about 4 years' worth of cash, more than 4 years' worth of cash in the bank. So that's good news. There are some outstanding warrants that must only be exercised for cash that will bring in, at the $2.15 exercise price, $23 million or $24 million additional dollars that further supplement that 4 years of cash. So I think in terms of cash, I think we're in great shape, and I'm very pleased that we were able to raise the money we did 1.5 years ago. So that's all good news. In terms of the calendar, as I just mentioned when I was talking with Jim McIlree, MRTP, I think, is going more smoothly and more quickly than we ever imagined it could, given our experience in 2015. So we're very excited about that. I can't guarantee or sort of predict the time line, but I think it's going really, really smoothly and much more rapidly than we expected. In terms of the national mandate, that we certainly have no effect or influence over. But Dr. Gottlieb had mentioned in a Wall Street Journal interview in the fall that he had planned for the NPRM to be issued in 2018, I believe. In December of '18, he said he expected the rule to be published, he said, this year, I think, was the quote. So I don't know if this year meant 2019 or if it meant 2018. If it meant 2018, I guess FDA missed. If it meant 2019, well then, that's pretty exciting news that, that rule would be coming out sometime this year. So I hope that's helpful. I think we're in a good place with cash. MRTPA is going very well. And I think the national mandate remains on track.

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Unidentified Shareholder, [17]

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Okay. Now lastly, just on the hemp side of -- and our cannabis side of our business here. Pretty much, just about anything related to cannabis or hemp, CBD or anything recently has just been booming. And now I understand our philosophy a little bit on the -- not PR-ing everything as you do choose to really only PR most of the important things that you tend to release to shareholders here. But it kind of feels as though many shareholders, and then also an investing group that I'm sure are listening to this as well, we feel that we are mainly left to our own devices by finding -- doing our own due diligence in finding patents that are awarded to the company that are not PR-ed and we have to do some extreme digging. Now we're back to share price at levels of -- back to prior to the 2017, the first movement that Gottlieb even started on the mandate here. I mean, granted, I understand the share prices you don't want to artificially pump up, but we certainly are undervalued now. Do you feel that you should maybe move a little bit stronger towards releasing some news on the hemp side to provide some investor confidence or even some information that would attract new investors? Because we do have great technology and it seems like, moving forward, there's a lot of opportunity for our business to be able to provide some significant new revenue streams. I just feel that there are a lot of potential investors out there that do not know this and do not know anything about 22nd Century due to the lack of media exposure. And do you plan to change that and whether it is to possibly try to get on new media outlets, whether CNBC, anything, anything that can get our name out there? What do you feel about that?

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Henry Sicignano, 22nd Century Group, Inc. - President, CEO & Director [18]

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Now right, those are all good points, and I guess, let me try to answer them as directly as I can. We're very careful. You're exactly right. We're very careful about what we press release because we don't want to provide a road map to our competitors of exactly what we're attempting to do in either cannabis or in tobacco. We feel that we have a tremendous competitive advantage in terms of Very Low Nicotine tobacco. I'm going to tell you squarely, definitively, we believe we're the only company in the world that can grow tobacco with 95% less nicotine. Full stop. So that's really important to realize. Of course, big tobacco companies have been working on this kind of technology. We're aware of the fact that some of them might be able to grow low-nicotine tobacco, but there is a world of difference between low-nicotine tobacco, which maybe, I don't know, has 20% or 30% less nicotine, and tobacco that is Very Low Nicotine at the levels of 95% less nicotine and below, which make them minimally or nonaddictive levels of nicotine. So that's the reason why we're not out there press-releasing all of our tobacco patents in particular, but maybe even more so with cannabis. It's such a rapidly developing industry. We're out right now competing behind the scenes with essentially scientific labs that we want to work with us and not with our competitors. And so we're being very cautious about press-releasing names or specifics of any of these folks. That said, some of our -- especially, some of our investments that will be material, they will be 8-K-ed, and you're going to know about them. So I guess I'd keep your eyes open for those. And as we're able to describe the projects that we're working on, we'll certainly do that broadly. We'd like to keep our shareholders informed, and that's the whole point of today's discussion and of the press releases we do issue. But understand, we have some folks who are litigating against us saying that we "pump up" the company and puff our achievements. And then we've got folks like you who are asking us to pump up our achievements and brag a little bit on CNBC. So at the end of the day, we're very proud of what we do achieve. We're never going to exaggerate our accomplishments or the technology that we have. So that's the fine line we need to walk. But we don't have a bunch of time, so I should move on to our next caller. Thank you very much. Your questions were very good.

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Operator [19]

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We'll take our next question from [Joe Castiglione].

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Unidentified Shareholder, [20]

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This has been very informative, Henry, Tom and John. And my son and I are private investors in the company. Very excited about everything, of course, you spoke about here today and all that we've read prior. And I appreciate all the comments you just made from the previous question about being very careful about what you say. It makes perfect sense. The concern I have is that the bad press that comes out with these Business Wire, frivolous lawsuits, statements and actually asking for people to contact them, they're almost soliciting people to jump into this fray. And from a comment back from the company, fighting back, vigorously defending, I'm sure that's going to happen behind the scenes in the ways that you need to do it, but statements that could, in some way, shape or form, leave potential investors or existing investors a bit more comfortable with the fact that this is all nonsense, and I don't see much of that coming out.

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Henry Sicignano, 22nd Century Group, Inc. - President, CEO & Director [21]

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Well, I mean, I said sort of what I could say about pending litigation today on our conference call, but I would strongly encourage you to look at Page 31 on our 10-K, Page 31, Page 32. And there is extensive detail there about these lawsuits, including the names of the folks who filed them and including the number of shares that they hold. And I think that speaks volumes. I think there are a couple of shareholders there, and off the top of my head, I think they own fewer than 4,000 shares. And I don't know. What more can I say? That should speak for itself. You can read about those on Page 31 and Page 32 of the 10-K.

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Unidentified Shareholder, [22]

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Yes. And I appreciate that, and I will certainly look at that to get to the detail that you're saying. I guess I was more speaking about these blast statements that come out on Business Wire and such. And perhaps it's just not a good practice for you to respond in any way, shape or form, which I guess, in some ways, it makes sense. But I guess I suspect that we'll feel so much better to hear something coming out to say that these are frivolous, at least in some way, shape or form, to offset some of the bad press that it sends.

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Henry Sicignano, 22nd Century Group, Inc. - President, CEO & Director [23]

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Yes. Well, you're exactly right. And I've tried -- I think I used that word "frivolous" at least twice, maybe 3 times in my talk. And I don't exactly understand how these lawyers work. But obviously, we've seen some of those -- I think what they're doing is they're trolling for clients. To the best of my knowledge, there have been only 4 suits filed. And I know there are far more lawyers that are looking for plaintiffs on the Internet than the 4 suits that have been filed. So it looks to me like those are hungry lawyers looking for clients.

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Operator [24]

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We'll take our next question from Robert Branciforte with Morgan Stanley.

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Robert Branciforte, [25]

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I hate to beat a dead horse with the litigation stuff, and it is frivolous, it's obvious. And we all know the type of lawyers that are -- that get involved in that. But rather than just playing defense on this, which is costly in terms of my money -- our money and human capital, the reputational damage that it does and the share price destruction to a certain extent that it's caused, I think what's wrong with filing a counterclaim for damages against these sleazebag lawyers. I mean, play a little offense. And most companies don't do that, and maybe you don't want to get involved in that. But this is ridiculous. I mean, generally, you see 1 or 2 law firms. But I think I've seen 4, 5, 6. It's just -- they're jumping on the bandwagon. So that's one thing. Very quickly, on the cannabinoid situation, the strategic partnership, corporate partners, you're probably not in a position to name who those corporate partners may be. But with Canada producing so many startup companies, doing this, that and the other thing, I mean, are companies like Canopy or Tilray, some of the major companies, would they be potential strategic partners?

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Henry Sicignano, 22nd Century Group, Inc. - President, CEO & Director [26]

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I'm going to ask Tom to address the lawsuit question, and he might as well talk a little bit about strategic partners.

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Thomas L. James, 22nd Century Group, Inc. - VP, General Counsel & Secretary [27]

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Sure. Robert, this is Tom James, the General Counsel. You're right. As you rightfully point out, we cannot, in the midst of litigation, discuss details. But we are investigating all options, and we're not afraid of pursuing all options. We're not going to sit back idly by. As Henry said, the field of lawsuits are without merit, they're frivolous, and we intend to defend them vigorously. What other options we may take, you'll have to wait and see. So again, that's the most we can say at this time for that. On cannabis, we cannot, as you can imagine, mention strategic partners or ones that we're in discussions with. Nobody is off the table. But we feel that we've got great advantages. We're not a grower. We're a producer of unique plants that we'll also grow and also extract. The germplasm that we have people covet. And we're very concerned to be careful about who we affiliate with. So we have talked to a lot of people internationally, globally, not just Canada, and we will announce them appropriately when the time is right. So that's the best we can say at this point in time, and I hope that's comforting to you.

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Operator [28]

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We'll take our next question from [Paul Flenady] with -- a private investor.

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Unidentified Participant, [29]

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My question has to do with the competitive situation in your hemp business. You, many times, have pointed out that you have -- you believe you have the only 0 or close to 0 nicotine tobacco. But are there other companies that actually can safely make hemp that has 0 THC, or I mean, how -- what is the competitive landscape in that part of your business?

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Thomas L. James, 22nd Century Group, Inc. - VP, General Counsel & Secretary [30]

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Well, [Paul], this is Tom James. I'll answer that question. We, in 2017, 2 years ago, decided to go after the low- to no-THC plant because at that time, the 2014 Farm Bill did not allow for crop insurance to farmers. So if their crop grew above the legal limit for hemp, we called it growing hot, they would have to destroy their entire crop. And so that was a problem. So we came out with the zero THC as a solution to that. The 2018 Farm Bill cures that problem by allowing crop insurance for farmers so a zero-THC plant is interesting still, as we say in our 10-K, but it's not dispositive. There needs to be other agronomic traits of robust cannabinoid profile or higher yield, things of that nature that make agronomic sense. So there are other people that would like to say, oh, they have come out with a zero-THC plant too, and again, that's scientifically interesting. It's 2 years behind us, and they would like to try and get rare cannabinoids, they're again behind us. And so there are people that have come out and claimed a whole lot of things, but we know what we have and we've publicly stated what we have and will continue to say when appropriate the things that we achieve, not before because, as Henry said, we don't want to give a road map to our competitors as to where we're going. We will state once we've achieved where we intend to be. So you could take comfort in that.

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Unidentified Participant, [31]

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So is it safe to say that there's a fair number of potential competitors and you've got a couple of years head start? That's your, I would say, competitive advantage. But this is really a race in its early days for -- on the hemp side.

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Thomas L. James, 22nd Century Group, Inc. - VP, General Counsel & Secretary [32]

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Yes. Don't take the zero THC as being competitive or a race and whatnot. That's an interesting scientific plant, but again, after the 2018 Farm Bill, it's -- you need other agronomic qualities. And we think we're substantially ahead from a number of players that are involved. And when we are ready to publicly announce, we'll let people know why we feel that way.

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Henry Sicignano, 22nd Century Group, Inc. - President, CEO & Director [33]

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We started about 5 minutes late, so we're going to hold the call open for about 5 minutes after the hour, and I apologize to those of you who won't get through. I see that there are quite a line of callers waiting. But we'll go as quickly as we can to see if we can answer a few more questions.

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Operator [34]

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We'll take our next question from [Brian Desendich].

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Unidentified Participant, [35]

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Yes. Most of my questions have been answered. I just wanted -- I think John may have commented on his initial remarks. But how much spend is left with the FDA on the MRTP? Is it 90%? Where are we, or I guess how much are we looking at in the future? Would that be this year, kind of, to finish the course?

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Henry Sicignano, 22nd Century Group, Inc. - President, CEO & Director [36]

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By current projections, we think 90% is about right. There's probably less than $2 million. Now the only caveat there is if FDA came up with, I don't know, some new thing that they might ask us to do, and then we'd have to budget anew for whatever that new project is. But at this point, we do not expect any new science or any new projects or any new studies that have to be done. So all we need to do is sort of pay the bills for the remaining things that we're just tying up now.

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Unidentified Participant, [37]

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Perfect. And the balance sheet is in amazing shape. It looks like a growth company that's been making money for years. You guys are way ahead of the game on that. And congrats on the balance sheet position.

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Operator [38]

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We'll take our next question from [Frank Goldberg].

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Unidentified Participant, [39]

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I noticed, of course, in the last day or so, that the value of the stock went down a tremendous amount. I read that it was because of the resignation of the FDA Chairman, I guess. Is that your opinion? Or what was the main reason for such a high volume and such a tremendous drop in the stock?

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Henry Sicignano, 22nd Century Group, Inc. - President, CEO & Director [40]

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I think you're -- yes, I think you're right. I think that bit of news probably sparked some selling. And then I think there are some folks who short our stock, who used that bit of news to scare investors who didn't realize that, actually, the Center of Tobacco Products is the agency that is reading our Modified Risk Tobacco Product application and that, in fact, the national mandate is under the Center for Tobacco Products. So I think you're exactly right. I think that's what sort of sparks people's -- I don't know what the word is, spark people's concern. And then I think you have folks out there that bet on that concern because they had a bet that gave them economic incentive to drive the price of our stock down.

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Unidentified Participant, [41]

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I mean, I was watching it. It was down $0.16 with about 0.5 hour to go before closing. And the next thing I saw was down $0.50. And actually, it was down as much as $0.80 and came back a little bit. And of course, it came back the day after, but it went down a little bit today because the market went down. But I was shocked. I mean, I've never seen a percentage like that. I mean, it must have shocked you too.

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Henry Sicignano, 22nd Century Group, Inc. - President, CEO & Director [42]

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Yes, of course. It did. And all we can do is keep doing the best job that we can here. And at the end of the day, I think we're going to look back and see this as a blip. I don't know if you were a shareholder in 2011, our stock went from something like $0.70 to $0.15 1 day and a lot of people threw in the towel. And I don't know, all those folks that bought stock at $0.15 or $0.16 are quite pleased.

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Unidentified Participant, [43]

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Yes. I noticed one thing, and then I'll let you go to someone else if you have time, that there's an ETF that carries a lot of your shares. I think you should advertise that in some way. I think it's the harvest-something that has a big share of your shares or your company. I think that's a good thing. What do you think about that?

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Henry Sicignano, 22nd Century Group, Inc. - President, CEO & Director [44]

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Well, sure. I think it's a good thing when any holder amasses a large position, especially if it's for the long term. I think that's a good thing. I'm not sure how it -- the appropriateness of promoting that fact. But we do notice those disclosures when they're made, and I agree with you, I think it's a positive development. I think this will be our last question, the next one.

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Operator [45]

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We'll take our next question from [Jim Skelton].

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Unidentified Participant, [46]

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I'll be brief here. There's one significant product that I have not seen mentioned in the last year, and that is, at one point, you were talking about putting out a smoking cessation kit that would include VLN cigarettes along with, I suppose, other devices to help people get off the cigarettes. Can you tell me where we stand with that?

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Henry Sicignano, 22nd Century Group, Inc. - President, CEO & Director [47]

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Yes, sir. That was actually sort of my favorite project, and that's actually the project that encouraged me personally to invest in 22nd Century in 2010. I was very excited about that project, and we championed that for many years. But why we haven't been as active with that product since July of 2017 is because the national mandate would essentially make that product obsolete in the United States, at least. The national mandate would require that every single cigarette sold will contain 95% less nicotine than a conventional cigarette, and our X-22 smoking cessation product in development was exactly that. It was a cigarette designed to be sold through prescription from your doctor with a 95% less nicotine content. So I guess if there were -- if the national mandate were ever to be put on pause, we would immediately pick up the prescription smoking cessation product or avenue. But right now, we believe that the bigger opportunity and the most important opportunity for public health is to make all cigarettes in the United States nonaddictive. Is that helpful?

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Unidentified Participant, [48]

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I couldn't agree with you more. Yes, it is. So that's sort of dead in the water. It's unnecessary. I mean, if we can just get the VLN brand out there and start marketing that, then people can do their own smoking cessation, such as myself, who has been a 50-year smoker and suffer tremendous health disabilities because of that. Thank you very much for your time, and let's just look onward and upward.

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Henry Sicignano, 22nd Century Group, Inc. - President, CEO & Director [49]

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Thank you very much, sir. Thank you. We appreciate your support. Okay. So I think we're going to wrap up the call now. I appreciate everyone's participation. I apologize that we weren't able to answer everyone's questions, but we'll certainly have another call in a couple of months, and we'll take questions again then.

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Operator [50]

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Thank you. Ladies and gentlemen, this concludes today's teleconference. You may now disconnect.