22nd Century Group, Inc. (NASDAQ: XXII)

22nd Century Group, Inc. is a tobacco products company that enables cigarette smokers to control their nicotine consumption. The company manufactures and distributes the only combustible tobacco products containing minimally or non addictive levels of nicotine that are authorized by the US Food and Drug Administration for retail sale, marketing them under the VLN brand which includes VLN Gold King and VLN Menthol King variants that deliver 95 percent less nicotine than conventional cigarettes. In addition to its own branded products the company provides turnkey contract manufacturing of cigarettes and filtered cigars for other established tobacco brands from its 60,000 square foot facility in Mocksville, North Carolina. This facility is operated by its wholly owned subsidiary NASCO Products, LLC and has the capacity to produce more than 45 million cartons of tobacco products each year. Through NASCO the company qualifies as a subsequent participating manufacturer under the Master Settlement Agreement. VLN Gold King and VLN Menthol King cigarettes received FDA marketing orders as Modified Risk Tobacco Products in December 2021.

Revenue is generated primarily from the sale of the company’s own VLN cigarettes to retail outlets and from fees earned for providing turnkey contract manufacturing of cigarettes and filtered cigars to third party tobacco manufacturers. The contract manufacturing service covers both domestic and international clients and includes production of conventional cigarettes as well as filtered cigars, helping the company absorb fixed overhead costs and improve overall profitability. Additionally the company leverages its established production capacity to support partner brands through co branded VLN versions that are distributed through the partners’ own sales networks. The company also continues to pursue new contract manufacturing opportunities with third party filtered cigar brands and MSA compliant cigarette firms to further utilize its manufacturing infrastructure.

Within the tobacco industry the company occupies a unique niche as the sole U. S. maker of full flavored cigarettes with minimal or non addictive nicotine levels. The VLN line has received marketing orders from the Food and Drug Administration as a Modified Risk Tobacco Product, allowing it to carry claims such as 95 percent less nicotine and helps reduce nicotine consumption. This regulatory distinction sets the company apart from traditional cigarette manufacturers that sell products with addictive nicotine levels. The overall United States market for combustible cigarettes is estimated at approximately fifty eight billion dollars annually, representing a sizable opportunity for products that address smoker interest in reducing nicotine intake. Competitors in the broader nicotine replacement arena include Pfizer Inc., GlaxoSmithKline plc, Perrigo Company plc, Novartis International AG, and Niconovum AB which is a subsidiary of Reynolds American Inc. Domestic cigarette rivals consist of Philip Morris USA Inc., Reynolds American Inc., ITG Brands, and Vector Group Ltd. International competitors comprise Philip Morris International Inc., British American Tobacco, JT International SA, Imperial Brands plc, and various regional and local tobacco companies such as the China National Tobacco Corporation. The company’s competitive advantages stem from its proprietary RNC tobacco technology that enables precise control of nicotine biosynthesis, its portfolio of patents covering gene expression and plant breeding methods, and its established relationships with retailers and contract manufacturing clients. These factors together create a barrier to entry for new entrants seeking to offer similar low nicotine tobacco products.

The company serves adult smokers who seek reduced nicotine alternatives and who purchase its VLN brands through convenience store chains, gas stations, tobacco shops and other retail outlets. Its contract manufacturing business supplies other tobacco manufacturers, both large and small, domestic and international, with finished cigarettes and filtered cigars produced to the clients’ specifications. The VLN products are currently available in more than five thousand stores across twenty six states and the company plans to expand distribution to reach a meaningful share of the estimated two hundred seventy thousand domestic tobacco retail outlets. Through these channels the company reaches a broad base of adult consumers interested in controlling their nicotine consumption while maintaining the familiar sensory experience of smoking. The company also invests in digital marketing campaigns that target adult smokers through age gated social media platforms and interactive websites to drive purchase intent and brand loyalty.