While vaporizers have been in the news lately, 22nd Century Group (XXII) has pursued VLN cigarettes which have been approved by the FDA.
This leading agricultural biotechnology company has innovated the tobacco industry in a manner that is consistent with the FDA's and the Biden administration's initiative to limit nicotine content in cigarettes sold in the United States which aims to reduce the death rate from cancer by at least 50% over the next 25 years. 22nd Century group's new cigarette is called the VLN cigarette, which stands for Very Low Nicotine.
The company has created exclusive reduced nicotine content (RNC) tobacco plants and cigarettes thanks to its many patents that allow it to manage nicotine production in the tobacco plant. The company received the first and only FDA-modified risk tobacco products (MRTP) authorization for a combustible cigarette in December 2021.
Clinical trial results show that adult smokers who switched to low-nicotine cigarettes greatly reduced consumption. There are two particular VLN cigarettes: the "VLN KING" and"VLN Menthol King." For more than a decade VLN cigarettes have been the subject of more than 50 government-funded independent clinical investigations. These studies were funded by renowned U.S. universities and federal bodies such as the FDA and the National Institutes of Health (NIH), and were carried out at Johns Hopkins University, the Mayo Clinic, and others. VLN cigarettes are created with the same unique tobacco as SPECTRUM research cigarettes, with a nicotine content threshold of 0.5 mg per gram of tobacco.
The company claims that cigarettes have 95% less nicotine and drastically reduce smokers' nicotine consumption. These VLN cigarettes are the first and only combustible cigarettes to receive authorized approval for marketing from the U.S. Food and Drug Administration as modified risk tobacco products (MRTPs), in accordance with the current administration's initiative.
The FDA requires these cigarettes to be designed with “Helps You Smoke Less” directly on the package. These are the only cigarettes at the time of writing that can legally say this in their marketing. Distribution began in September of 2022 with Colorado and Illinois as the first states where these cigarettes are being distributed with more states coming soon.
Now comes the interesting part for investors: 22nd Century will license its reduced nicotine content technology and products to other tobacco manufacturers, enabling industrywide compliance with the FDA's Comprehensive Plan for Tobacco and Nicotine Regulation, as well as licensing the technology to international partners with South Korea as the first launch market.
3Q22 - Early Results Look Good For VLN Tobacco Products
22nd Century Group reported $19.4 million in 3Q22, a 148% increase over the same period in 2021. Based on customer adoption, 22nd Group anticipates gaining a sizable market share in a new market. As the company brings VLN to new markets, the business model is designed to be replicable. The premium cigarette manufacturer would earn $500 million for every 1% share of the U.S. retail market, which is equivalent to about $800 million in retail sales.
It is possible but not definite that the FDA's proposed ban on menthol cigarettes could leave VLN Menthol King as the only combustible menthol cigarette on the market, offering a crucial opportunity for the company to have the only menthol cigarette that smokers can puff on legally and putting 22nd Century Global at a tremendous advantage compared to its peers.
"The past few months have demonstrated tremendous commercial progress in 22nd Century’s reduced nicotine tobacco and hemp/cannabis businesses. Our VLN product launch has expanded from the exceptional pilot in Chicago to now five states. We plan to expand that base to as many as 18 states over the next twelve months. Doing so would give us access to more than half the $80 billion U.S. tobacco market and position us in most, if not all, of the states that have enacted MRTP excise tax provisions favorable to our unique product authorization. Even just a 1% share, which we view as eminently achievable based on our pilot results, would be transformative to our revenue line..."
To meet anticipated demand for its VLN products in the U.S. and elsewhere, 22nd Century planted its largest ever VLN tobacco crop in 2022, which includes the Company’s second-generation reduced nicotine tobacco plants. The company’s first growth in Chile was successful, which allows for the expansion of growing acreage in 2023 in the southern hemisphere to secure year-round growing capabilities. VLN 2.0 tobacco is already seeing approximately 30% higher yields, enhanced quality leaves, improved disease resistance, reduction in nutrient inputs, and increased stability across various environments and geographies.
Future Outlook
The year 2022 hasn't been easy on any of us and 22nd Century Group is no exception. Shares of the 22nd Century have decreased by about -55% since the beginning of the year, compared to the S&P 500's decline of -20%. The innovative VLN tobacco products and the company's distinct market positioning as the only tobacco manufacturer currently compliant with and approved under the FDA's disruptive menthol and reduced nicotine policies are expected to propel shares above the market in the future. While this headstart will not last forever by any means it can serve as a catalyst to propel the company given its ability to take advantage of Modified Risk Tobacco Product (MRTP) state excise tax savings that are offered by select states. If you are interested in this company then you should consider the algorithmic forecast based on artificial intelligence and machine learning which presents daily forecasts for a variety of stocks at six different time intervals.
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Sources:
1. jamanetwork.com, "Effect of Immediate vs Gradual Reduction in Nicotine Content of Cigarettes on Biomarkers of Smoke ExposureA Randomized Clinical Trial" (2018)
2. .FDA.GOV, "VLN® King and VLN® Menthol King Reduced Nicotine Cigarettes" (2020)
3. xiicentury.com, "VLN" (2022)
4. FDA.GOV, "FDA Authorizes Marketing of Tobacco Products that Help Reduce Exposure to and Consumption of Nicotine for Smokers Who Use Them" (2021)
7. xxiicentury.com, "22nd Century Group Announces South Korea as First VLN® International Market" (2022)
8. xxiicentury.com, "22nd Century Group (Nasdaq: XXII) Reports Business Highlights and Financial Results for the Third Quarter 2022"
9. FDA.GOV, "FDA Proposes Rules Prohibiting Menthol Cigarettes and Flavored Cigars to Prevent Youth Initiation, Significantly Reduce Tobacco-Related Disease and Death" (2022)
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