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US-based 22nd Century believes it is set up for a bright future with further expansion of its Very Low Nicotine (VLN) cigarette range soon into three new states and a plan to be in 18 overall by the end of the year.
The company is also preparing supply chain logistics in anticipation of New Zealand allowing only low-nicotine cigarette sales from 2025. Despite this, 22nd Century reported an overall loss of $59.8m for 2022, slightly underperforming analyst expectations for the fourth quarter and the full year.
With plans to launch its VLN range in Texas, California and Florida, 22nd Century said during a presentation of its 2022 fourth-quarter and full-year results that it will also announce a new convenience-store chain partner with national scale potential once final contract items are completed.
The company said this deal was with the number-one national c-store chain and that 22nd Century was also in the process of finalising an agreement with the number-two national c-store distributor, having already secured a deal with the top one.
The New York-based firm has already agreed on a local distribution deal with CEFCO c-stores, which plans to commence VLN sales at more than 100 of its Texas and Florida locations soon.
Branching out at home
The tobacco and biotechnology company has a number of national distributor agreements in place, such as with Core-Mark (which it says is the number-one US c-store distributor) and Eby-Brown, though it continues to operate only in its five initial states of Illinois, Colorado, Utah, New Mexico and Arizona.
Texas, California and Florida, which 22nd Century said represent the largest cigarette market states in the US, will soon be added to these. Together the three announced states make up a market with $240m in annual carton sales, said John Miller, president of 22nd Century’s tobacco business.
An indication that North Carolina might be next could be taken from the company having gained authorisation to test VLN sales starting in the second quarter of 2023 at four US military bases spread between there, California and Arizona.
North Carolina offers excise reductions for modified-risk tobacco products – something 22nd Century has previously stated it looks for when deciding on new territories for expansion.
Looking for expansion abroad
The company has outlined its potential 18 target market states to be Wisconsin, Michigan, Ohio, Indiana, Kentucky, Georgia, New York, Rhode Island and South Carolina in addition to the aforementioned North Carolina and the eight confirmed markets.
Internationally 22nd Century is anticipating an expansion to New Zealand. The company said it has announced a dedicated seed cultivation programme designed to generate enough tobacco to support the entire New Zealand cigarette marketplace with reduced-nicotine-content tobacco.
That would mean 22nd Century would have to produce more than 2bn sticks annually from 2025 in order to cover New Zealand’s tobacco consumption once the nationwide mandate allowing only reduced-nicotine cigarettes to be sold comes into effect.
The company said it has completed expansion of existing manufacturing operations and increased capacity by 25%, including installation of a new production line and initiation of a second shift, though this will likely only cover anticipated increases in domestic demand.
Looking forward to a cash-positive future
James Mish, 22nd Century Group’s CEO, said the company expects its VLN business to “scale quickly” in 2023. “At an estimated 600m cartons of annual addressable market opportunity in just those states,” he said, “achieving even a portion of our VLN goals would put our tobacco business unit well into cash-profitable operating results in the second half of 2024, including corporate overhead.”
Overall 22nd Century ended the year with a net loss of $59.8m compared to a loss of $32.6m in 2021. This is off of revenue of $62m through the year (versus $30.9m in 2021) – buoyed by $19m in the fourth quarter of 2022 (compared to $7.9m in the same quarter of 2021). The majority of expenses were from operations, and the company reported an operating loss of $57m for the year.
However, 22nd Century plans to be cash-positive by 2024. It is in a period of transition from being a research-and-development company to becoming a commercially focused enterprise, said Mish. Strong activity in 2022 has set it on the right course, but many developments are still being processed.
Mish said the benefits of those activities are only beginning to show in the first quarter of 2023 and that they will become more evident throughout the year.
The company expects to see quick growth in the new markets based on the successes achieved with its limited trial runs. Miller said that these demonstrated that VLN cigarettes could quickly gain 1% of the market and then build on this through repeat purchases and new adopters.
– Freddie Dawson TobaccoIntelligence staff
Photo: Aaron Birch
