22nd Century Group Inc (NYSEAMERICAN:XXII) Has Opportunities In Both Tobacco And Hemp


At a meeting this year of the Society for Research on Nicotine & Tobacco, industry leaders, scientists, public health officials, and regulators studied and analyzed the ramifications of reducing nicotine in cigarettes. The outcome of this meeting: lower nicotine levels in cigarettes can translate to lower strength cravings and, in turn, a reduced cigarette consumption.

In line with this outcome, the FDA published this press release on July 28, announcing a strategy to pursue lowering nicotine in cigarettes to non-addictive levels and create more predictability in tobacco regulation.

The only company in the world that has the technology to produce tobacco that has nicotine levels below the threshold outlined by the FDA and the WHO in line with this strategy is 22nd Century Group Inc (NYSEAMERICAN:XXII). The technology, which is proprietary to 22nd Century Group, allows the company to grow genetically engineered tobacco that tastes exactly the same as standard tobacco plants but that contains 95% less nicotine than cigarettes produced from standard industry tobacco. The company currently produces cigarettes using this tobacco and sells them to the US government as the base of research designed to bolster the above-discussed evidence that the FDA is using to support its shifted towards low nicotine cigarettes.

Back in June, the company announced that it had sold 2.4 million of the cigarettes to the US government to support new and ongoing trials in the space.

If the FDA manages to achieve its aim and is able to put policy in place that dictates the threshold below which the levels of nicotine in a cigarette must be, big tobacco companies are going to have very little choice from a production perspective – either develop a technology that can genetically modify tobacco in such a way that it meets policy requirements or pay 22nd Century Group for access to its proprietary production methods.

The former of these two options would take time, could be incredibly expensive and that’s assuming the company in question can even develop such a technology without stepping on one or more of the patents that 22nd Century Group has in place protecting its own system.

The latter, therefore, looks like the more realistic option, and this sets the company up as a potential winner going forward.

In addition to producing tobacco for other industry players, 22nd Century Group is also trying to get its own brand of cigarette approved as a smoking cessation product and is about to kick off a phase 3 trial designed to collect the data that will underpin a regulatory submission to the FDA.

With this sort of strategy very much on the FDA’s mind right now, as exemplified by the above linked-to press release, chances are good that if the company can produce some compelling data it won’t have any problem picking up a regulatory green light subsequent to submission.

And it’s not just tobacco.

22nd Century Group has adapted the technology that underpins its tobacco producing platform and applied it to hemp. The hemp industry in the US right now is essentially crippled because the law dictates that it must not contain any THC. To date, the production of hemp without THC has been hit and miss – it’s very difficult to use traditional strain engineering to guarantee that a batch won’t contain any THC when it matures. For this reason, and combined with the fact that a farmer must burn all the hemp he or she produces if it does contain THC, very few, if any, farmers take the risk of doing so under the current regulatory framework.

With the 22nd Century Group technology, a farmer is able to grow hemp under the certainty that it won’t contain any THC and, therefore, will be safe from government intervention and regulation.

This is the first time since THC limiting legislation was put in place that this uncertainty has been addressed, meaning there is a second and very strong licensing opportunity for 22nd Century Group’s proprietary technology in this industry outside of that of low nicotine tobacco. The US alone imports more than $300 million dollars of hemp annually for a retail market worth around $580 million.

If the industry uses 22nd Century Group technology, this import figure could be dramatically reduced and 22nd Century Group would be privy to a large portion of the $580 million in annual industry revenues by way of the fact that its technology is being used to produce the hemp that is being sold.

So that is two large industries (of course, big tobacco is much larger than the hemp space but a $580 million market can’t be ignored), one of which could soon be reliant on this company’s technology and the other of which could be completely revived in the US by a slightly altered version of the same technology.

Markets have recognized this and 22nd Century Group is up close to 170% year-to-date. If things play out favorably for the company from a regulatory perspective, however, there’s plenty more run room left on current prices.

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