22nd Century Eliminates $5.2 Million of Debt in Above-Market Equity Transaction

Rhea-AI Summary

22nd Century Group, Inc. (NASDAQ: XXII) eliminates $5.2 million of debt through an above-market equity transaction, enhancing the balance sheet, reducing interest expenses, and increasing shareholder equity. The company exchanged cash, common stock, and warrants with Omnia, aiming to become cash positive by Q1 2025. The transaction, detailed in an 8-K filing, restricts Omnia from owning more than 19.99% of common stock outstanding.

Positive

• The debt elimination enhances the company's balance sheet, reduces interest expenses, and increases shareholder equity.

• The transaction adds to the progress made on increasing sales and margin while reducing operating costs.

• The agreement aims to make the company cash positive by the first quarter of 2025.

Negative

• Omnia may not own more than 19.99% of the common stock outstanding, potentially limiting future investments or control.

• The transaction involved issuing a significant number of shares, which could dilute existing shareholders' ownership and potentially impact the stock price negatively.

Insights

Financial Analyst

The strategic move by 22nd Century Group to redeem $5.2 million of debt through an above-market equity transaction is a significant step towards strengthening the company's financial position. By opting to pay with equity rather than cash, the company conserves liquidity, which is a vital component for day-to-day operations and for pursuing growth initiatives. This is particularly relevant given the company's aim to be cash positive by the first quarter of 2025. The issuance of additional common stock and warrants at a fixed price of $2.14 also indicates confidence in the current valuation of the company's shares, signaling management's belief that the stock is undervalued or will appreciate. However, existing shareholders might experience dilution of their holdings. The reduction in monthly interest expense will positively affect the company's profitability and cash flows. From an investor's standpoint, this transaction is expected to enhance shareholder equity, but one must be mindful of the potential dilutive effects and the influence of a new significant shareholder on the company's stock.

Market Research Analyst

The tobacco industry is often characterized by high regulatory scrutiny and significant public health considerations. A company like 22nd Century Group, which focuses on nicotine harm reduction, likely faces unique R&D expenses and regulatory hurdles. From a market perspective, the elimination of debt and the subsequent positive effect on the company's balance sheet can be interpreted as a move towards a more sustainable business model within this challenging industry. It's essential to view this transaction in the context of the company's long-term strategy to reduce harm and potentially capture market share in the evolving landscape of nicotine products. For retail investors, this could suggest that the company is positioning itself to adapt to market changes and regulatory shifts, which may influence its future revenue streams and market competitiveness.

Improves Balance Sheet, Eliminates Future Omnia Interest Expense and Increases Shareholder Equity

Mocksville, North Carolina--(Newsfile Corp. - April 30, 2024) - 22nd Century Group, Inc. (NASDAQ: XXII), a tobacco products company focused on nicotine harm reduction, today announced that it has entered into a binding letter of agreement to redeem $5.2 million in outstanding principal and interest associated with the Omnia subordinated note and outstanding warrants.

The agreement will exchange consideration of approximately $248,000 in cash, 1.15 million shares of common stock priced at $2.14 per share, and 1.15 million shares of pre-funded warrants priced at $2.14 per share as consideration of the debt. Additionally, the Company will issue to Omnia 460,000 warrants, with a term of five-years and an exercise price of $2.14 per share.

Said Larry Firestone, Chairman and CEO: "Paying Omnia at maturity with equity greatly improves our balance sheet, preserves cash for growing our operating business and significantly increases shareholder equity. This transaction also reduces our monthly interest expense and adds to the progress made on increasing sales and margin while reducing operating costs. This is a key milestone toward reaching our goal of being cash positive in the first quarter of 2025."

"We would like to thank Omnia for working with us to achieve such a positive result and welcome them as a significant new shareholder to 22nd Century Group," added Firestone.

The details of the Company's transactions can be found in an 8-K filed with the Securities and Exchange Commission on April 30, 2024. The transaction stipulates that Omnia may not own more than 19.99% of the common stock outstanding.

The shares of common stock, the pre-funded warrants, the newly issued warrants and shares issuable upon conversion are being issued in a private placement and were exempt from registration under the Securities Act of 1933, as amended, in reliance on Section 4(a)(2) thereof as a transaction not involving a public offering and/or Rule 506 of Regulation D promulgated thereunder. The Company has agreed to file a registration statement on Form S-3 (or other appropriate form if the Company is not then S-3 eligible) providing for the resale by Omnia of the shares issued and issuable upon exercise of the warrants within five business days of the agreement.

This press release shall not constitute an offer to sell or the solicitation of any offer to buy the securities discussed herein, nor shall there be any offer, solicitation, or sale of the securities in any state in which such offer, solicitation, or sale would be unlawful prior to registration or qualification under the securities laws of any such state.

About 22nd Century Group, Inc.
22nd Century Group, Inc. (NASDAQ: XXII) is an agricultural biotechnology company focused on tobacco harm reduction, reduced nicotine tobacco and improving health and wellness through plant science. With dozens of patents allowing it to control nicotine biosynthesis in the tobacco plant, the Company has developed proprietary reduced nicotine content (RNC) tobacco plants and cigarettes, which have become the cornerstone of the FDA's Comprehensive Plan to address the widespread death and disease caused by smoking. The Company received the first and only FDA Modified Risk Tobacco Product (MRTP) authorization for a combustible cigarette in December 2021. 22nd Century uses modern plant breeding technologies, including genetic engineering, gene-editing, and molecular breeding to deliver solutions for the life science and consumer products industries by creating new, proprietary plants with optimized alkaloid and flavonoid profiles as well as improved yields and valuable agronomic traits.

Learn more at xxiicentury.com, on Twitter, on LinkedIn, and on YouTube.
Learn more about VLN^® at tryvln.com.

Cautionary Note Regarding Forward-Looking Statements
Except for historical information, all of the statements, expectations, and assumptions contained in this press release are forward-looking statements, including but not limited to our full year business outlook. Forward-Looking statements typically contain terms such as "anticipate," "believe," "consider," "continue," "could," "estimate," "expect," "explore," "foresee," "goal," "guidance," "intend," "likely," "may," "plan," "potential," "predict," "preliminary," "probable," "project," "promising," "seek," "should," "will," "would," and similar expressions. Forward-Looking statements include, but are not limited to, statements regarding (i) our strategic alternatives and cost reduction initiatives, (ii) our expectations regarding regulatory enforcement, including our ability to receive an exemption from new regulations, (iii) our financial and operating performance and (iv) our expectations for our business interruption insurance claim. Actual results might differ materially from those explicit or implicit in forward-looking statements. Important factors that could cause actual results to differ materially are set forth in "Risk Factors" in the Company's Annual Report on Form 10-K filed on March 28, 2024. All information provided in this release is as of the date hereof, and the Company assumes no obligation to and does not intend to update these forward-looking statements, except as required by law.

Investor Relations & Media Contact
Matt Kreps
Investor Relations
22nd Century Group
mkreps@xxiicentury.com
214-597-8200

To view the source version of this press release, please visit https://www.newsfilecorp.com/release/207375

FAQ

What did 22nd Century Group, Inc. (XXII) announce?

22nd Century Group, Inc. announced the elimination of $5.2 million of debt through an above-market equity transaction on April 30, 2024.

What was the consideration exchanged in the debt agreement?

The consideration involved approximately $248,000 in cash, 1.15 million shares of common stock priced at $2.14 per share, and 1.15 million shares of pre-funded warrants priced at $2.14 per share.

What restriction was placed on Omnia regarding common stock ownership?

Omnia may not own more than 19.99% of the common stock outstanding as per the agreement.

How will the transaction impact 22nd Century Group's balance sheet?

The transaction enhances the company's balance sheet, reduces interest expenses, and increases shareholder equity.

When does the company aim to become cash positive?

The company aims to become cash positive by the first quarter of 2025.