22nd Century Group Completes Sale of Hemp/Cannabis Franchise

Rhea-AI Summary

22nd Century Group, Inc. (NASDAQ: XXII) has closed the sale of its hemp/cannabis operations, reducing operating costs and debt by $5.2 million. The company aims to achieve cash positive operations and improve its balance sheet. The sale will allow 22nd Century to focus on its FDA authorized harm reduction products and tobacco assets.

Insights

Financial Analyst

The divestiture of the hemp/cannabis operations by 22nd Century Group represents a strategic pivot towards optimizing its financial structure. By offloading non-core assets, the company is set to significantly decrease its operating expenses. This move is indicative of a sharpened focus on core competencies and a drive towards achieving a cash positive status, which is a critical milestone for any biotech firm striving for financial sustainability.

The debt reduction of $5.2 million, with $3.2 million immediate and $2.0 million contingent on the buyer's future payments, is a substantial step towards strengthening the balance sheet. This reduction in leverage can potentially improve the company's creditworthiness and investment appeal. Additionally, the expected insurance proceeds of approximately $9 million related to the Grass Valley manufacturing facility fire could further alleviate the debt burden, enhancing the company's financial flexibility and possibly its stock valuation.

Market Research Analyst

22nd Century's strategic exit from the hemp/cannabis sector and renewed focus on its tobacco assets, including FDA authorized harm reduction products, may be viewed favorably by the market. This shift aligns with the growing demand for reduced-risk tobacco alternatives, which is a segment with substantial growth potential. The company's alignment with market trends and regulatory momentum could position it favorably within the competitive landscape.

Investors may react positively to the news of operational cost reduction and debt decrease, as these factors are crucial for long-term value creation. The market's response will likely hinge on the effective deployment of freed-up capital towards high-margin tobacco products and the management's ability to leverage FDA authorization to capture market share.

Legal Expert

The assignment of a non-strategic hemp/cannabis asset as part of a non-monetary transaction to satisfy a portion of the company's debt obligations is a sophisticated financial maneuver. It illustrates the use of creative structuring to manage liabilities without immediate cash outflows. The legal implications of such a transaction require careful navigation to ensure compliance with financial regulations and to safeguard shareholder interests.

Furthermore, the resolution of the insurance claim related to the Grass Valley fire is a pending legal matter with financial repercussions. The outcome of this claim will have a direct impact on the company's debt levels and liquidity position. It is essential for stakeholders to monitor the resolution of this matter for its potential to further improve the company's financial health.

Sale Will Significantly Reduce Operating Expenses, Ultimately Reduce Debt by $5.2 Million

Buffalo, New York--(Newsfile Corp. - December 28, 2023) - 22nd Century Group, Inc. (NASDAQ: XXII) (the "Company" or "22nd Century"), a biotechnology company focused on utilizing advanced plant technologies to improve health and wellness, today announced it has closed the sale of its hemp/cannabis operations. The transaction will significantly reduce the Company's operating costs going forward, a key step in its goal to achieve cash positive operations.

The sale, combined with the assignment of a non-strategic hemp/cannabis asset in Colorado to the senior lender as a non-monetary transaction, will reduce 22nd Century's debt by $3.2 million, with an additional $2.0 million reduction to come from the Buyer's payment of a secured promissory note due June 2024. After assignment of the hemp/cannabis asset and upon the Buyer paying the note in full, the remaining outstanding debt principal is expected to be approximately $8.8 million based on the effects of this transaction.

"We are excited to close this transaction and dramatically reduce our operating costs going into 2024, an important step in moving the business to a sustainable, cash positive operating basis," stated Larry Firestone, Chairman and Chief Executive Officer of 22nd Century. "We are also pleased to substantially reduce our debt as we work to create value for our shareholders through an improved balance sheet and full focus on our tobacco assets, including our FDA authorized branded harm reduction products."

As previously announced, insurance proceeds expected to be received in connection with the fire at the Company's Grass Valley manufacturing facility will be used to further reduce the debt. At present, damages being sought are approximately $9 million, although the amount received will not be finalized until resolution of the matter.

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.

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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) the sale of our hemp/cannabis business, including the GVB assets, (ii) our expectations regarding our future operating expenses and cash flow, (iii) our expectations on the timing and completion of the sale of our hemp/cannabis business, 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 9, 2023 and Quarterly Reports on Form 10-Q filed May 9, 2023, August 14, 2023 and November 6, 2023. All information provided in this press 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/192524

FAQ

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

22nd Century Group, Inc. (NASDAQ: XXII) announced the closure of the sale of its hemp/cannabis operations, resulting in a significant reduction of operating costs and debt by $5.2 million.

What is the goal of the sale for 22nd Century Group, Inc. (NASDAQ: XXII)?

The goal of the sale is to achieve cash positive operations and improve the company's balance sheet by focusing on its FDA authorized harm reduction products and tobacco assets.

How much debt will be reduced by the sale for 22nd Century Group, Inc. (NASDAQ: XXII)?

The sale will reduce 22nd Century Group, Inc.'s debt by $5.2 million, with $3.2 million already reduced and an additional $2.0 million to come from the Buyer's payment of a secured promissory note.

What will 22nd Century Group, Inc. (NASDAQ: XXII) use the insurance proceeds for?

The insurance proceeds expected to be received in connection with the fire at the Company's Grass Valley manufacturing facility will be used to further reduce the debt.