The share price of 22nd Century Group Inc (NYSEAMERICAN:XXII) had constantly been on the rise over the last year, rising from lows of under $1 to highs of up to $3.5 back in October, an amazing achievement for the company.
This, however, took a turn for the worse in late October when the company’s share price began to dip slowly from $3.5 up until now when their share price has stagnated at about $2.
Moreover, since August, their traded volumes began to be visible with the company having tens of millions of shares traded every month since and this hasn’t reduced till now.
The share price action can be seen in the chart below.
It was interesting to see a company which seemed to be doing quite well all of a sudden begin to fall slowly.
We therefore took interest in the company as we sought to find out what drove their share price that high, what value proposition they had presented to the market, what made the share price come down and whether the long term holds any perks for investors who invest in XXII.
Over the course of this piece, we will assess this and work at coming up with a fact-based answer to the questions detailed above. As such, let us dive right in.
XXII: Our Roots
This is a short summary of the company for the sake of first time readers.
22nd Century Group, Inc is a plant biotechnology company focused on tobacco harm reduction and cannabis research. The Clarence, New York-based company was founded in 1998 and has since grown to acquire up to 5 subsidiaries.
The company is currently invested in the tobacco and cannabis sectors through intensive research in a bid to find solutions to the ills that come from then use of the two especially tobacco.
True to this, they have come up with some solutions (explained below) and are continuing with their quest to grow their influence in the industry going forward.
XXII: Their Quest and Growth
The company has been quite pivotal to the research and development in the cannabis and tobacco industry with their research proving quite important to the two sectors.
Currently, the company has in their portfolio a product dubbed BRAND, the company’s Modified Risk Tobacco Product (“MRTP”) which is a very Low Nicotine Content cigarettes, one which in their view would be low enough to help reduce the addictive effects of nicotine that arises from the use of cigarettes to low or non-addictive levels.
Such proprietary tobacco research has been used in more than $100 million in independent clinical studies funded by the FDA and other federal government agencies.
With such research and funding, the company came up with a brilliant move to bring in James E. Swauger, Ph.D., as the Company’s Senior Vice President of Science and Regulatory Affairs.
Given the Dr’s past relations with the FDA, he is meant to spearhead the approval process of the company’s products as they work towards eventual commercialization. This, when coupled with the fact that the company has gone deep into the proliferated marijuana industry, is a great step in the long game as the company works towards creating more products through their research division.
Such products include their most recent non-cannabis containing HEMP oil which they developed more recently.
The story of success doesn’t end here.
More recently, they identified several promising hemp varieties that could form the foundation for commercial hemp production throughout the legacy tobacco belt region of the United States.
This was courtesy of research they had been carrying out at the University of Virginia.
The research whose output was to be used to optimize plant growth for their hemp plants will see 22nd Century develop high-value medicinal cannabinoid varieties and specialized cannabinoid extraction processes for use in human therapeutics.
The company which has constantly explained their value creation proposition to the market has done it again. They seem not to have anything stopping them. This is all reiterated by their Vice President of Plant Biotechnology, Dr. Paul Rushton, who said:
“We are delighted with the results of our first industrial hemp field trials in Virginia and with the significant commercial potential these plants represent… In 2018, we will add our proprietary zero-THC hemp plants to our hemp program with UVA and we will expand our hemp activities in New York and other areas across the United States; these projects will continue to spotlight 22nd Century as a leader in the rapidly emerging industrial hemp and medical marijuana markets.”
This being the case, we believe in the value-creation narrative proposed by XXII and expect it to grow into the future.
The company announced a significant loss position for the third quarter. Despite their revenues going up nearly 50% to close the period at $3.8 million, their costs of goods sold went up further to $4 million causing a gross loss followed by a net loss of about $3.3 million, a near 50% increase from their previous loss position. Their operating cash flows also worsened to end the quarter at a negative position of $9.8 million.
Despite this being quite bad, their working capital position strengthened to stand at $13.3 million during that quarter while total shareholder equity also rose nearly 120% to close the quarter at $24 million.
The company may have had a few hiccups in the current period, however, management is committed towards ensuring that they perform better in the coming period. A lot needs to be done especially on their finances, however, it is important to acknowledge that a lot has been done and that, if maintained, the company is on its path to success going forward.
XXII is about to take its industry by storm. Investors would be prudent and take heed of their future prospects before it’s too late.
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Disclosure: We have no position in XXII and have not been compensated for this article.