In our previous coverage of 22nd Century Group Inc (NYSEMKT:XXII), we looked at how the stock proved us right regarding our prediction of its price movement.
XXII bolted less than $1.00 a share in January this year to trade at more than $3.00, implying a more than 255% gain in just a couple of months. The stock made big moves on the back of the announcement by the FDA (US Food and Drug Administration) about plans to cut nicotine levels in combustible cigarettes to non-addictive levels.
In today’s piece, we expose XXII’s revenue prospects so you can anticipate what might be lying ahead of this company – and hopefully act appropriately so that if you missed the earlier train, you don’t miss the next one.
Before we get into the deals of what we have in store for you in this piece, take a look at XXII’s share price action.
In case you are reading about XXII for the first time, there is no need to worry because we have you covered with a brief background on the company.
XXII is a US company headquartered in Clarence, New York. The company has existed since 1998 – so it’s not some sort of fad. For the years it’s been around, XXII has researched and developed a powerful biotechnology. The technology can be used to regulate the level of chemical components in tobacco and cannabis/marijuana plants.
In tobacco, XXII is able to reduce the level of nicotine – the chief active constituent of tobacco that is associated with smoking addictions and illnesses. As such, XXII produces and commercializes cigarettes with around 95% less nicotine compared to regular cigarettes.
In cannabis, XXII says its aim is to develop proprietary hemp/cannabis strains that can be more useful as medicines and agricultural crops.
XXII already generates revenue from its operations.
For the quarter ended June 30, 2017, XXII reported revenue of $3.9 million, up 38% from a similar quarter last year and above consensus estimate by more than $1.3 million. The company generated revenue of $12.3 million in fiscal 2016 and it recently upgraded its revenue guidance for fiscal 2017 to more than $16 million after its wholly-owned subsidiary NASCO Products signed a large manufacturing contract for cigarettes.
XXII expects to be profitable by 2018, a year in which annual revenue is expected to be more than $20 million.
But XXII’s revenue guidance for this year or the next one does not even come close to its real revenue potential if you take into account the size of the traditional tobacco cigarette market that the company is set to upend.
The size of the global cigarette market is estimated at around $700 billion annually, and the planet consists of more than one billion smokers. In the US alone, this group consumed more than 258 billion cigarette in 2016, an increase of 2.5% over the prior year, according to CDC (Centers for Disease Control and Prevention). Interestingly, cigarette consumption in the US has continued to rise or remained high despite attempts to increase cigarette prices to try to discourage tobacco smoking.
According to the same CDC, 10% hike in the price of cigarette can reduce consumption by just 3-5%. This low progress in the war against tobacco smoking is largely attributed to nicotine addiction. XXII has a transformative technology, if not a solution, to the global problem of tobacco smoking addiction – and illnesses. And regulators are stepping up to create a more conducive atmosphere for XXII to flourish economically.
The FDA is committed to fight tobacco smoking addiction and its involvement could unlock tremendous revenue potential for XXII. XXII is not only capable of cutting nicotine in cigarettes to the lowest levels possible without hurting flavor, its cigarettes allow people to start and stop smoking any time they please – not chained by addiction – and tobacco toxins.
A growing number of science experts focused on tobacco harm reduction have continued to hail the FDA for its plans to put in place regulations that would limit the amount of nicotine in combustible cigarettes to non-addictive levels. On August 23, XXII published a press release talking about expert endorsement of its unique technology as a potential game-changer in cutting nicotine addiction due to smoking of combustible tobacco cigarette.
Here’s what Henry Sicignano, III, President and CEO of XXII, stated in the announcement:
“22nd Century’s technology is proven. The FDA plan is already feasible. The time to implement a mandate of Very Low Nicotine tobacco in all combustible cigarettes sold in the United States has arrived.”
There exists a compelling reason health regulators would buy into XXII’s story – reducing cigarette nicotine by 95%. This could save global healthcare systems billions of dollars in costs. In the US, for instance, smoking-related illnesses cost the economy $300 billion every year, with $170 billion of the cost tied to direct medical care for adults and more than $156 billion in lost productivity. XXII can end this and profit from it.
The revenue and profit potential for XXII exist not just in selling safer and healthier cigarettes, but also licensing its unique technology to outsiders – like other cigarette and cannabis producers. The potential for XXII is limitless when all factors are considered.
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Disclosure: We have no position in XXII and have not been compensated for this article.