22nd Century Group Inc., facing potential hurdles for very-low-nicotine traditional cigarette regulatory approval, has chosen to expand its presence in the hemp/cannabis plant research field.
Based in Williamsville, N.Y., 22nd Century opened cigarette-manufacturing operations in Mocksville in 2014 through spending $3.22 million on the production equipment of the defunct Renegade Tobacco Inc. At last count, it has 70 employees at the plant and 79 overall.
The company said Tuesday it plans to spend up to $24 million on an initial ownership stake in Panacea Life Sciences Inc. The funds would be comprised of $12 million in cash and just under 1.3 million shares of 22nd Century stock.
That would provide 22nd Century with a 30.4% ownership stake in Panacea.
Panacea, based in Golden, Colo., makes products exclusively in the legal, hemp-derived CBD sector for humans and animals that includes fast-acting sublingual tablets, soft gels, gummies, tinctures, cosmetics and other topicals. Panacea products can be purchased at https://panacealife.com.
22nd Century also said it has received a warrant to purchase preferred stock of Panacea, “which upon full exercise will provide 22nd Century with a controlling equity position in Panacea.”
The up to $24 million initial ownership stake in Panacea represents taking a significant financial risk for 22nd Century considering it reported Nov. 8 having $43.7 million in cash and cash equivalents as of Sept. 30.
“After a disciplined and thorough review of the opportunities available to 22nd Century to maximize shareholder value creation, we are pleased to announce the company’s first investment in the legal, hemp/cannabis, consumer-packaged goods space,” said Cliff Fleet, who was named Aug. 3 as 22nd Century’s president and chief executive following an unexpected management turnover.
“We plan for Panacea to be a platform operating company in the hemp/cannabis space that is able to leverage our leadership in cannabis-plant research, our comprehensive expertise in FDA-regulated spaces, and our leadership team’s deep experience in consumer packaged goods.”
22nd Century also reported Nov. 8 a $10.2 million loss in the third quarter, compared with net income of $6.3 million a year ago. The company benefited in the third quarter of 2018 from an overall $8.34 million gain related to its investment and subsequent sale of its stake in Anandia Laboratories Inc.
The bulk of 22nd Century’s revenue comes from production of traditional tobacco products, such as filtered cigars, and from very-low-nicotine cigarettes, its Spectrum-branded line, sold to government agencies for use in public-health studies. The company landed a new filtered-cigars production contract in May 2018.
However, the company has not received revenue from licensing or broad commercial sales of its very-low-nicotine tobacco products.
Leslie Buttorff, Panacea’s chief executive, said the 22nd Century investment represents a validation of the company’s developing of a supply chain “with track-and-trace capabilities and stringent quality control and testing at every step from seed-to-sale.”
“22nd Century’s investment will allow us to continue to scale our business — including the acceleration of our online and retail sales and marketing efforts focused on the Panacea brand.”
Buttorff said that with Panacea’s “CO2 extraction, chromatography equipment to produce THC-free distillate oil, and product manufacturing lines, we can produce over $1 billion of product per year.”
22nd Century disclosed Tuesday that board member Joseph Dunn has died, and that Andrea Jentsch has been promoted from director of accounting and financial reporting to chief financial officer. She joined the company in May.
Jentsch, 48, replaces John T. Brodfuehrer, who is retiring following a transition step to vice president of strategy.
22nd Century’s strategic goals with very-low-nicotine traditional cigarettes were dealt a potential blow Nov. 21 when the U.S. Department of Health and Human Services removed the products as a regulatory priority.
The decision comes amid advocate and analyst speculation that current FDA commissioner nominee, Dr. Stephen Hahn, does not favor heightened federal tobacco regulations.
In July, the FDA said it would review the public-health benefits of making cigarettes with very low levels of nicotine available to smokers.
A modified-risk tobacco product application seeks authorization to advertise products as reduced harm or reduced risk compared with cigarettes.
Fleet said Nov. 22 that the company “is disappointed that FDA appears to have delayed its efforts to enact a product standard rule to lower the amount of nicotine in all cigarettes sold in the United States to non-addictive levels.”
“We are encouraged, however, that FDA publicly stated that the agency continues to work on the nicotine-reduction rule. Furthermore, we remain optimistic about the approval of our MRTP application for very-low nicotine content cigarettes.”
Anti-smoking advocates have expressed concern that reducing nicotine levels too much could lead smokers to consume more cigarettes to get the same amount of nicotine, thereby increasing their exposure to carcinogens from the burning of the tobacco leaves.