22nd Century Group Inc Earnings - Q3 2025 Analysis & Highlights
22nd Century Group's Q3 2025 earnings call focused on the company's transition towards tobacco harm reduction through VLN products, balance sheet improvements, and strategic shifts in manufacturing and product offerings. The company is focused on growing distribution, followed by measuring and accelerating rate of sale of their products. They are shifting away from low-margin CMO business to focus on higher-margin branded products. The company aims to support the FDA's low nicotine mandate by offering VLN products and licensing their technology to other tobacco companies.
Key Financial Results
Net revenue was $4 million in Q3 2025, a decrease from $4.1 million in Q2 2025.
Total cartons sold were 517,000, compared to 779,000 in the previous quarter.
Gross profit showed a loss of $1.1 million in Q3 2025, compared to a loss of $0.6 million in Q2 2025.
Operating expenses for the third quarter were $2.2 million, compared to $2.3 million in the second quarter.
Net loss from continuing operations was approximately $3.8 million, compared to $3.3 million in the second quarter.
Adjusted EBITDA was a loss of $2.9 million, compared to a loss of $2.6 million in the second quarter.
Basic earnings per share for Q3 2025, inclusive of discontinued operations, was $1.55 per share, reflecting a $9.5 million gain on insurance settlement.
Cash on hand of $4.8 million and a $9.5 million receivable related to insurance recovery.
Total assets increased to $32.4 million, compared to $21.7 million at December 31, 2024.
Current and long-term debt were zero as of September 30, 2025.
Total liabilities decreased to $11.3 million at September 30, 2025, from $17.7 million at December 31, 2024.
Business Segment Results
The company is transitioning away from elements of its legacy CMO business, which had negative or low-margin product sales.
Shipments of newly branded VLN and Partner VLN products year-to-date through the end of October represent approximately 6,000 cartons.
Natural style cigarettes have added an additional 14,000 cartons.
VLN and Partner VLN cigarette products are now in approximately 1,500 stores across 21 states and are authorized in approximately 40 states.
Capital Allocation
The company paid off its senior secured debt and settled the insurance lawsuit, adding $9.5 million in non-dilutive cash to the balance sheet.
An at-the-market (ATM) facility will be implemented to selectively raise capital for growth.
The company fully repaid the senior secured credit facility during the quarter.
The company also paid in full the put option exercised on the Omnia Warrants of $1.23 million.
Industry Trends and Dynamics
Nicotine addiction is a significant issue that needs to be addressed.
There is a substantial place in the market for low-nicotine tobacco and VLN products.
The company aims to help customers address the changing demands of the tobacco consumer in the US.
The company believes that low nicotine tobacco is crucial to tobacco harm reduction.
The company welcomes other tobacco companies to join forces and support the FDA and the low nicotine mandate by licensing their technology and offering the choice of low nicotine products under their brands.
Competitive Landscape
22nd Century Group is the only company that produces and distributes both full nicotine and very low nicotine combustible cigarettes.
The company's brands in the full nicotine landscape are primarily represented in Tier 4.
The company believes that every combustible cigarette brand should carry a VLN set of SKUs.
The company sees its solution as the easiest and most straightforward transition to a low nicotine tobacco product.
The company is the only tobacco company that is an ally of the FDA and the proposed rule.
Macroeconomic Environment
In the US, approximately $600 billion is spent annually in healthcare costs cleaning up the mess that the tobacco industry has made.
Growth Opportunities and Strategies
The company is focused on growing distribution and accelerating the rate of sale of its products.
The company's product offerings have expanded to include other mid-tier and premium full nicotine combustibles, primarily with natural style cigarettes.
The company is developing a third brand under the partner VLN strategy, as well as others that would be available for licensing to retailers for their own private label brand.
The company plans to offer low nicotine leaf to other players in the market, as well as licensing opportunities.
The company's development plans include 100-millimeter VLN cigarettes and additional low nicotine tobacco strains.
The company will support licensing arrangements that will allow other tobacco companies to adopt VLN products under their brands.
The company is helping its customers address the changing demands of the tobacco consumer in the US.
Financial Guidance and Outlook
The company expects to see sequential improvement in the fourth quarter of 2025 and throughout 2026.
The company is aiming for EBITDA breakeven in the second quarter of 2026.
The company will measure progress against its annual goal of 500,000 cartons of higher margin products.
The company expects to begin seeing rate of sale metrics in the early part of 2026.
