Tobacco and cannabis company 22nd Century Group, Inc. (Nasdaq: XXII) reported its second-quarter results ending June 30, showing a sizable 61.8% year-over-year revenue increase, climbing to $23.4 million from the same period in 2022.
The figure barely missed Yahoo analysts’ average estimate by around $610,000. The uptick was largely fueled by its hemp/cannabis sector’s performance.
While the company’s adjusted EBITDA showed a loss of $16 million, which is still an improvement from the previous year’s loss of $7.1 million, the firm’s hemp/cannabis division recorded another milestone quarter across the board. Shipped cannabinoid ingredient volumes surged by a remarkable 188% year-over-year.
Additionally, in the first half of 2023, the company surpassed its entire 2022 shipments, supplying more than 144,000 kgs of ingredients, up from 112,000 kgs last year.
“Our hemp/cannabis ingredients, manufacturing and licensing business reported another record quarter as 22nd Century continues to consolidate and leverage its industry leadership position,” interim CEO John Miller said in a statement. “We believe the record ingredient volumes reflected both overall industry growth and increasing customer preference for our products over other less reliable sources.”
July was particularly promising for 22nd Century. The company resumed CBD distillate production at its new GVB facilities in Oregon, an initiative expected to boost profit margins throughout 2023. Additionally, July marked the commencement of CBD crude extract operations, providing a window for gross profit improvements tied to vertical integration.
To meet the surging demand, the firm has contracted new growing programs to cultivate hemp biomass for extraction. Those harvests, projected for the latter half of 2023, will look to help both profit margins and the availability of biomass volumes.
Another milestone was the initiation of shipments under three-year exclusive license and distribution agreements with prominent partners, Cookies and Old Pal.
However, not everything was smooth sailing. 22nd Century had to adjust its 2023 revenue outlook from an initial range of $105-110 million down to $80-90 million, citing changes in the launch timeline for its reduced nicotine cigarette — VLN — internal production shifts, and the cost reduction plan.
More specifically, the company’s trying to evolve from primarily doing research to becoming a full-fledged commercial business, aiming to promote health and reduce harm from tobacco. 22nd Century started selling its reduced nicotine cigarette in 14 states, with two more coming up in September. Even though there was a delay in launching the VLN product earlier in the year, the company said it has now beefed its availability.
“Our revised and updated VLN plan will include a more focused, cost-efficient marketing and sales effort within our footprint and a commitment to streamline our operations relative to the first half that reflected heavier investment in new systems and logistics for the launch,” Miller said.
Operational costs stood at $17 million, with an overall net loss of $20.54 million for the quarter. Miller emphasized a cost reduction initiative designed to generate at least $15 million in annualized operating cost reductions. The move aims to streamline the business and position it for growth, especially following heavy investments made in the first half of 2023.
On the corporate side, the company saw a shuffle at the top, with James A. Mish resigning as CEO. Miller, who headed the tobacco business unit, stepped in as interim CEO. In addition, 22nd Century managed to stay compliant with Nasdaq listing requirements, bringing in Wall Street veteran Andy Arno to its board of directors.
Despite some challenges, including a 2022 plant fire affecting profits, the company said it remains upbeat. Gross margins are anticipated to see positive shifts in the latter half of 2023, which the firm attributes in part to new in-house production capabilities and the expected hemp/cannabis biomass harvest.