22nd Century (XXII) - 2022 Q3 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Net sales increased by 149% quarter-over-quarter to $19.4 million, reflecting a full quarter of GVB revenue and record tobacco CMO manufacturing sales [42] - Gross profit increased slightly quarter-over-quarter to $619,000, with improved gross margin from CMO manufacturing offset by lower margin from hemp/cannabis sales [43] - Tobacco revenue for the third quarter increased to a record $11.5 million from $7.8 million, an increase of 48% [44] Business Line Data and Key Metrics Changes - Tobacco revenue increased to $11.5 million, with a gross profit margin of 5.5% due to strong unit sales growth and improved product mix [44] - Hemp/cannabis revenue grew 25% to $7.8 million, reflecting an increase in unit sales of over 80% due to strong demand for premium quality ingredients [45] Market Data and Key Metrics Changes - The current five states represent about 7% of the total U.S. retail cigarette market, valued at approximately $5.7 billion [16] - Access to 18 states could provide access to more than half of the total U.S. cigarette market, equating to over $39 billion in cigarette sales [19] Company Strategy and Development Direction - The company plans to expand its presence in up to 18 states over the next 12 months, aiming for a notable market share [9] - Integration of GVB Biopharma is expected to enhance the company's position in the hemp/cannabis market, aiming for increased margins and certifications [11] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the prospects for the tobacco business, driven by consumer interest and regulatory changes favoring reduced nicotine products [30] - The company is closely monitoring investments to drive share, scale, and financial returns in commercial pursuits [12] Other Important Information - The company has a cash balance of $44 million, which will support near-term strategic initiatives, primarily the accelerated launch of VLN [47] - GVB is on pace to become a cash-generating business in 2023 due to investments made to meet market demand [49] Q&A Session Summary Question: Key factors for hitting 12 vs. 18 states - Management indicated that supply chain considerations are the major driver for the number of states targeted, with a focus on ensuring adequate supply [55][56] Question: Modeling tobacco opportunity and revenue realization - Management suggested that sequential growth seen in Q2 to Q3 is a good framework for modeling future revenue, with expectations for VLN sales to accelerate [59][60] Question: Ensuring shelf placement in new markets - Management confirmed that they have similar programs in Colorado as in Illinois, leveraging learnings from the pilot to ensure effective retail placement [65][66] Question: Insights on GVB acquisition and revenue expectations - Management expressed satisfaction with the GVB acquisition, noting that integration is progressing well and revenue growth is expected as demand for specialty ingredients increases [73][78] Question: Drug Master File submission to the FDA - Management confirmed that the submission is scheduled for Q1, which will open doors to the ethical pharmaceutical industry and establish high-quality standards [88][89]