22nd Century Group, the fledgling Clarence company that is working on ways to raise and lower levels of nicotine in cigarettes, has stabilized its financial future with a significant stock sale.
The company said Monday that it had raised more than $50 million by selling a big block of new stock to institutional investors.
The money that 22nd Century raised through the stock sale, when combined with the cash the company already had on hand, will give the company a $60 million cash cushion – enough to fund its operations for more than five years, executives said.
In addition to work to control the level of nicotine in cigarettes, the company is also working on lowering the high-inducing ingredient in marijuana.
The stock sale is important because it ensures that 22nd Century will have enough money to continue its product development efforts for several years at a time when the company continues to lose money from its existing cigarette-making operations and its significant research and development initiatives.
It is those research efforts that have helped push 22nd Century's stock price to all-time highs as federal regulators have signaled their interest in mandating lower levels of nicotine in tobacco products. The idea, outline by the U.S. Food and Drug Administration in July, proposed cutting the nicotine levels in cigarettes so they aren't so addictive – a move that potentially could drive up demand for 22nd Century's nicotine-manipulating technology, which can produce tobacco plants that have just 3 percent of the nicotine in typical tobacco.
The stock sale also puts 22nd Century on more sound financial footing as it potentially could look to begin negotiations with other tobacco makers or strategic partners. The company had a five-year licensing deal with British American Tobacco Co., but that agreement expired last month, freeing 22nd Century to strike new deals that, potentially, would not include the $25 million cap on annual royalty payments that the British American Tobacco contract contained.
The company also is developing smoking cessation products that would rely on reduced levels of nicotine to gradually help smokers quit – a product that would require more extensive regulatory scrutiny than a so-called "modified risk" tobacco product with lower nicotine levels. Preliminary findings from a recent study by University of Minnesota researchers indicated that an immediate switch to low-nicotine cigarettes is the best way to help smokers quit, rather than a gradual reduction in nicotine levels.
The stock sale will increase the number of 22nd Century shares outstanding by about 20 percent, which prompted the stock to fall by more than 10 percent on Monday to $3.05. The stock sale was priced at $2.625 per share – a 23 percent discount from the stock's closing price on Friday. The stock, which traded for 89 cents a share at the beginning of the year, has more than tripled in value during 2017.
The stock sale comes at a time when the shares were selling at an all-time high, increasing the proceeds to the company, said Henry Sicignano III, 22nd Century's president and CEO. Unlike other 22nd Century stock sales, the latest offering did not include any warrants allowing investors to purchase additional shares at a set price in the future. If a company's stock rises, warrants often allow investors to acquire additional shares at a discounted price from the market value at the time.
For now, though, 22nd Century continues to lose money, posting a loss of $6 million during the first half of this year, even with a 5 percent increase in revenue to $6.1 million.
The stock sale is expected to close on Tuesday.