22nd Century Group, Inc. (XXII) Earnings Call Transcript & Summary

Good afternoon, everyone. Thank you for joining today's conference call. There will be a brief period of silence while we wait for all participants to move from the waiting room to the main conference. And I'd like to thank everyone for their patience as we wait for all participants to join the main conference. While we wait, I'll read a brief disclaimer. Members of the media are not invited to participate in this call. Any publication, distribution, reproduction, posting, sharing or transmission of this information without the express permission of Cowen is prohibited. As a reminder, we are not interested in receiving and you should not disclose any confidential information. In the event that you inadvertently disclose such information, please notify us as soon as possible. Please go ahead, Vivien.

Thank you, Jen, and good afternoon, everybody. Thank you for joining us, and happy new year. Delighted to be with the team for 22nd Century as we discuss recent incremental and critical developments in their tobacco pathway with the receipt of the MRTP designation. I'm joined by Jim Mish, CEO. Hey, Jim.

Hi, Vivien. Happy New Year. Glad to be here. Thank you.

Absolutely. Happy New Year to you, too. And Rich Fitzgerald, CFO. Hey, how are you? Great. And then Michael Zercher, who's the COO and President of 22nd Century. So thank you all so much for taking the time. Jim, maybe I'll start with you, if you wouldn't mind level setting the audience on the recent developments. And actually, before I do that, I'll just remind the audience that we're going to be doing Q&A via e-mail. [Operator Instructions] I'll be checking my e-mail and fielding those questions to the team. And with that, let me turn it to Jim.

Yes. Thanks, again, Vivien, and appreciate the time, and you've been with us on this journey for some time now. And it's great to finally be here to talk about the MRTP authorization versus the waiting period. So we want to spend the day really talking about our tobacco franchise, although as you well know, we're in cannabis and hemp and hops. But today is really all about the MRTP, it's really about our VLN plans and really wanted to set the table. And it's really worth repeating as many times as I can what an extraordinary event this is not only for the public health component of the reduction of harm, but certainly also 22nd Century's primary mission to reduce harm and of our stakeholders and shareholders. And it really is an extraordinary event that came really during the holiday period when most of the media was, kind of, out of pocket. So we're really happy to come together here today to talk about it. With the MRTP in hand now, I'm proud to say that the team has really delivered on every promise across the board without fail. And our confidence only continues to grow in the next phase of things. The exact timing aside with FDA, which was challenging to predict our confidence and our assessment of the final outcome, was spot on. And as we look to the future, we have a high level of confidence of many of the things we'll talk about here today and how things play out. And I think what's, to some extent, was overlooked, was that not only did we receive the MRTP based on what we had requested in our original application, but we received an extra and monstrously valuable claim that helps you smoke less than, in essence, is mandated on every package by the FDA in order to educate the consumer as to the benefits of the product. And it's just extraordinary. If you just sit back and imagine that reality for a second, a combustible cigarette that has a harm-reduction claim that is authorized by the FDA and backed by those clinical studies. So we continue to feel strongly that VLN is the first and more than likely the only MRTP combustible that we'll ever see. So one-of-a-kind product. And it can absolutely stand on its own or be utilized in combination with other harm-reduction products, such as vapes and gums and patches. All of which, we think, are important for the overall approach on harm reduction. So we're glad to be a part of that, and we're glad to look for those types of synergies. But really, during the same time period that we've been waiting for the final authorization, we've worked hard to become fully capable and prepared for the launch in the U.S. within 90 days, and Mike is going to cover a lot more of that detail. And we're continuing on with what we've already announced on the offshore launches, on the few countries that don't require the MRTP. And then right behind that, now that we have the MRTP, that opens up the globe for us to go after those larger markets in Western Europe, et cetera. And we'll talk more about that in detail. So during that same time period, though, we're coming at this from two different vectors. One, certainly, is to get VLN into the market on our own. But most importantly, we want to get into the hands of consumers as quickly as possible. So we've certainly been advancing strategic commercial discussions with Big Tobacco and we've recently announced within the pharma group as well, we'll talk more about that. But I will say now that we have the MRTP in hand, we're just in an excellent position to drive those discussions forward. And then, finally, before turning it over to the Q&A. With the MRTP authorization and our confidence around that, we're also just confident the new FDA regulations are [indiscernible] including a menthol ban slated for a decision in April of this year, April of '22, so only a few months away from that. And we're highly confident the reprioritization of the nicotine mandate is also coming as the FDA moves forward. So all these things combined, our ability to launch the product in the U.S., globally, the bandwidth around that, our confidence levels of new mandates coming, we continue to feel -- it makes 22nd Century more and more of an attractive investment on its own, and certainly, at the very least, a hedge for those with significant positions in Big Tobacco. So we're happy to be here to talk about more detail. We want to share it as transparently and as fast as we can. With that said, we're being mindful of the competitive dynamics as we progress both onshore and offshore. So certain things we can't disclose today, but it is coming and it is coming soon in one fashion or another, and we're going to do that as quickly as possible. But many of the details we can talk about today, I'm happy to dig into that with a Q&A session here now. So with that, I'll turn it back over to you and ask Mike and Rich to join in here for the Q&A session.

Awesome. Thank you so much for that, Jim. I appreciate it. Mike, why don't I turn to you with the first question. So you guys have been preparing for a long time for your pilot launch and then ultimately the national commercialization of that. Did anything change in terms of your preparedness given that you've got an additional claim, for instance, in thinking about your pilot? And then maybe just for the benefit of the audience, just remind everyone what a pilot looks like to you guys?

Yes. Absolutely. So Jim highlighted the additional claim that FDA granted us, the helps-you-smoke-less claim. That, I think, will help enormously in the messaging to smokers. So with our previous -- our application had a headline claim requested, which was 95% less nicotine. So if you imagine looking at a pack in cigarettes that has that as the headline claim on it, the next natural question is, well, what does this mean to me as a smoker that has 95% less nicotine? And the helps-you-smoke-less claim answers that question. So it does help refine the marketing or the messaging and I think just accelerates our ability to move through the pilot and then head into the national market as well as effectively hit the international markets as well. And to -- when we talk about a pilot, really what we're talking about is launching into one metro area, so a limited geographic area, in which we're going to operate with -- exclusively with a single retail partner, they're a national chain. We worked with -- we've been working with them for several months now to prepare for this pilot and we work together with them to select the pilot market across their entire business. And it's a large metro area and it's got great demographics in terms of being representative of the national market. So all socioeconomic classes, it's got a large menthol segment, it's a relatively high-tax market and also has a lot of public health messaging around smoking. And so we think it's very representative of where the U.S. is and where it continues to head with tobacco regulation. We think it will be a great place to test our messaging, test our marketing mix and then also learn how smokers will use this product. And there's -- we think there's going to be a variety of ways that smokers will use it, but we're going to be listening to them to understand how they're using it and then using that learning, as we head into the national launch.

Understood. And can I just follow up on that then. Working with one national retailer is certainly helpful, right, because you now have an established agreement around what a national rollout is. But that is just one retailer. So I guess, a 2-part question, Mike, please. Number one, can you give any color to what shelf space placement might look like with this key retail partner for pilot and then, ultimately, national? And then the follow-up to that is, whether you've had discussions now with other retailers and what your expectations are in terms of shelf placement and signage at POS?

Yes. So it's a great question. Obviously, the point of sale is very competitive and it's also where most communication with smokers happens. And so we work -- it was very important to us that we went into the pilot with a partner that was 100% bought into what we were trying to achieve here. So this chain is a leader in launching innovative reduced-risk tobacco products in this particular -- especially in this geographic region that we're operating in. And so they're fully committed, including in helping to secure the shelf space that we need to prominently make the product visible as well as providing access to all of the promotional programs that they have available for tobacco products. So that includes indoor and outdoor signage. It includes access to all of their promotional, digital activity, whether that's loyalty programs or incentives at the point of sale to consumers as well as the store staff. So it's going to be a great partnership and a great program. We're very excited to be heading into this now.

That's great. And then just a follow-up. Whether you've had conversations or conversations are ongoing with additional retailers?

Yes, yes. We have. So we've got a number of both national and regional chains that we're in discussions with. And there's a lot of excitement amongst all of these folks that we're talking with. And so we've already started those discussions and negotiations in anticipation of a national rollout.

Perfect. That's really helpful. Rich, why don't I turn to you? So the launch is progressing and that's really exciting, but launching a new cigarette products in the U.S. costs money. So how are you thinking about investment spending in 2022?

Yes. Great question. Thank you. We've actually made -- we're in the process of making some upgrades to the North Carolina facility that we control, and those will enable us to scale up and supply up to 3% of the cigarette demand. So we believe we have the existing capacity to produce and feed the demand up to 3%, which would be a terrific number if we were to hit that, the U.S. cigarette market, from a sales perspective. So we don't think there's that much incremental CapEx for us to step up and do this launch. It's the marketing, and certainly, with partners and being able to share that channel cost is very helpful to us.

And let me just stick with you, Rich. I mean, certainly, sharing the cost is helpful. Another thing that's really helpful is if you're selling a premium priced cigarette, more drops down to the bottom line. So just remind the audience how you guys are thinking about price positioning? Or if that's a Mike question?

Yes. The pricing on the VLN product is envisioned to be right at other premium cigarettes. Obviously, we have unique claims that come with our product. Gross margins will be quite comparable to the premium products that are out there today. So from a gross margin perspective, even though we're a smaller company, we expect to be right in the realm of what other premium cigarettes are generating out there.

Got it. And as you think about kind of the international opportunities, is there incremental CapEx that needs to go to funding that? Or any reason that you would want to kind of bolster the balance sheet?

I think that's also an area where, to date, we've been thinking it's more through partners who have existing channels and can take us to the retail consumer there. So we don't feel there's significant channel costs that we need to bear on our partner.

Yes. Just add to that, Vivien, that other than the EU, which is now a possibility for us with the MRTP approval, we'll go with that in our hand to talk to folks in Brussels about granting us some claim -- similar claims there. But in the rest of the world, our manufacturing asset in North Carolina, we can leverage that to manufacture in these other markets. And then as Rich said, we're really taking an asset-light approach by partnering with folks who are already on the ground in those countries.

Got it. That's helpful. Do you have any sense of what like -- what the time line would look like in terms of getting any kind of approval from the EU? I know the U.S. is the near-term opportunity, and we're going to turn back to that. But since you mentioned it.

Yes. This is a novel initiative. I don't think there's a product out there that has an MRTP-type claim in the EU. So we would be blazing a new path here. So no, it's hard to forecast what the time line would be for the EU. But the other international markets that we've been working on, even before the MRTP approval came, are markets that, we're confident, we can go in with those claims without any approvals from the regulatory agencies in those countries. And then there's exponentially more countries where we think that the FDA approval will really expedite our ability to access the market with claims. And most of those will be Asian -- markets in Asia.

I think it's about sequencing, Vivien, as well. I mean we've been talking about this even before the MRTP is that there were a handful of countries that we could be, and still plan on being on the shelves, in revenue generation in Q1, that's still looking spot on. We were targeting the U.S. launch in that same time period on a pilot basis, which we're spot on with. And it's just a matter of some of the paperwork trail on countries that now opened up to us. But what's worth really making clear out there is that we have the bandwidth to take on all three of those buckets and do them successfully, and in particular, because of some of the sequencing on the regulatory side on the countries that have now opened up to us offshore with the MRTP. So we're going to follow that sequence. And I think, fortunately, the channel partners that we've been talking about and talking with globally have all come in with a constant theme, which is they don't view this as another cigarette product. They do view it as something very unique, on a harm-reduction basis. They want to get behind that messaging. They want to put their own money into that messaging. And that's the type of partnerships we've been looking for on the retail channel itself as we progress discussions with more strategic commercial channels as well at the same time with Big Tobacco and Big Pharma. So we view it as a sequence of events, and we're spot on as far as our timing in Q1 here and how the doors will open up as we get into Qs 2 through 4.

That's terrific. And to our audience, thank you so much for all the questions. Keep them coming, [email protected]. I'm going to try to consolidate. Rich, I'm going to turn back to you. I've gotten a number of questions around capital raising. So I tried to touch on it a little bit. I get it, like in North Carolina, doesn't require a lot of CapEx. But as you think about the organization in its totality, there are a number of different initiatives. So how are you thinking about your cash position through 2022?

Yes. Our cash position is quite strong. We disclosed it most recently at the end of September. And we'll certainly be updating that disclosure when we do our 10-Q later this year. Cash burn during the fourth quarter, not too different than anything we had seen earlier in the year. And from our perspective, we will look to be opportunistic to raise capital when available. And I think, certainly, we could accelerate the launch with more capital, but we have enough resources, as stated earlier, to do the pilot and scale to the launch and certainly access additional partnership, which is a very capital-efficient way of launching this product.

I think it ties in, Vivien, just to put it in vernacular that we've been using in the past, is that we're very comfortable with our balance sheet on our organic growth initiatives, really, across all 3 franchises. And for tobacco, that would include the pilot, the full launch and working our way up towards 2%, 3-plus percent in the marketplace. We see opportunities to accelerate that. We're certainly going to take advantage of it. But it's really, at that point, really more of a play into commercial strategic partnerships globally, most critically to get the product in the hands of the consumer as fast as possible. Our primary mission has always been about that harm reduction. How you achieve harm reduction is by getting the product into as many hands as possible. And we think we can do that independently and are starting in that direction. But ultimately, we're highly confident the commercial partners will come in as well. We've got plenty of funds to drive that organic growth not only in tobacco, but same type of philosophy in hemp and hops.

Got it. That's helpful. So Mike, a lot of this continues to come back to your role in the organization, right, like your mandate is to get this product into people's hands. Do you feel like you have sufficient head count? Do you have the right talent to do that? Or do you need to continue to scale those competencies?

Yes. We've been building a great team here already that's 100% solely focused on the VLN commercialization even, well, in anticipation of the MRTP approval. So my background -- well, I'll say first, I've been working at 22nd Century working on the VLN proposition for 5 years now. I've thought very deeply about it and we've done a lot of planning over that time just for this moment. On top of that, I've been in the tobacco industry most of my career, including as the Head of the International Business that launched American Spirit in 10-plus countries. So this is a space that I understand, these are consumers that I understand. And we've been building out a team of additional folks, all of whom have many years of tobacco industry experience. So there's no novices here as it relates to commercializing VLN. And we'll continue to build the team as we expand the business and scale it. And I can say I've gotten quite a few inquiries already of folks, both ex-tobacco and current tobacco folks, who are interested in coming aboard and helping us to really move this thing forward as quickly and as massively as we can.

That's really exciting. Did anyone want to add anything to that? No.

I think that, I mean, sums it up pretty nicely, Vivien.

Okay. Awesome, awesome. Sorry, I keep on looking down, but it's only because I'm looking at my phone because I'm getting a lot of questions and I want to try to address as many as possible. I think realistically I'm trying to create a narrative and stay on topic, but I think we're going to start bouncing around a little bit, if that's all right.

Yes. No worries.

Okay. Great. This one is for you, Mike. How many retail outlets are in the pilot program?

There's a couple of hundred. The exact count is not firmed up yet. We'll get closer to an exact count as we approach the launch date, which will be as soon as we can, but most likely in March. But it's a major metro area, so there's a few hundred in the region.

Perfect. Another question. Will 22nd Century market VLN through advertising? Can you speak to the benefits of VLN on social media, TV, radio, magazines?

Yes. So we're going to use every tool that's available to us. So as I mentioned, a lot of communication around cigarette advertising happens at the point of sale. That's going to be particularly important, but we will also be leveraging print, which is still generally available and digital. And there -- we're still navigating how this fits into the digital space. But as you can see with the way some of the larger companies are doing digital around Marlboro and so on, there's definitely tools available. And we think this proposition itself -- lends itself very well to digital media behind an age gate. And so we'll be building out those tools ahead of the pilot and then, of course, expanding them as we scale the business.

And the standard rules that apply to a combustible cigarette around print, x percent of the readership has to be above, I think it's 25%. That all applies to VLN?

Yes, yes, yes. It does.

Okay. For the pilot program, has the retailer -- I think this is what the question means. Was the inventory purchased already by the partner? Or is the inventory on consignment? And I assume by partner, they mean your retail partner.

Yes. We'll be selling it to a distributor who will then, in turn, sell it to the retailer, which is the traditional tobacco supply chain.

Got it. Selfishly, I'm going to ask a follow-up question. Have you flagged to Nielsen that they need to start tracking your product?

Yes. That's a good question. I have to find out about that. But yes, we'll be on the Nielsen's radar as soon as we possibly can be. And...

Okay. Good stuff. And presumably, like your volumes will contribute to the MSAi industry volumes, right?

I would think so. Again, this is a national chain. I'm sure they're reporting up to Nielsen and to the MSAi data source or data collectors.

Perfect. That's really helpful. Jim, I've got one for you. While VLN is the major opportunity, what's happening with cannabis?

Well, we've really run the table on deliverables here. So cannabis is going as expected as -- and we'll talk more at the earnings call. But as reported and expected in last quarter, we did, in fact, close out the licensing deal on the -- on our first IP with, of course, with Cronos and Aurora. We have now grown and sold just over 50% of our own mass as we've been reporting as well. The other half are moving into some novel extraction technologies to get to isolate. So everything we promised around hemp/cannabis, we have delivered on and we'll go into more detail here at the earnings. So that's going quite well. We've got a lot of other dialogues out there now that are starting to pick up momentum. And we're really getting ready for a much larger grow this coming spring. And we're also making great progress on the technology side with hops and KeyGene. So all 3 franchises are moving along as planned. And I'm really proud of the team to have delivered on every commitment we made throughout 2021. And we've got it all in, including the MRTP, which is obviously the most critical for us.

Absolutely. That's really helpful. Rich, I've gotten a couple of the same question. When do you expect to begin showing profitability?

Yes. I think a lot of that will depend on what we see in the pilot and how big of a -- I don't think we say here, but we're not ready to start projecting that, but obviously, the MRTP, the pilot launch and most importantly the broader launch, along with the international launches, takes us in that direction. And when that crystallizes, we'll certainly begin to speak to it. I think we need to have a couple of quarters under our belt with any product launch. I've come out of -- I've watched drug launches, and you really need to see those first couple of quarters and see the trajectory. And then we need to adapt our marketing to really push things in the right direction as far as accessing the consumers in a meaningful way.

Yes. That makes perfect sense. And it's actually a really good segue to another question that I have. This one is for you, Mike. Can you just share any data that you were able to pull together with some of your consumer trials in terms of repeat, where the smokers are being sourced from. I would assume it's probably pretty representative of traditional cigarette market share. But any kind of data from some of your consumer insights ahead of the launch would be great.

Yes. Ahead of launch, the consumer insights are pretty much limited to what was submitted in our MRTP application. So this was a lot of related to perception studies and so on. But these -- there are some important insights there. We saw that current -- of current smokers, about 60% indicate that they're likely to buy the product. So we're very encouraged by that. But one of the objectives of the pilot is to really dig deeper on those types of consumer insights that you're referring to, so that as we head into a national launch we've gathered all the possible data we can to maximize the success of that national launch.

Absolutely. There has been -- because beyond, obviously, a very popular research cigarette, there has been a bunch of research. In particular, I think Dr. Dorothy Hatsukami has done a lot of work on migrating consumers to VLN cigarettes. Like anything that you want to, kind of just share with the audience in terms of key insights from third-party research?

Yes. That's a great question. So generally, when we look at the science there, we see some pretty significant benefits to smokers that come from this product. So as you mentioned, there's been a number of large studies done, basically the equivalent of Phase III studies done several times and most of these funded by the federal government using our research cigarettes. And what we've seen is that smokers using reduced nicotine cigarettes do decrease their consumption on the order of about 50%. They increase their quit attempts. And they increase the number of days that they go without smoking or smoke-free days. And this all happens with minimal to no withdrawal symptoms. So we think, those are very positive results that tells a great story to smokers, and it's one of the reasons why FDA really added this claim -- provide this extra claim to us with helps you smoke less because they want to be sure that smokers understand how this product can help them and what the science has shown about that. So we think that's a pretty compelling narrative there that smokers are going to be very interested in.

Yes. Absolutely. That makes perfect sense. I've gotten a couple of questions on kind of just the IP around the Very Low Nicotine tobacco, how defensible it is and then also kind of secondary applications. I'm not sure who's best to take that. Maybe, Jim, you can start.

Our IP or our moat per se is really twofold. Number one, as far as engineering the plant down to these kind of levels of nicotine, we have airtight IP not only on the initial variant, but on all the additional tobacco variants that we filed throughout the last year. And we're actually growing those, as we speak, for what eventually will be VLN 2.0 and different blends that come out. So our IP moat, on an engineering basis, plant biotechnology basis, we feel, is airtight. Big Tobacco, in their own words, has said that it would take them 10 to 20 years and $10 billion to $20 billion to duplicate it. And we're obviously there to license it as an alternative. So we're very comfortable with the IP moat that we have on the tobacco engineering -- genetic engineering. But the MRTP and the PMTA, for that matter, is an additional level of protection. And for somebody to come out and duplicate this, they're in for another 4- to 5-year journey that we've just been through. So we've got double protection on the IP and the MRTP itself. And again, we're driving that forward with the ultimate intent, and we've got to stick -- what's becoming more and more obvious to us is we've really got to stick to our core principle. And our core principle is a plant biotechnology company whose mission is reduced harm. And in order to really stay true to that mission, you've got to get it into the hands of the consumers as fast as possible, which means we're launching it to demonstrate the consumer uptake and at the same time being very open in the strategic commercial discussions to license it, to get it out there that much faster on a global basis. And the combination of that, along with the IP moat and really along with the tailwinds that are developing on a global basis, whether it's New Zealand or menthol mandates potentially coming in April, the tailwinds certainly have continued to increase our confidence that in no way is this a niche product anymore. We anticipate making disruptive and definitive market share gains as we roll this out. And we've moved out of any consideration that this is anything but a large play versus a niche position. And it's a combination of those things, strong moat on IP, willingness to go out on our own, the capability of doing that, willingness to license it out to big commercial to get into consumers' hands, and we're highly confident that, that plan will be successful.

So a couple of follow-ups to that. With the 2.0 plant, do you have to resubmit -- it will probably be fast-tracked because we've seen FDA do that. Would you have to resubmit to the FDA?

I'll let Mike cover the technical aspects of it, but it's pretty straightforward.

Yes. It is very straightforward. And to PMI's credit, they've kind of paved the way here in terms of submitting modifications to existing MRTP products. So our view of it is that it's very straightforward. There might be an additional filing to simply acknowledge that the tobacco is a different variety. But otherwise, everything else about the product will be the same.

Understood. And Jim, you've mentioned licensing a couple of times. For those who are listening that haven't been following your story for several years, they might not be aware of your licensing history. Do you want to just refresh everyone's memory on that?

Yes. I mean I'll start with our philosophy, again, which is we're a biotech company and we want to get this into the proper channels' hands and always be willing to license it at the right valuation. So that is our core philosophy as a business. In this particular area in tobacco, well before I got here and certainly have been expanded upon since I've gotten here, we've turned up the dialogue not only with onshore and offshore Big Tobacco companies that we have continued dialogue with, but also recently we've had additional conversations with Big Pharma who would view this as a harm-reduction play. And if -- at least the initial conversations have been quite positive and quite interesting. So we're continuing that dialogue as we launch on our own, knowing that sometime in the future, to benefit the consumer, it may be very well a mixture of all these things and are more than willing to license this technology at the right valuation, of course.

Of course. So I mean not to presume it, but I think it's implied, for sure, the MRTP and the PMTA designation is really attached to the underlying product, not the brand. So if you license it, a licensed partner could apply whatever brand they wanted to?

Yes. I don't know if that is a path that's been blazed yet. I mean we do know on grandfathered products and SE products, the FDA is not concerned about the name applied to the product. The PMTA actually approved a brand called -- our brand called Moonlight, whereas the MRTP is VLN. So it would seem FDA is agnostic to the name that's on the product, although the MRTP is specifically for the VLN brand and that's a trademark so...

It will go back to the technology itself, which is the nicotine levels and what drove the PMTA and MRTP ultimately.

It's the nicotine levels in the tobacco as well as the tobacco itself. So I think if an alternative technology being to extract the nicotine from the tobacco, we've seen that in other products a few decades ago, that's a different type of product. That would be a novel MRTP, we believe.

So I've gotten a couple of questions, it's interesting. I hate to kind of go back to the idea of advertising, what's allowed and what's not allowed. But given that the FDA has allowed cessation language, like is there like -- I don't want to say wiggle room, but a more nuanced approach than would traditionally be viewed or taken by a combustible cigarette company? Like are you thinking about trying something different that would be strictly prohibited with the cigarette because you do have kind of some of the cessation claims that are approved by the FDA?

I -- my -- I'll let Jim weigh in, but I think the -- there's some gray area here, right? This is a -- it's an MRTP designation for a combustible cigarette. That's -- it's the first one and it will likely be the only one. We also know from FDA's guidance that cessation claims specifically are considered by FDA to be drug claims. So I don't think there's anybody who thinks that a combustible cigarette would qualify for a pharmaceutical claim or be approved as a pharmaceutical. So there's areas here where the FDA clearly wants us to communicate to smokers how the product is going to help them. And part of helping them is -- part of helping smokers smoke less is to get them to stop smoking. And so we'll find our way to communicate there and I think the FDA is going to help us quite a bit with that.

And I think just to add on to it and what we've been saying leading up to the MRTP is that our dialogue with the FDA continued to increase, continued to become more and more collaborative. And in the final days before the authorization, as they were laying out this additional claim, they made it very clear that awareness of this product in the consumer markets is of great importance to them. And I think as long as we stay in close dialogue with them and to move forward in conjunction with them, there may be areas where we can live up to that awareness differently than what's in the market today. But it will have to evolve going on. But I can say that awareness of this product, both educating the consumer to this value with helps you smoke less, but making sure that the consumer is aware of the product and the way to do that obviously, is through various means of advertising is of high importance to the FDA. And I think that will open up the doors to dialogue that could be mutually beneficial.

Yes. And I'll tell you my personal observation having covered the tobacco industry for so long is that like, in recent years, I think CTP and FDA broadly have gotten very creative around engaging smokers in a digital fashion, in particular, younger smokers, LGBTQ communities, the communities that Mitch Zeller talks about so much, they've gotten very sophisticated in their digital properties. So...

Yes. Youth awareness, in particular, on all these harm-reduced products, is very critical to the FDA. And I think if you keep a dialogue going with them, which we obviously will, and have those types of discussions, they'll absolutely consider it and we'll work along with them.

Absolutely. Mike, I mean, it seems like also there's like a pretty good opportunity to run like a national PR campaign perhaps. Maybe I missed it, but to Jim's point, this FDA designation came right before the holidays, right? So wasn't a ton of press coverage, right? Didn't get picked up in kind of Wall Street Journal kind of in as big a way maybe as you would have liked. Is that part of your launch plan, maybe not around the pilot but around the national launch to really drive visibility because it's not advertising per se.

Yes. That's absolutely part of the plan. And as Mitch Zeller likes to say, keep watching this space. So...

And we have -- the way we're coming at it, Vivien, is we have a separate media plan to get this information out there as media kind of come backs in. So you'll be hearing -- you'll be seeing a lot of this within the media, general media, itself as we execute on that plan. Again, we're very happy to get the MRTP authorization 2 days before Christmas. Might be one of the worst days of the year to get, with that said, from a media perspective. But we had a plan in place. We'll begin executing on that. And as I said before, we're -- our intent is to be as transparent and as quick as possible with the details of the rollout as soon as we feel we're past a competitive dynamic on that particular piece of information. So you'll be hearing a lot more of those details rolling out as we get into the latter part of January and into February, especially. But in the meantime, the broader media rollout is -- we've got in progress.

So later January, early February would suggest that because the FDA took so long in reviewing your product that maybe you're in a position to operationalize the pilot a little sooner than the 90 days?

Yes. I mean, to Mike's point, we're -- there are some local paperwork trail that we got to shore up and we're confident we're going to get that done, but it takes a short amount of time. But we expect to be executing within that 90-day window given the extra time that we've had to prepare for it. Now with that said, I think what you're seeing is a very deliberate approach here as we've moved towards a disruptive market share opportunity here and not a niche product in and of itself. Being very deliberate with this pilot, making sure we take the appropriate time to learn from it, to refine it before going to the national basis is a very deliberate type of an approach. And we've had -- we've been given -- because of the delay, we've been fortunately given time to prepare for that. So it's all come together nicely from our perspective. But to answer your question, we'll beat the 90-day window. We're going to be very deliberate about it, we'll learn a lot and we have very high confidence that the national rollout with all the channel partners will be a success built off of that and will move us well beyond any kind of a niche type of market share on it.

Yes, I'll just add we -- the only thing that will prevent us from launching much earlier than 90 days will be the local registration. So this is basically related to MSA directory listing. So as soon as Illinois gets us on to their state directory, we'll be shipping product. And that shouldn't take more than 60 to 90 days based on our discussions with them already.

Got it. That's perfect. Shifting gears yet again. Thanks for your flexibility, gentlemen. Jim, I feel like you answered this already, but I've gotten it 2 more times since you gave this answer, so I'll ask it again. You noted already that you felt like the team hit all of the key milestones and objectives that you had laid out for 2021. But I'm getting specific questions on revenue recognition on hemp and cannabis in the fourth quarter. I recognize you're also in quiet period, so feel free to sidestep that question.

No. If we've learned nothing in this company, we've learned how to be flexible, to move forward and not to sidestep any questions and that's my core philosophy. But yes, to be clear, I had promised 2 revenue streams secured in hemp/cannabis by the end of Q4. One was licensing revenue, which we did book in Q4 from the Aurora-Cronos deal. And then sale of at least 50% of our biomass, which was I committed to reserve and then the other half to go into extraction technology. And precisely, we sold 51% of our biomass. I won't get into the numbers now [indiscernible] as promised in Q4.

Perfect. That's really helpful. Sorry, just trying to make sure I'm not missing anything here. Are you surprised by your stock price reaction to this news?

No. I'll take that one. This could have gone many different ways. It's such a unique situation. It could have gone anywhere from a large spike and then a large selloff to something where it is today, which is stabilized and has upside opportunity. I think based on kind of the fatigue factor that was setting in, the uncertainty in the market around FDA, not on the team's perspective, FDA's, because we're highly confident. It is kind of what it is. I think the timing of the announcement right before Christmas literally did not do us any favors with the market reaction. And I think it's a matter of communicating the details that we've been working on diligently to get this product launched and to get it into strategic commercial partners' hands and we'll begin rolling that out to really make the motion upwards. But I'm absolutely confident that everything that we've been saying and it ties back to kind of our say-do ratio in 2021: what we said we were going to do, we delivered. I have absolute confidence that the launch, the pilot launch, the national rollout we're going to deliver very well and it will be a successful delivery. And it will be delivery across all 3 of our franchises as well. And that's what will drive the market price of the stock is the deliverance of that. We've moved into that phase with those drivers. So we've been looking forward to this. It makes our life that much easier because, look, we've -- we're now moving into a phase where the deliverables are entirely under our control. We've had to rely on the influencing and the ultimate FDA decision, which was, at the end of the day, not in our control, and we've been very clear with that. Now we've got that. And the path forward on tobacco, on hemp/cannabis, on hops is totally under our control. And the one thing this team has demonstrated time and time again is when it comes down to execution, we're always delivering what we promise. And that will go on into 2022. And I'll also stand behind and reiterate again that we are highly confident that the FDA will move on menthol and nicotine in 2022. It will take years to play out, especially the nicotine, maybe not so much the menthol. But the activity that will happen in April of this year we're highly confident it's going to go through. There will be additional tailwinds in the U.S. and we've got additional tailwinds growing on a global basis as well. So we're going to move that share price based on execution and based on delivering what we say we're going to deliver and know more about speculation around FDA's timing and authorization. We have it, right, and that's the mode we've immediately moved into, and we've had plenty of time to prepare for it. And everything we've said that's been going on behind the scenes and everything we've been able to share, and we'll share much more, is all in place. Make no doubt about it. We have lived up to everything even going behind the scenes, which perhaps isn't measurable upfront, but will become measurable as we begin to execute. So I'm as confident, as happy as where we're at now going into 2022 as I possibly could be.

That's great. Rich, was there anything you wanted to add?

Yes. I was going to say, I mean, the timing of the MRTP from the FDA was not necessarily desirable from a media exposure perspective, but it is a very unique regulatory asset, both in the FDA side and certainly in ours. And I think as part of the march up to the pilot and the broader launch of VLN, we are going to make that very apparent to people. It's a very exclusive regulatory asset to have and gives us market access that's going to be meaningful and we -- it's in our hands to make that market access as meaningful as we can in as shortest time as possible. And that's what we'll be aligned with the FDA on, and that's what we'll try to make happen as we march forward in 2022 and beyond.

Absolutely. And to your earlier point, right, I mean, cigarettes are very profitable. So getting this product into the hands of consumers goes a long way, I think, ultimately in driving those financial results. For those who are in the audience, please feel free to reach out to me or my team if you'd like to see any of our traditional tobacco models as a frame of reference if you're not familiar with the margin structure. I will note, though, that one critical element of the margin structure is, in fact, tax. So Mike, I think this is probably a question for you. Altria, obviously, they've had to pull IQOS out of the market, but that was strictly an ITC decision. It had nothing to do with the MRTP and PMTA designations that they received from the FDA. And they did have a fair amount of success, I think, with slightly over a dozen states in terms of being able to negotiate for a more favorable SCT treatment. Would VLN also fall under that kind of modified risk designation from a tax perspective?

Yes. So those statutes don't discriminate based on the type of product. They're relevant to MRTP products, which ours is. And so we will be looking to take advantage of those as we plan the national rollout. And we'll be also working behind the scenes to ensure that we continue to have that benefit in those states as well as other states that are considering this. And we think -- I think there's an opportunity here really to ally with Altria and any other companies that have MRTP products to build this out. I think this is -- we kind of saw this happening in the discussion around the Build Back Better legislation that had a vape tax in it. That, I think, we're all in agreement that's not great for tobacco harm reduction. And so we would be part of that alliance to build a case around making these products, all tobacco harm reduction products more accessible to smokers, so that we can all work together and move to reduce the harm caused by smoking.

Absolutely. That's helpful. I have a question -- the answer is yes, but I'll let you answer the question. Will your pilot be of both the VLN and VLN menthol cigarettes?

Yes. Absolutely, it will be menthol. And I think it's a good question because I think maybe there was some doubt amongst investors whether or not FDA would approve the menthol version of VLN because of the plan to ban menthol in cigarettes. And so it's no accident that FDA approved the VLN menthol version, it's intentional. And we think just as there's a case to be made that menthol should continue to be allowed in reduced risk products like vape after a menthol ban in cigarettes, the same case, we think, could be made very strongly that VLN menthol will remain on the market. And we do think that is -- will be the case in a market that otherwise bans menthol in combustibles. All these products will provide an off-ramp for menthol smokers.

Yes, absolutely. I mean Mitch Zeller spoke at the TMA conference back in November, I'd encourage people to go back and look at the note we published that day. But he was very specific in designating -- articulating his thoughts about menthol for combustible cigarettes and then all other menthol products. And I think that was quite intentional. And to your earlier point, Jim, yes, he's not messing around. That deadline was April and it's going to be April, you're absolutely right. And I also agree with you that I think the FDA will continue to pursue a low nicotine strategy. I mean, fundamentally, just to remind our listeners here, the FDA commissioned a lot of research on this and it got published. And was it New England Journal of Medicine?

Amongst others. Yes.

Yes. I mean, that's -- yes, that's not nothing. That seems like a pretty concerted effort on the agency's part to start building a body of knowledge around very low nicotine proposition broadly. Last question and this one is for you, Jim. Long-term plans. Would you like to keep 22nd Century Group as a stand-alone company? Or are you receptive to a buyout?

Look, we're receptive to the right valuation for our shareholders. And in the short term, that's going to be a focus of successful launching of VLN and executing across our organic plan, finalizing strategic deals, licensing opportunities for the brand and the technology, if available and when available, at the right value. But ultimately, the shareholders are our boss. And I've said it before, we value them. Some of have been in this through thick and thin for a long time, and we'll make decisions based on the overarching good for the shareholder and the enterprise value of the company. So we'll have those dialogues and hopefully have to make some challenging decisions. But our focus in the short term is very clear: it's -- get this -- live up to our commitments, live up to our promises of the launch, the pilot and the national rollout; execute on the other franchises; and get the strategic commercial deals that we're in dialogue with across the finish line as the year progresses. And that's where we're going to focus our energy for the time being.

I mean it's certainly a lot to do in and of itself, launching a new and novel cigarette in the United States and certainly a tremendous revenue opportunity given the $80 billion size of the industry in the U.S.

Absolutely. And look, we've been waiting for this. This is an opportunity of a lifetime from a team perspective, from an operational perspective. And we love our positioning right now. So it's -- now it's block and tackling, getting out there and executing, having the handcuffs taken off of us. And I have no doubt about this team's capability of execution. There's just 0 doubt in my mind on that.

Absolutely. Well, Jim, Rich, Mike, congratulations again. Now the hard work truly begins.

That's right. The fun and hard work begins now.

Exactly. So congrats again and best of luck. Happy new year. And to our audience, thank you so much for all of the terrific questions. Amazing. I know I didn't get to all of them. Please feel free to ping me offline and I'll try to get your questions answered. And I hope everyone has a good afternoon.

Thank you all very much. And thank you, Vivien. Really appreciate it.

Happy to be on the call. Bye-bye.

Thank you.