22nd Century Group, Inc. Q2 FY2025 earnings call

• 22nd Century is a purpose-built tobacco company leading the tobacco harm reduction movement, leveraging 27 years of plant bioscience and patented low nicotine tobacco technology for 95% low nicotine VLN cigarettes.
• The FDA has proposed a new standard requiring combustible cigarettes and filtered cigars to contain less than 0.7 milligrams per gram of nicotine. 22nd Century has the only authorized combustible cigarette complying with this standard.
• Introduced Partner VLN strategy with early adopters like Pinnacle and smoker-friendly having VLN product SKUs in their lineup. Pinnacle VLN began shipping in August and will be on sale in major retailers.
• Shifting business away from low-margin CMO to high-margin branded products to improve gross margin. Made progress in improving balance sheet, reducing debt by ~$1 million, and advancing lawsuit against Dorchester Insurance Company.

Net revenue in the second quarter of 2025 was $4 million, a decrease from $6 million in the first quarter of 2025. Gross margin was consistently at a loss of $0.6 million. Total cartons sold were 779,000 compared to 478,000 in the first quarter, with the increase in volume due to significant growth in CMO cigarettes including export. Total operating expenses for the second quarter were $2.3 million compared to $2 million in the first quarter. Net loss from continuing operations in the second quarter of 2025 was approximately $3.3 million, and adjusted EBITDA during the quarter was a loss of $2.6 million.

• Expecting to achieve EBITDA breakeven in the first half of 2026, depending on timing of branded product stocking, restocking orders, and rate of sale.
• Cash of ~$3 million as of end of second quarter, with possibility of near-term fundraising as the company shifts to high-margin branded products.
• Debt maturing in March 2026, in conversations with debtor to pay off and extinguish debt, with part of fundraising likely used to extinguish debt.
• MRTP renewal is likely given FDA's recent mandate and 22nd Century's compliance with the standard.

• Delays in branded product sales rate could prolong the time to achieve profitability.
• Near-term fundraising may lead to equity dilution.
• Uncertainty around debt renewal and its impact on the company's financial position.
• Increased medical costs due to children getting hold of nicotine pouches and nicotine poisoning cases.

Q: Are you able to give visibility on when you might achieve breakeven on a quarterly basis, EBITDA?

A: At this point, looking at first half of 2026, specifically second quarter, and working on first quarter depending on timing of branded products, stocking, rate of sale and number of stores.

Q: Is the cash of about $3 million as of the end of the second quarter sufficient to see you through to breakeven in the first or second quarter of next year, or will you envision additional share issuance?

A: We're shifting away from low margin CMO businesses which consume working capital, there's a chance we'll be raising some money in the near term, but the size of the raise will be less than in the past.

Q: What are your plans with rolling over the debt currently outstanding, which is rolling over supposedly in March of 2026?

A: We are in conversations with our debtor on that issue, paying it off and extinguishing the debt, and part of any near-term fundraising will go to extinguishing the debt as well.

Q: Is there any chance that VLN would not be renewed?

A: Given the FDA's recent mandate and our compliance, there's very little chance that the MRTP won't be renewed