Q4 2020 22nd Century Group Inc Earnings Call
[music].
Welcome to the 22nd century group's fourth quarter 'twenty 'twenty earnings Conference call.
At this time all participants are in a listen only mode and the floor will be opened for questions. Following mandate of bench managements prepared remarks.
As a reminder, today's conference is being recorded.
At this time I would like to turn the call over to make well director of communications and Investor Relations. Please begin.
Thank you Brock good morning, and welcome to 20, <unk> century fourth quarter earnings Conference call.
Joining me today are Jim Lynch, our Chief Executive Officer, Mike Barker, our President and Chief operating Officer, and John from Deno, Our Chief Financial Officer.
Earlier today, we issued a press release announcing our results for the fourth quarter and full year, we'll start today's call with prepared remarks from Jim Mike and John before moving into a Q&A session.
During our prepared remarks, we will be referring to slides, which are available for viewing and the webcast and is posted in the investors section of our website under events <unk> century Dot com.
We hope these slides will serve as a framework for of management's prepared remark reinforce key takeaway.
Provide additional transparency and insight into our business strategy and objectives.
Before we begin some of the statements made today are forward looking for.
We're looking statements are subject to risks uncertainties and other factors that may cause actual results to differ materially from those contemplated by these statements.
Additional information regarding these factors can be found in our annual quarterly and other reports filed with the SEC.
During this call. We will also discuss non-GAAP financial measures, which include adjusted EBITDA, which we define as earnings before interest taxes, depreciation and amortization as adjusted for certain noncash and nonoperating expenses for.
For more details on these measures please refer to our press release issued earlier today.
And with that I'll turn the call over to Jim.
Thanks Mei.
Good morning, everyone and thanks for joining twenty-second centuries conference call today.
2020 was the tremendous year for 20 <unk> century group.
Since joining the company in June we've really stressed communicating our strategic and tactical plan.
The significant increase in our stock since reporting third quarter earnings is a testament to our commitment to our shareholders.
Despite the recent volatility and it's been driven by the positive impact of all of our remaining warrants being exercised and sold off plus of general market conditions.
We've done nothing but consistently communicate news regularly to our shareholders to build confidence and credibility.
Today's call is the continuation of Morgan news and whats to come in 2021.
If you turn to slide three on the presentation I'll touch on a few key highlights.
We've never been more excited about our tobacco franchise and our prospects remain extremely high.
Securing MLR T P authorization for the Ellen and reducing the harm caused by smoking remains our number one priority.
We are highly confident that we are in the final stages of the application process with the FDA.
As Mike John and I continue to defer any variable pay until such time.
Of our confidence level has only gone up based on the proactive efforts we have deployed over the last several months and other strong signals, including the recent change of administration at the White House.
We believe the Democratic control of both the Senate and the house of Representatives will draw the much needed focus on improving public health.
The binding administration is already showing signs of placing public health is the top priority.
Last week, the President Biden issued a proclamation.
Two strongly committing to improving the prevention and treatment of cancer.
We believe the favorable political climate will influence the timing of or any of our T. P application.
And even more importantly, the enactment of a mandate to require all combustible cigarettes to be made minimally or nonaddictive.
The renewal of a nicotine mandate is a game changer for public health.
And it's becoming more and more of a reality.
This will be our Grand Slam.
This has all led to a refresh sales forecast and an expanded BLM growing program that we've announced previously.
Since reporting third quarter earnings we have refocused our hemp cannabis strategy to target the upstream segment of the cannabinoid value chain.
We have now secured and communicated new IP with key gene and four of the five partnerships needed to maximize and support each component and the cannabinoid value chain.
And we are in advanced discussions with strategic partners to support the fifth breeding component.
This network of partners will enable us to dramatically increase the speed at which we develop and offer new disruptive hemp cannabis plant lines in two years.
Fraction of the time versus the current competitive options.
We continue to demonstrate diligent financial execution.
Of our financial results were in line with our expectations for the year and we continue to operate as efficiently as possible.
Furthermore, our balance sheet is well funded to support our current operations and strategy. The positive result of $11 $8 million of additional cash generated from the exercise of previously issued warrants over the last couple of months <unk>.
Provides us with even additional runway.
I am pleased to point out the following these transactions our market cap has been liberated and we are free from any warrants.
Plus as we have consistently communicated we have no need or plans to raise additional capital.
On slide four.
We have a pivotal year ahead of us.
And we are excited to embark on it.
Outlined on this slide of our priorities and key areas of focus for 2021.
This is all consistent.
With our long term business strategy.
Again, securing <unk> authorization is our number one priority we.
We are fully prepared and eager to launch Vela, and King and Vela and menthol King within 90 days of authorization.
Furthermore, we will continue to support the advance and advocate for the FDA to enact is proposed reduced nicotine mandate.
We look forward to monetizing a portion of our existing hemp cannabis IP portfolio of beginning this year and.
And we will continue to bring next generation disruptive technology forward.
Our third plant based franchise is massive.
And as the natural intersection with our other two franchises.
We are keen to turn our attention to the development of our third franchise once we secure and Marty P designation.
And finally, we will look to continuously improve our operating structure identify areas of additional revenue opportunities and invest in growth initiatives, where we see the greatest return on investment.
But our opportunity is only start here.
On slide five you can see that our three franchise provides us with the continuous rich pipeline of revenue opportunity for years to come.
By leveraging our core strength of Knowhow in plant science, we will be able to create an extensive pipeline of high value commercial opportunities.
Beyond our near term prospects and across all of our franchises.
<unk> TP is only the beginning of our journey for our tobacco franchise. It serves as the catalyst for our <unk> brand, including <unk> two point, though.
And tobacco franchise will launch of our business prospects, even further into international markets.
Our work in tobacco, just doesn't end with reduced nicotine content tobacco products, we will leverage our decades of research with the tobacco plant to develop additional tobacco based technologies for multiple applications across various end use markets, including solutions for the pharmaceutical industry.
The hemp cannabis market is still early stage and underdeveloped.
Our opportunity here starts with the monetization of the portion of our hemp cannabis IP this year and of the monetization of new disruptive next generation hemp cannabis plants plant lines in 2022.
It is without a doubt the federal legalization of cannabis is in the near future.
A list on cannabis prohibition will unlock enormous white space revenue opportunity for our proprietary plant lines on IP and it will be at the forefront of capitalize on this occasion.
Just a reminder, when the alcohol prohibition ended in the U S. It took 15 years to satisfy demand.
Our third franchise is large growing and a natural extension of our core strength and expertise.
We've demonstrated a strong track record of successfully manipulating developing new plant lines technology in IP.
We believe we have of faster route to commercialization of our first two franchise of the third franchise operates in an industry that is not as highly regulated.
We estimate the between our three franchises, we have more than one three trillion dollars of addressable market opportunity.
Furthermore, I'd like to bring to light that there is a natural intersection of adjacencies across our three franchises and even more opportunities than we can currently imagine.
I'll pass you over to Mike for more detail on our tobacco franchise Mike.
Thanks, Jim and good morning, everyone.
Turning to slide six.
It's important for us to remind everyone of the massive global market opportunity. There is for BLA and our proprietary reduced nicotine cigarettes, which contain 95% less nicotine than conventional cigarettes.
In 2018 global tobacco market was worth over $800 billion with 90% of that being sales of highly addictive conventional cigarettes.
There are more than 1 billion smokers around the world with $34 million of those in the U S. We know that more than two thirds of adult smokers want to quit and 50% attempt to quit each year.
Yet less than 10% of those quit attempts actually succeed.
We know that smokers are actively seeking alternatives to addictive conventional cigarettes and we are encouraged.
The data from our own consumer perception studies, showing that 60% of current adult smokers are likely to use the L. N.
Despite the vape and many other potential modified risk tobacco product alternatives coming to market in recent years. The CDC recently reported that the smoking rate appears to be up year over year.
New research shows that more Americans of turns cigarette smoking as they've struggled with board of the and the disruption of regular routines. Another tragic outcome of the COVID-19 pandemic.
Now is the time to address the enormous amount of destin disease caused by cigarette addiction by offering adult smokers of new and different alternatives of tobacco cigarette with drastically reduced nicotine levels.
Because we go in as the cigarette need from tobacco, it taste smells and smokes like of conventional cigarette, but it contains just euro five milligrams of nicotine per gram of tobacco and amount that FDA has said based on clinical studies is likely to be minimally or nonaddictive.
This is the form factor adult smokers prefer while also being of tobacco product intentionally designed to not create for sustained addiction.
The first FDA commissioner to take on the tobacco industry Dr. Dr. David Kessler.
In 2010 that quote if we reduce the level of the stimulus, meaning nicotine, we reduce the crazy and credit.
And he called reducing nicotine in cigarettes quote the ultimate harm reduction strategy and quick.
Since 2011, 20, <unk> century is supplied millions of reduced nicotine content cigarettes to independent scientists and researchers around the world to conduct dozens of clinical studies that have shown over and over again, the doctor Kessler was right, reducing the nicotine content of cigarettes.
Is indeed, the ultimate harm reduction strategy.
We believe that commercially the Olin has near term blockbuster potential while authorization of our application and the launch of V O N.
Service of Vanguard for the Fda's proposed reduced nicotine mandate.
A positive response to our <unk> application is one of the most important decisions FDA can make right now for public health, we are eager and fully prepared to launch <unk> post <unk> authorization.
And to offer adult smokers of new alternatives to highly addictive conventional cigarettes.
Turning to slide seven our.
Our confidence remains high and securing an NRT P designation for <unk> and it is as Jim mentioned, our number one priority we.
We believe our application is in the final stages of review with the FDA. At this time there are no outstanding requests for information from the FDA and we believe they have everything required to make a final decision about our application.
We will continue to work with our legal advisers regulatory consultants and the government of fair specialists through multiple channels to emphasize the public health importance of our <unk> application and to encourage and near term authorization.
We will never surrender, and we will continue to relentlessly pursue an <unk> designation for <unk>.
Turning now to slide eight.
We are fully prepared and eagle eager for the commercial launch of the O N. Our company owned and operated manufacturing facility is the ample capacity to manufacture approximately 1% of U S cigarette market volume.
And with minimal investment, we have the ability to triple our capacity.
Based on early sales projections and to meet the expect the demand from adult smokers in January.
Announced the significant expansion of our BLA and growing program.
And the increase in the planting of the island tobacco in the 2021 crop year.
This new planting for VL and tobacco as an addition to our already sizable inventory.
We expect initial rollout of the line in select markets within 90 days of receiving <unk> authorization from the FDA and plan to position <unk> in the premium segment of the cigarette market with corresponding margin as expected.
We are currently in advanced discussions with a number of independent regional and national tobacco retailers and <unk> continues to be received positively by the trade.
The launch of <unk> will be accompanied by a robust marketing campaign to generate brand and proposition awareness.
We are deploying a thoughtful approach to product rollout to maximize success in the marketplace.
Let's move to slide nine.
Again.
T P designation will serve as a catalyst for the <unk> brand and our tobacco franchise.
We plan to scale and build our business via multiple licensing and partnership opportunities in the U S and internationally.
FDA authorization is considered by regulators around the world to be the gold standard in public health.
With an <unk> designation in hand, we expect to garner much attention from potential commercial partners as well as regulatory agencies around the world.
We believe that our next generation non GMO tobacco plant research is key to commercializing our reduced nicotine content tobacco in technology in the international markets, where non GMO products for preferred or GMO products for band.
We continue to make significant progress in our tobacco research.
During the fourth quarter of 2020, we confirmed that we have successfully applied our non GMO technology to bright and Burley varieties of tobacco.
We are also using our non GMO technology to introduce reduced nicotine traits into Oriental varieties of tobacco further enabling our development of <unk> two point out of next generation non GMO reduced nicotine content American blend cigarettes.
I'll now pass it back to Jim for an update on our hemp candidates franchise Kim.
Yeah.
Thanks, Mike, Let's turn to slide 10.
I wanted to remind everyone of the size of the price of our hemp cannabis franchise.
The global legal cannabis market is projected to be more than $100 billion in just a few years.
90% of the legal cannabis market share is held in North America.
With more and more states considering cannabis reform legislation will transform the U S cannabis market.
We believe that the existing hemp canvas plant lines have poor genetics, resulting in a low quality and unreliable plant yield for large scale commercial production.
This is a common and widespread problem that is prevalent throughout the entire industry.
Leveraging our decades long experience and know how in plant biotechnology, including genetic engineering gene editing and modern plant breeding.
We're able to create new hemp cannabis plant lines would have optimized plant profiles with stable genetics and higher yield for commercial use.
We believe our technology will have broad based appeal for various end use markets.
On slide 11, we provided an illustration of the upstream segment of the cannabinoid value chain and visualized, how our partnerships will maximize and support each component.
Now that we secured for the five key partnerships, we are well on our way to vertically integrating our hemp cannabis capabilities the.
The combination of our core strength in plant science, and our network of key partnerships will enable us to drive differentiation.
And value by delivering new valuable plant lines of IP two years.
Our solutions for the hemp cannabis industry will be tailored to the unique needs across a wide range of end use markets, including but not limited to the life science consumer product and pharmaceutical industry.
We look forward to sharing more good news once we have secured the fifth component.
I'll now pass you over to John to review, our financial performance John.
Thanks, Jim and good morning to everyone.
In summary on slide 12, we had a great quarter and an excellent year.
The actions, we took in 2020 to optimize our contract manufacturing operations have been successful.
Net sales and gross profit margin have improved year over year for the fourth consecutive quarter, demonstrating our ability to execute on the objectives and strategies, we set for the business.
We've provided a snapshot of our financials for the quarter and the year on slide 13, I'll now walk you through in a bit more detail.
Net sales revenue for the fourth quarter increased by 46000 to $7 3 million for.
For the year net sales revenue increased by $2 3 million to $28 1 million.
The increase in both periods was primarily driven by higher volume and increased pricing in the companys contract manufacturing business.
Gross profit for the fourth quarter improved by 364000 to 588000 for.
For the year gross profit improved by $1 4 million to $1 4 million.
The improvement in gross margin was primarily the result of higher volume price increases and lower labor and overhead costs driven by factory efficiencies implemented in 2020.
Yeah.
Total operating expenses for the fourth quarter increased by $1 1 million for the year operating expenses improved by $3 million driven by the following.
R&D expense was favorable by 127000 and by $2 3 million for the quarter and year respectively.
This was primarily driven by a reduction in personnel expense lower license and contract costs and the absence of a one time impairment charge taken on research tobacco and leak the inventory in the prior year.
R&D expense related to our <unk> application was favorable by 205000 of one 6 million in the quarter and year respectively.
This favorability is primarily the result of expenses incurred in 2019.
<unk> with the preparation of our <unk> meeting earlier this year.
SG&A increased by $1 3 million for the quarter. This was driven primarily by higher insurance and consulting costs and personnel expenses, partially offset by lower legal fees for.
For the full year 2020, SG&A increased by $2 million.
Yeah.
And that was primarily driven primarily by insurance expenses consulting and professional services and the addition of new members to our management team.
The increase was partially offset by a decrease of one time severance and equity compensation expenses net.
That occurred in 2019. Additionally, legal.
Legal expenses of the lower along with travel and entertainment savings.
Impairment of intangible assets increased by 30, thousands and decreased by 966000 for the quarter and the year respectively.
The decrease year over year was related to an intellectual property portfolio rationalization in 2019 that resulted in higher impairment charges.
For the fourth quarter of the operating loss of $6 2 million increased by 696000 the.
The improved gross margin of 364000 was more than offset by $1 1 million of higher operating expenses.
Higher operating expenses are primarily driven by higher selling and administrative costs, partially offset by lower R&D expenses in the NRT related costs from 2019.
For the full year 2020 operating loss improved by $4 4 million. This.
This was driven by the combination of higher gross profit of $1 4 million and lower op total operating expenses of $3 million. The decrease in operating expenses were primarily driven by lower R&D expenses related to the <unk> TP application in 2019.
<unk> and personnel expense and an intellectual property portfolio of rationalization that resulted in higher impairment in the prior year.
Net loss for the quarter increased by 207000, representing a net loss per share of negative <unk>.
For the full year net loss improved by $6 8 million, representing a net loss per share of negative <unk> 14.
In addition to the improvement in operating loss of $4 4 million other income and expense improved by $2 5 million, primarily due to a $1 9 million litigation expense from 2019, and a reduction in the unrealized loss on the rural warrants that was recorded in the prior year.
This was partially offset in the current year by an impairment charge related to the panacea of stock warrant investment.
Adjusted EBITDA decreased by $1 3 million for the quarter improved by $1 8 million for the year.
For the 12 months of 2020 net cash used in operating activities was approximately $15 6 million.
We do not have any plans or need to raise capital at this time, we believe the improvement in our quarterly cash burn rate and ongoing reduction in costs. The healthy cash position and the addition of $11 8 million to a balance sheet from an exercise on previously issued stock warrants should provide us with additional runway to execute.
To execute for the foreseeable future.
The foundation is solid and we believe we can support our current operations, including our contract manufacturing operations and our growth initiatives for both our tobacco and hemp cannabis franchises.
I'll now pass you back to Jim Jim.
Thanks, John.
I'll turn to slide 14.
In summary, we have a tremendous global market opportunity of more than one three trillion dollars across our three franchises. In fact, we give a bit more of a hint on the third franchise valuing it at 500 billion.
We will continue to take a relentless approach to securing <unk> authorization and truly believe we are on the verge of a homerun and possibly of Grand Slam of our tobacco franchise.
My confidence in the <unk> authorization is absolute.
We are eager and fully prepared to launch Vela and with the 90 days of receiving authorization.
Our T P designation will serve as a catalyst for licensing and partnership opportunities in the U S and internationally.
Our research and tobacco extends beyond just the all in and a reduced nicotine content technology.
We look forward to developing more tobacco based technologies for various high value end use markets.
In addition, we are well positioned to capitalize on the various opportunities in the upstream segment of the cannabinoid value chain.
In 2021 will begin to monetize a portion of our hemp cannabis IP and we look forward to a network of partnerships working in concert to accelerate the development of new disruptive hemp cannabis plants and the IP for the life science consumer product and pharmaceutical industry.
And lastly, we believe there are potential legislative tailwind, including the enactment of the reduced nicotine mandate.
And the legalization of cannabis that would open up even greater revenue opportunity for 20 <unk> century.
It is truly an exciting time for our company and our shareholders and I truly hope for your share in our enthusiasm.
We will continue to work hard to execute on our strategic plans. We have laid out we will continue to communicate regularly and frequently and provide as much transparency as we can.
We will bring more good news as we advance on all fronts.
And with that operator, please open up the call for questions.
Thank you Sir at this time, we'll be conducting a question and answer session. If you would like to ask a question. Please press star one on your telephone keypad.
A confirmation tone will indicate your line is in the question queue.
You May press Star two if you would like to remove your question from the queue.
For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.
One moment, please while we poll for questions.
Our first question today comes from Jim Mcelroy of Bradley Woods. Please proceed with your question.
Thank you. Thank you and good morning, everyone.
Moving on.
John a couple of questions for you I just want to verify the share count as of.
Today or after the warrant exchange of somewhere around $146 million is that right 140 $647 million.
Yes, that's correct.
Okay great.
And then the.
The G&A increase.
Is fairly large is that it is that is there a lot of non cash in there or one time.
So I guess the two questions on the on the on the increase.
One is at a permanently higher level and then second how much of the increase was was noncash.
One of the responses in the quarter over quarter increase in G&A.
And this quarter, we are we did the crew.
<unk> $2 million for.
Cash benefits.
Cash bonuses, which we pay it out over the course of next year of <unk>.
Of course.
Major part of our.
Of our accounting requires us to accrue.
Even the the bonuses for myself, Ken and.
And Mike even though they are at this point now.
For it until such time as the payments would be deferred until such time as we would have.
The M.
T P in place.
The other piece that was included in there it was about five.
$500000 through the year of additional costs that we had pertaining to readiness for <unk>.
This included some.
The development of our.
Advertising and commercial areas in this.
The commercial.
Strategies that we would have in there as well as the consulting costs and bringing on.
Consultants to help us with the marketing efforts anticipate that.
Ex ex that amount the.
Balanced would probably continue as we go forward.
The rate of what we had booked in.
In the past year, although as timing of course.
It gets to where the bonuses are accrued at year end and so that's why you see the large lift in the fourth quarter.
Great. That's helpful. Thank you you also mentioned the impairment charge for the panacea of warrants.
Are those who do the.
Those now have.
The positive value or the those written down to.
Zero.
We actually wrote those down zero predominantly because at this point.
It was part of wrapped into an exchange of assets.
Net we have in place with our note receivable with panacea and at this stage, we don't have the intention to exercise those warrants.
Moving forward and we still.
Excuse me, we still maintain on our books the.
The value of our preferred stock, which we strongly believe is of that value and.
And marking it to we didn't have to take any provisions on that but.
At this stage M be reflected on our books of the value of the warrants, it's well explained in our form 10-K.
Reflecting the value of our Tennessee investment, which would be post the the.
<unk>.
The intent that we have with a non binding letter of intent that we have in place right now.
Alright.
Just one last one for you John when the K getting filed I'm not saying it yet is it.
The coming soon.
I believe it was filed this morning at seven a M.
Alright, well my services correctly there.
Okay. So K will be filed shortly.
Okay. Okay, great. Thank you.
Mike can you talk about the <unk> TP.
Timing relative to other <unk> and relative to what FDA guidelines.
That is you've gone this many months and this is the number of months. It took for our prior of M. RTP or this is the number of months at the FDA suggests it should take and can you just refresh us on on that timeline.
Yes, Jim Thanks for the question.
So the.
The FTA guides.
That the MRC.
<unk> TP review will will take.
360 days, although that is not binding on on the FDA.
<unk>.
There have been just two other MLR teepees authorized.
Those there were there's varying time periods there.
There are several milestones in the process that we look at including Kipchak meeting of closing a public comment period. So we're within the.
The.
The window there based on those other products.
There are of course are some.
And the unusual circumstances, given COVID-19, and the impact that that has had on the FDA.
And so.
So we do know that FDA has acknowledged publicly that some some of their folks have been.
Sign to other federal agencies to help with COVID-19.
We don't know if thats affected the center for tobacco products at FDA.
Which is the center of that reviews of our TP applications, but but we have seen that they continue to work on other applications. We know that they continue to work on ours, given our dialogue with them.
But clearly COVID-19 has had some impact on FTA overall.
And we fully expect now that with the election behind us the presidential election behind us in the transition.
Well underway.
The FDA as it is.
Is paying close attention to our application and all of their work around tobacco.
And remind me when was your application submitted and I think you you amended it. So one was the amended application submitted.
Well there have been.
There have been of several amendments over time.
Those don't necessarily reset the clock in fact.
I think we would begin.
Really the key timing point is the closing of the public comment period, but the application itself was filed in.
In.
Yeah.
The December of 2019, and and then there were some applications in the first part of.
Of our some amendments in the first part of of.
2020.
Or I'm sorry, okay.
Yep.
Yeah, I might not confusing the timing with the PMT H so.
Right, but I just wanted to make sure I'm looking at the same timeline and that's what I kind of have to so we're at that sort of 365 days plus or minus but we have to remember like you said COVID-19 hasn't it could happen and probably yeah and.
Who knows it is but okay. Okay. That's all I will note that there are other <unk> applications for for other products that net net.
Or still under review of its not not just not just the L. N. Yeah Oh yeah.
Yeah got it.
So I always have a hard and fast timeline.
It's the bottom line.
Right I understand that the FDA is not obligated to stick to that 365 day.
Okay.
And Jim on the hemp cannabis.
I guess the two questions here.
One in your final comments you talked about.
Commercialization of revenue generation, and I'm, not sure, which which phrase you used.
For him this year I think you said that.
And I just wanted to verify that that that's the case and then secondly on cannabis it.
My assumption is that you're really not going to get any revenue generated from your of cannabis work until you get up.
Federal.
Change of of the candidates on the DEA schedule.
So the first part hemp this year, yes, and then the second part of it.
No cannabis until we get fed action is that correct.
So the the address.
The address of the first part.
We expect revenue from the existing library of work that's been done over the past two years. So the company.
And now with the work in key gene and other partnerships developed.
Advanced technology, it's not the optimum technology that we have targeted for later generations, but it certainly further down the road the an existing plant lines and we're in discussions with strategic partners to license that technology. The hemp based technology out there has more stable lines higher cannabinoid con.
The etcetera so.
We anticipate revenue stream from from that work that's been done over the past two years.
And then we have additional plant lines coming through in the pipeline as well that we'll start to see revenue generation as early as next year.
As the license work goes on and people want to capture of a piece of that upfront with upfront payments etcetera. So we have a good pipeline of Tibet moving ahead on the the cannabis marijuana front, let's say the that component of it we're conducting the R&D offshore and the other ones.
On next generation plant lines that are much more stable higher levels of cannabinoids.
And we want to be positioned for the legalization of that in order to.
Generate licensing opportunities there.
So that will come with the legislative actions.
But based on what the by the administration has said in the past and based on just the momentum.
Going.
Legalization.
Across federal lines, we believe is going to happen.
They may need to work on that before the mid terms in order to get the pushed through.
So that's the potentially is the timeline there and when it happens we'll be ready with those plant lines that have gone way down the value chain in development and Glenn could be transferred in licensed pretty quickly.
There may be some you know.
Some of them earlier opportunities, but it all really ties down to how fast these things can move through legislation.
Answer your question.
It does thanks, a lot I appreciate it and.
Thanks for taking my questions good luck with everything.
Thank you and I, just I did want to make a point that I would just add on to Mike's commentary and I think it's important for people understand on the <unk> timing the art.
Our connectivity and our dialogue.
With the FDA has gone up certainly.
Since the last earnings call other touch points other data points that we get connected to the FDA have also gone up.
And we have you know.
A multitude of additional data points that has raised our confidence in the timing of the MLR T. P that mikes Mike's alluded to to answer your question for Jim. So again, the confidence level has gone up and.
Where we're focusing our attention to the launch sequence to make sure we have.
We've got that ready to go and we're confident in that as well. So I just wanted to put my two cents in there on the <unk>.
T P time.
Well, thank you Jim for the questions and May we.
We have time could certainly open it up for additional.
Alright, yeah.
Thank you and your first question that we have as well.
What does the yellen to point out of prototype is subject to a new EMR T. P application process or would it still fall under the current EMR T P application.
The ask Mike to address that please.
Sure.
Again, there's only been two <unk> TP applications.
For other products authorized by FDA, So there's not a day.
A lot of precedent here, but based on the precedent that exists we believe in that.
It would not require a new MLR TP that it would.
The fall under the current MLR TP application, although perhaps requiring a.
An additional submission.
Within that application. So we think it will be of relatively straightforward process.
To bring that to market.
Thanks, Mike. Our second question is does the oven to point out gifts smokers. The same taste and smell day are accustomed to what is the difference between one point out and to point out.
Okay.
So yeah.
Yeah I'll take that.
The 2.0 is.
Is meaningful because it's using a blend of tobacco varieties. So typically.
Most cigarettes sold in the United States and in many parts of the world of referred to as American blend cigarettes and.
And they constitute are usually made of three types of tobacco bright early and Oriental.
And it is that blend of tobaccos that gives it the.
The the typical American blend flavor characteristics.
And so that is what we're we're targeting in the development of the island to point out.
Mostly that's important because it's a non GMO technology, which is key to opening up the international markets for us.
We don't think that based on our century.
Studies with with smokers that there is a.
Significant difference between one <unk> and two point, but it is a.
It is an important point for for international markets being the the non GMO status.
Yeah.
Alright. Our next question is does the company had the backup plan in the event that the M. R. T. P application is tonight or delayed.
Yes.
Start off and maybe ask Mike to join in as well.
We're absolutely committed and collaborating with the FDA to get this MLR T P done.
We're just not going to concede anything less of them at the candidly the reduced harm and.
And the impact of this could make is just too important so plan a b and C is to use whatever means of necessary to.
To drive this to completion.
Levels of that but.
But right now we believe we're in a very good position for collaborative position.
We need to let the process run.
On its course.
But there is to make it clear.
<unk> is the brand the.
The 95% less nicotine is the claim.
And we're focusing our entire attention to that and driving that forward.
Let Mike comment on it as well for asking him to comment on it as well.
Sure. Thanks, Jim.
Yes, I think it's important to point out that the product itself.
It's already been authorized.
By FTA.
As FDA has basically already decided that the product itself meets the the.
The standard.
To put a new product onto the market. So basically there is the standard it is.
The product must be appropriate for the protection of public health.
Our PMT application, which was.
Authorized for some time ago was basically fta's decision agreeing that the product is appropriate for the protection of public health. The only question that remains with the T. P. As Jim alluded to is.
The named <unk> for the product and the headline claim 95% less nicotine also appropriate for the protection of public health we.
We believe that it is.
<unk>.
Believe there's there's no reason the FDA would find otherwise.
And I'd add we believe that it's actually the.
Smokers have a right to know that theres, a product available to them that has 95% less nicotine in it which is the addictive chemical in tobacco that keeps people the dicks.
The first time smokers.
Initially and.
Keeps smokers coming back to smoking.
And so we believe that very firmly that smokers have a right to know about this and that once they do know about it that many of them will will choose to smoke of cigarette without nicotine and find ways to help them.
Find ways to use that to help them to reduce their exposure to nicotine. So.
We're.
<unk> confident that we will have a positive decision on this and we'll continue to push this very hard until we get that.
Yeah.
Thanks, Mike.
Our next question is how will the L. N. The successful when big tobacco has the most of this from it.
Okay.
Sure I can take that question.
Yeah.
The.
So so certainly big tobacco is reliant on.
On the profit that they generate from the sale of addictive.
Conventional cigarettes, but we also see that the.
The same companies or are.
Moving as quickly as they can in many cases to.
<unk> their business to less harmful.
Noncombustible products, like vape, and Iqos and sell on.
We think there's enormous opportunity.
In that in the <unk>.
All of these companies aligning with Fda's plan.
To make all cigarettes non addictive.
And in doing so actively migrate smokers to less harmful forms of nicotine consumption or to to quit smoking entirely so clearly I think.
Commissioner Gottlieb when he first announced.
Of the comprehensive plan.
For nicotine called reduced snake, reducing nicotine in cigarettes, the cornerstone of the of the plan.
And so we believe that our interest and the industry's interest are aligned.
The entire industry embraces.
The concept of harm reduction in the continuum of risk.
When it comes to smoking and nicotine products.
Thanks, Mike.
Jim. This is the question for you and the new partnerships like kind of metric and new Praetors mentioned require additional capital.
Yeah.
Thanks for the question.
Very minimal capital and let me take the time to explain what kind of metrics really is all about.
So for <unk> and <unk>.
Heard some questions around that.
So in essence, when you when you take a look at.
Bringing disruptive plant lines to bear the first thing you want to do is identify what what consumer benefit do you want to have what patient benefit do you want to have you talked with large pharmaceutical companies you talk with large consumer product companies.
Understanding of what's the benefit that you want to create.
What's the consumer benefit from the finished product.
And once you understand that the kind of metrics technology allows you to very quickly.
File of the plant composition that will give you just that benefit they've been utilizing this technology and pharmaceutical very sophisticated pharmaceuticals and dermatological.
<unk> for for years, and that's why we targeted it and that's why we wanted to.
To get access to it into the controller.
In essence, that's what it does so now we can profile of the plant of very quickly and use that roadmap to feed it into the key gene for them to create at the small scale.
The capital requirement for Ken of metrics.
Is relatively very small.
And the already are already accounted for in.
And the partnerships that we're in dialogue with our true strategic partnerships, where theyre, putting skin in the game as.
As well as us and either resources or actual dollars. So from a capital perspective from our side, we can execute on our strategy.
With minimal investment in John's already accounted for that in our plans for 2021 and and what we've already put into it.
Thanks, Jim and then as a follow up to that question can you speak to how our partnership with Panacea has evolved.
Yes, and I think it's worthwhile drilling into so the the original strategy was more based on a roll up of finished products finished goods into the.
Cannabis industry.
And.
Although the choice of Panacea it was not a bad choice the that strategy is extremely challenging to implement because of the the the.
The market landscape.
The fraction fractured the.
Landscape the competitive landscape.
And we've turned our attention of course for the upstream value chain.
There were gyms within panacea as network.
That.
You saw us and continue to see as high value specifically the farm the needle rock farm asset is the state of the art it can be a showpiece for the cannabis world.
Net location happens to be voted as the are identified as the best place to grow cannabis in the United States and.
And we saw that as the big value and under our management under our ownership and under our drive of getting new disruptive plant mines into their farm to act as the show piece of the demonstrate the scale up.
On the on the outside on the farming basis.
We viewed as a.
As a high strategic fit.
We've moved under the LOI to control and own that farm the.
Other component.
In Tennessee, it was their extraction and purification technology and techniques asset and techniques.
Those are as well are included in the LOI and fit within the upstream value chain.
You saw in the presentation those five components.
Now it takes us to an original concept to identifying a profile of the plant through kind of metrics feeding that into the key gene to bring out the small scale clone in seed technology.
The scaling that up with the breeders that we'll be announcing shortly with strategic partnerships and then taking that to the panacea of assets that we've now turned our attention to and the state of the art show piece farm that could demonstrate where it can be grown and then transferred all around the world.
Mississippi.
And also utilized purification techniques to get isolates out of it as necessary and gives us the option of.
The other selling is.
Seeds clones of finished ingredients not finished products, but finished ingredients for.
For licensing the entire dose the a out two strategic partners to the rugs.
Yeah.
Thanks, Jim and our last question is why are you licensing of the islands to strategic partners as their primary business model.
Mike could you take that.
Yeah Yeah.
So our plans are to.
Two initially to launch the <unk>.
The line and into test market.
During the test market phase, we'll be looking to essentially refine our messaging.
And communication tools.
Essentially.
Learning how to optimize the investments that we make in dealing as we scale it.
Scaling of.
Any product on the add on of national basis any CPG.
Product on a national basis requires.
A lot of resources.
To build out of route to market. There are a number of companies that already have established routes to market for cigarettes, there tobacco companies.
And so.
Two.
Minimize risks.
Chances of success and ROI.
Makes sense to partner with one or more.
The existing tobacco companies that have routes to market too.
And globally.
So that is a it's a typical strategy for new new CPG product launch.
It makes sense for <unk> as well and so those of the reasons we're pursuing it.
Yeah.
Thanks, Mike and just one last question.
Jim This one's for you how long how will you be able to convince hemp cannabis prowess and manufacturers the license 20 separate countries technology.
Yeah, Great Great question, and thank you and we've already.
We're in the process of doing this we're having discussions with strategic partners that are strong players in this industry. They recognize that as they have tried to scale up.
High quality.
The lines that had been successfully growing its smaller scale.
That as they scale it up the quality drops down dramatically the yields dropped down dramatically. They know that they've got an issue and they are open to these kind of discussions and understanding the technology and moving in that direction.
So the timing is perfect.
And their their recognition of an industry issue is absolute so it's not a matter of convincing them to get interested in the technology with them.
Matter of identifying the exact strains that they want to optimize it.
And make sure that it's valuable for 22nd century to focus on that and putting that through the newly established network. That's already demonstrated the capability of modulating. The plants. So the objective is all of the same and that is to bring high quality artisanal type of lines.
There can be grown now it's small scale in greenhouses and small farms.
For the large scale. So you can have large brands out there that have high quality.
And then can be a dominant from a consumer benefit perspective, so we're already in discussions with them, they're already convinced that.
This is all workable, it's just a matter of.
Identifying the exact plant lines and that's our that's what we're in the process of doing.
Thanks, Jim.
Mhm, that's it the growth time.
So are you just to wrap up as always thanks, everyone for your time and really the thoughtful questions and most importantly, your continued support of 20 <unk> century, and we're all on this mission together.
We believe in it ultimately on the tobacco side.
The reduction of reduction of harm will save lives.
And it's a that's what's of most criticality to us as we go through this together. So thank you for everything and if you of any further questions. Following the call. Please reach out to me at the Investor Relations at XXII century, Dot Com and <unk>.
We'll be sure to try to answer them as quickly as we can thank you and have a great day.
Thank you. This does conclude today's call you may now disconnect.
Yeah.
[noise].
Okay.
[music].
Okay.
[music].
Okay.
[music].
Yes.
Okay.
[music].