Q2 2021 22nd Century Group Inc Earnings Call

[music].

Welcome to 20, <unk> century group's second quarter 2021 earnings conference call.

At this time all participants are in a listen only mode and the floor will be opened for questions. Following management's prepared remarks as a reminder, today's conference is being recorded.

At this time I would like to turn the call over to Mei quo director of Communications and Investor Relations. Thank you. Please begin.

Thank you Diego and good morning, and welcome to 20, <unk> Centurys second quarter earnings Conference call. Joining me today are Jim mesh, our Chief Executive Officer, Mike Starker, 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 second quarter 2021, we will start today's call with prepared remarks from Jim Mike and John before moving into Q&A.

During our prepared remarks, we will be referring to slides, which are available for viewing and the webcast and posted and the investors section of our website at <unk> II century dot com under the events subheading.

Hope these slides will serve as a framework for management's prepared remarks reinforce key takeaways and provide additional transparency and insight into our business strategy and objectives.

Before we begin some other statements made today are forward looking forward 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 may also discuss non-GAAP financial measures, including adjusted EBITDA, which we define as earnings before interest taxes, depreciation and amortization as adjusted for certain noncash and nonoperating expenses for more details on these measure. Please report refer to our press release issued earlier today.

And with that I'll turn the call over to Jim beginning from slide 3.

Thanks, Good morning, everyone and thanks for joining and 26.

On the century call today.

Before I actually turn on my first slide I really wanted to take a moment to let you know what headlines to listen and for today.

First and foremost youll hear of new details regarding our <unk> application that we can now share.

These new details continued to drive our high confidence and a successful outcome.

You'll hear about is initiating the deal and launch process across numerous offshore countries that do not require them RGB.

You'll also hear that we believe we will be on these target markets by Q1 and 2022.

You should also make note that <unk> is the beginning and not the end game for us. It enables the U S launch and fuels additional launches and our remaining offshore countries that are contingent upon <unk>.

Ultimately, we will also have a series of announcements with more detail immediately following there Marty.

And we'll hear more about our growing contract manufacturing CMO business that broke company records in both Q2 and for our first half of 2021.

And you'll hear about the monetization of our hemp cannabis is coming out of the initial 2 year development cycle and the second half of 2021.

And you'll also hear about our operational network that is now complete and.

And about our superior IP and technology to quickly bring disruptive plant lines for the markets and our plant engineering and breeders, including our latest and Keystone addition, extract as bioscience.

And you'll hear the exact date of the introduction of our third franchise and what to expect.

Now turning to the slide.

Past quarter has been incredibly productive as we accelerated build out for revenue growth and both tobacco and hemp cannabis and.

I'm sure it's top of mind for everyone today is our <unk> authorization.

We are in regular contact with FDA officials at many levels and through many channels, including very recent conversations at the upper most level of C. T P.

We are highly confident that our application for <unk> has completed the scientific review process and as and the report documentation phase the final stage of the process.

And recognize that the delay by FDA and authorizing our BLA and is incredibly frustrating for all of us.

This process is taking far too long for a product FDA has itself said is critical to public health and begin to reduce the harm caused by smoking and a 1300 deaths per day on the U S alone.

I want to make it clear that week 20, <unk> century have the expertise to advance this for.

And we possess the expertise to navigate this to a successful conclusion utilizing our balance of leveraging the FDA and collaboration.

As I said Vale and is 100% U S market ready.

And while we continue to press FDA to act and the U S and with new capital on our balance sheet.

We've initiated the launch process and several countries did not require and Marty P type of approval to go to market with a 95% less nicotine claim.

As a well recognized economies with established tobacco distribution channels and premium tobacco markets suitable for a product like V O N and we believe it will be and these markets by the first quarter 2022.

And hemp cannabis and we expect to monetize our lines and IP completing the first 2 year development cycle beginning in the second half of 2021 with upfront license free fees from our Aurora IP partnership.

Plus revenue from offtake commitments for our entire 21.2021 crop be harvested this fall and our Colorado from property.

We're also accelerating our next generation plant lines for 2022, and 2023 revenue as we leverage our highly disruptive breeding capabilities designed to give commercial customers a differentiated market advantage.

Yeah.

We've now secured for of the world's most expert alkaloid based breeding partnerships and both the northern and southern Hemisphere is to support rapid community commercial scale up and year round cultivate cultivation of disruptive plant lines.

Most recently, we have secured extracted biosciences, which may not be a household name to you.

And I can assure you is the single most experienced and expert alkaloid plant breeder in the world.

I can also share that we will introduce our third franchise on August 30.

This will include detail on IP market information competitive advantages plus operations and commercial partnerships and as large growing $500 billion addressable global market opportunity, but is not bound by the same level of regulatory and legal hurdles, we face and tobacco and hemp cannabis.

So I fully recognize the importance of <unk> and remain absolutely dedicated to winning that authorization. All of these efforts showcase on 20, <unk> century's billing for the long term revenue growth and value creation across multiple franchises and global market opportunities.

As part of that part of that effort. We also have announced that we intend to uplift on the NASDAQ stock market with our first day of trading on August 16th and.

In fact, 2002nd century will be ringing the closing bell that day.

I want to personally thank the NYSE for all of the support and people over there for the support to 20 <unk> century over the years.

And while remaining dedicated to our primary mission to reduce the harm caused by smoking ups.

Up listening to NASDAQ also aligns 22nd century with other high achieving innovative and growth oriented global science and technology companies.

And he believes are joining the NASDAQ will enhance its visibility to a wide audience of institutional investors and increase our exposure to hemp cannabis investors at this important time of industry progression towards mass production.

With that I'll turn it over to Mike to detail our tobacco activities further and then I'll come back to discuss our cannabis and third franchise actions with you Mike.

Thanks, Jim and welcome to everyone joining our call today.

Turning to slide 4.

Federal agencies has spent over $100 million studying the benefits of our reduced nicotine content cigarettes, which continue to play a central role and fda's own tobacco harm reduction plan.

FDA has also confirmed that our reduced nicotine content cigarettes are appropriate for the protection of public health and their positive decision authorizing our PMT.

There remain no outstanding requests for information from the FDA.

And as Jim mentioned based on our recent.

Just on a recent discussions at the highest levels of Cte we are highly confident that our <unk> is now and the documentation phase the final stage before FDA announcements of decision.

Even with this encouraging news, we continue to escalate our efforts to ensure a positive outcome.

More broadly we believe adult smokers have a fundamental right to choose a cigarette that is non addictive to make such a choice smokers need information about the products available to them, including their nicotine content and we believe companies like ours have a right to communicate to their customers about.

Products that can help reduce the harm caused by smoking.

This is why our <unk> TP application is so critical and it is past time for FDA to act, we have all the knowledge expertise and resources needed to achieve success here.

We've come farther than anyone and tobacco industry thought we could and we will finish the job.

Shifting to slide 5.

We are ready to initiate a pilot launch of dealing within 90 days of authorization or.

Our team has run a number of tobacco product launches, giving us critical insight into the importance of a well planned market entry and solid supply chain.

And our market research most smokers tell us they are likely to use VL and our pilot program will enable us to test measure and refine our marketing model to maximize our long term commercial success with BLA and and then advance to full national rollout leveraging the most effective tools and message.

King.

Meanwhile, beyond continues to be very well received and our discussions with potential retail trade partners.

Several are ready to go today, others are maintaining close dialogue with us and ready to engage upon <unk> authorization.

We believe this is another indication of the market's recognition of the importance of reduced nicotine content cigarettes, and the role they play and Fda's tobacco harm reduction plans.

Turning to slide 6.

To support our launch efforts, we are ready to scale deal and manufacturing at our North Carolina facility. Our Q2 tobacco contract manufacturing results support this fact, showing 30% growth and revenue and higher margins.

And our CMO program accomplishes 2 important goals first and demonstrates that we can indeed generate new business and produce large volumes and product readying us for VL and production.

Second it ensures that the assets needed to manufacture research cigarettes, and BLA and already and not only paying for themselves, but also self funding capital investments and added capacity and efficiency.

For example, we have brought nicotine content testing in house, and reducing our testing costs by 90% and cutting turnaround times from weeks to hours, all with a payback of less than 1 year.

Further readying ourselves for BLM production 2021 looks to be the largest ever BLA and crop.

And we're working to expand our Vela and growing program by adding growers and the southern hemisphere, allowing the company to grow our reduced nicotine content tobacco year round.

Advancing to slide 7.

Given our ready readiness on manufacturing and increasing interest and BLA and outside the U S.

We're initiating the launch process and key global markets accelerated by the proceeds from our capital raise in June.

While the company has made efforts in the past to launch its RNC cigarettes in the EU regulations, there made it difficult if not impossible to communicate with smokers about what makes VL and different from every other cigarette.

Therefore, we are targeting countries, where we believe regulations will allow us to go to market with claims today or with minimal interaction with regulators.

Many of these markets also have a strong affinity for new reduced risk tobacco products.

And they all have adult smokers with large premium segments.

Once we have our <unk> TP and hand, we can then leverage that FDA endorsement to initiate the launch process and additional countries, where regulatory barriers maybe higher.

And closing my comments, we are 100% committed to the success of BLA and because adult smokers have the right to choose and non addictive tobacco cigarettes, we have the plans and capabilities in place to launch quickly and the U S and we are accelerating and the launch of <unk> and in markets outside the U S, where we see and.

You need to generate revenue and gain market experience with the BLM.

I'll now pass you back to Jim for an update on our hemp candidates franchise Jim.

Okay.

Thanks, Mike.

So, let's turn to slide 8.

Which includes a recent photo from our needle rock farm in and progress.

Now off to the left hand side.

But continued acceptance of cannabis and the U S and other markets is driving increasing recognition of the need for plant genetics tailored for large scale production.

It's been a pro.