Q3 2021 22nd Century Group Inc Earnings Call
[music].
Welcome to the 22nd century groups third quarter of 2021 earnings Conference call. At this time, all participants RNA listen only mode and the floor will be open 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 make Whoa director of communications and Investor Relations. Please begin.
Thank you Jessie.
22nd century third quarter earnings conference call trying to meet the day, our gym mesh, our chief Executive Officer, Mike's darker, our president and chief.
Sure that's all caffeine that'll our chief financial Officer.
Earlier today, we issued a press release announcing our results for the third quarter.
We'll start today's call with prepared remarks with Jin song.
Into Q&A.
During our prepared remarks, we will be referring to five which are available for viewing the webcast and posted in the investors section of our website I X X I I century dot com under the events subheading.
We hope these cycles serve as a framework for management prepared remark reinforced key take away and provide additional transparency and insight into our business strategy and objective.
Also those of you joining by webcast can submit questions do the online interface, which we may include during the Q&A section of today's call time permitting.
Before we begin some of the 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 F. C C.
During this call. We may also discuss non-GAAP financial measures, including adjusted EBITDA, which redefined as earnings before interest taxes, depreciation and amortization as adjusted for certain non-cash and non operating expenses.
For more details on these measures please refer to our press release issued earlier today and.
And with that I'll turn the call over to Jim's beginning from slide three.
Yeah.
Yeah.
Thanks May and good morning, everyone. Appreciate your time today.
Yeah. This has already been an incredible year of transformation for 22nd century.
And we still have two more months to go with key milestones to walk down.
Slides three highlights just a few or more recent accomplishments all of which drive the company to revenue growth across our three franchises.
Starting in tobacco in our primary mission. We are in the final step of M. R. T. P authorization for a V O N reduced nicotine tobacco.
Confidence visited highest level regarding the outcome and timing following our October 14th meeting with senior staff at F. D. A.
We could not have been more thrilled with that amazing.
We are well along the path for the offshore launch a V O N by Q1 2022.
We're focused on a few very well known leading markets in Asia and a test market in Europe, where we believe we can launch rapidly.
We are also setting up a branch in New Zealand in full support of that country's plans to reduce nicotine in all cigarettes to non addictive levels.
Our supply chain is ready to immediately scale production a R V O N products for launch in the U S and off shore.
We also brought in another record harvest of revealing tobacco leaf fan is part of our plans to globalize to be on business.
Secured southern hemisphere growing agreements and launched our first row outside of the U S.
And him cannabis, we have harvested or first Ruth that needle rock farm and they are off to commitments for all of the production. We expect to achieve first revenues on sale the biomass portion in this quarter.
We have decided to the portion will be sent to a new type of purification process and potential partner that we're working with the create a new type of high purity distillate.
Which we then expect to sell in Q1 next year.
We're also reading the 2022 lines for planting season, and advancing 20th 23 lines all the while working on additional new disruptive plant lines.
As part of our expansion, we have secured global breeding partners for year round plant line development programs and begun the application process for the U S. D. A organic certification that needle rock this will enable us to further establish premium pricing and premium margin.
We also expect to initiate I P revenue in the fourth quarter, as we said before including agreements with a roar relating to both plant development and licensing of shared and Andy I P for biosynthetic kind of annoyed.
And it particularly exciting development.
We've been announced that we are launching a new industry standards effort in partnership with key gene and N I S T or the National Institute of standards and technology.
Which will stablish measurement and purity standards for the entire him cannabis industry. This will dramatically improve the entire industries credibility.
And more so consumer confidence.
Finally, we announced our entry into the global hops market is our third franchise.
We're now focused on for highly disruptive technologies and hops to enable us to rapidly disrupt us industry with valuable enhancements to high volume plant lines.
We are engaging with multiple hops growers in consumer products partners to develop specific tools to accelerate desire trades and leaving hop strains with a target for first revenue with an 18 months I'll.
I'll come back in detail that a bit later in the discussion.
But let me be crystal clear.
We remain absolutely dedicated to finalizing M. R. T. P authorization, while also building for longterm revenue growth and value creation across multiple franchises and complimentary global market opportunities.
With that I'll turn it over to make a detour tobacco activities, then I'll come back to discuss our him Cannabism hops franchise actions with Ya.
<unk>.
Thanks, Jim Hello, everyone.
Turning to slide five there's been a flurry of activity F. D. A recently, including the clearance of several T. N T H four E cigarettes, and other nicotine products.
We're excited about the F D a ship to active decision making.
And following the October meeting, we had with senior F. D. A staff are.
Our confidence in our M. R. T p's positive outcome is at its highest level ever.
The meeting with F. D. A was highly productive and based on that discussion along with our prior interactions with F. D. A since 2019.
It's clear that despite the long period of time that this application has been under review.
We are very closely aligned with F D as own goals.
F D. A has been and remains highly supportive of the work we are doing and understands the importance of this M. R. T P to their own larger plans to reduce the harm caused by smoking.
While the final decision on the application has yet to be made.
F D. A did indicate that our application is indeed in the final clearance process I perceived it decision and announcement.
Without exaggeration. This decision by FDA will be the most important event in our company Street.
Culmination of years of tireless work by this team and others insignificant investment by you and many of US here. This decision by F. D. A is the goal on which we remained squarely focused.
T milestone and realizing our tobacco harm reduction mission.
And a critical step towards the realisation of F. D. H, one public health Cry words.
Smokers need new tools to help them break the cycle of addiction to cigarettes, and there's an extraordinary body of independent science that shows that deal and we'll help smokers to smoke less and.
And help to reduce the enormous amount of death and disease caused by smoking.
V O N looks tastes and smokes like a conventional cigarette.
Yeah. This is the only tobacco products not designed to create and sustain addiction. The.
Oh and is destined to capture the attention and imagination of the hundreds of millions of adult smokers around the world who want to break the change of their addiction to smoking and because of that V. O N will be the most disruptive new tobacco product to come to market in decades.
Shifting to slide six.
Authorization a R. M. R T P and breathing V O N to market are critical next steps not only in our mission to reduce the harm caused by smoking, but also an F. D. A plan to introduce a product standard capping the nicotine content of all cigarettes at not addicted level levels.
Which is the cornerstone of F D. A comprehensive plan for tobacco of nicotine.
This is a leading idea into the tobacco public health that was born from 22nd centuries research and investment in creating the first tobacco plants to grow with very low levels of nicotine.
Since that first innovative use of plant science and modern plant breeding technologies, 22nd century has produced millions of research cigarettes to enable independent scientists to study the benefits of reducing nicotine in cigarettes.
That clinical research has been largely funded by the U S government at a cost of over $100 million by our estimates.
Based on that body of science and other innovations in the marketplace F. D. A develop their comprehensive plan to reduce the harm caused by smoking the leading cause of death and disease in the U S. In.
And those plans, which are based on the principles of harm reduction F. D. A acknowledges that all tobacco products fall on a continuum of risk with combustible cigarettes being the most harmful and likely the most addictive form of nicotine delivery.
And with menthol cigarettes likely being the worst of all.
By banning menthol and reducing nicotine in all cigarettes. The science shows that smokers were more will more easily quit nicotine altogether or migrate to less toxic products, if they can't or won't quit smoking.
F. D. A is now officially authorized E cigarettes, snooze and heated tobacco products is less harmful nicotine products and is expected to approve more alternative products in the coming weeks and months.
This portfolio of less harmful products creates an off ramp for smokers, which will be important to the success of Fda's plans. Once all combustible cigarettes are required by <unk> by F D a to be non addictive.
22nd century is extremely well positioned for this future not only did we create the first tobacco plants with very low nicotine levels and the research cigarettes to help build F. D. As players. We have also built an extensive portfolio I P, including Jean and plants patterns and.
No how related to the production of nicotine in tobacco plants, we continue to work on developing new varieties of reduced nicotine tobacco, including non G. M. O versions of well known and widely used bright early and Oriental tobacco lives, which we look forward to bringing to market soon.
On the regulatory front, we already have the only cigarette to be authorized by F. D. A as appropriate for the protection of public health.
And that authorization does include a menthol reduced nicotine cigarette we look forward to adding M. R. T. P authorization for these products to our wind column and bringing the world's slowest nicotine tobacco's cigarettes market very soon.
Finally, president by items potential nomination a doctor Robert Calif is F. D. A commissioner is positive news for the continued forward movement of F. D A's plants.
As a former F D. A commissioner under President Obama Doctor Calif knows the agency and its plans for tobacco and has indicated that H ebeth nicotine cat will be a key priority for him. If he is nominated and confirm to lead F. D. A once again.
With the strength of our I P and our regulatory wins in hand, including R. M. R. T. P. We will hold the keys to transforming is higher tobacco industry by providing smokers, a new alternative and by enabling all manufacturers to comply with F. D. H plants band menthol and to reduce nicotine incombustible sugar.
Pets.
Slides seven provide some background about our launch readiness and manufacturing capabilities for B O N.
Our pilot launch programs are ready and waiting M. R. T P authorization.
Programs in the U S and internationally will be focused on testing and refining our messaging and marketing mix to <unk> activate the most adult smokers build word of mouth and buzz around P. O N and deliver the highest R. O Y went V L and begin scaling nationally and globally.
And the U S. We already advanced discussions with well no national and regional change in the tobacco trip.
And we have a pipeline of additional changed that are closely tracking our progress and ready to join with us once M. R. T P's granted.
We're ready to ramp up manufacturing it on North Carolina facility and have locked in supply of the key manufacturing inputs needed to produce feel at.
Also to further build and diversify our supply chain. We've started growing V O N tobacco in the southern Hemisphere, which will provide us with year round growing capabilities and the ability to rapidly scale V O N post pilot.
Advancing to slide eight we have <unk>, we have initiated the launch process ink key global markets with initial revenue expected early next year.
We were targeting several key markets in Asia, and Europe, where regulations will allow us to go to market with claims today or with minimal interaction with regulators.
Adult smokers in these markets have a strong affinity for new reduced risk reduced risk tobacco products in these markets have large premium price segments corresponding marshals.
Once we have an M. R T P in hand from F D. A.
We will leverage that endorsement of R. M. R. T. P claims to initiate the launch <unk> process in additional countries, where regulatory approvals will be required to launch V. O N with M. R. T P type place.
Like the F D a new Zealand's tobacco regulators.
Are also developing a plan to reduce nicotine in all combustible cigarettes there.
New Zealand is a bellwether for new tobacco regulations, we are supporting New Zealand efforts in every way we can.
Leveraging our unique knowledge about the public health benefits of reducing nicotine in cigarettes, we recently submitted to our own comments in support of New Zealand to plan you.
You can find a link to those comments in this morning's press release also as much as Jim mentioned, we are establishing a company branch in New Zealand to support the implementation of New Zealand's plant.
Given the exciting progress so far with B O N. We remain in contact with several potential strategic partners that could help us scale veal in in the U S and globally.
And we have also expanded our strategic partnership discussions to include potential partners in the pharmaceutical space.
Where it will reduce nicotine cigarettes may be synergistic with F. D. A authorize tobacco harm reduction therapies already in the market and under investigation.
We have a great group of professionals working on and supporting our efforts with B O N and our tobacco business in general.
Want to especially thank our manufacturing team for the exceptional work that they continue to do to support the profitable growth of our business and they're continuing commitment to making the best possible products that are factory in North Carolina.
We'll talk more about the continued success coming from a great team there.
All in all our tobacco business isn't the best shape, it's ever been.
Our operations in I P or strong we've put together one of the best teams in the industry. We were successfully drive only driving B O N to launch in the U S and abroad and the regulatory wins are at her back and blowing straw.
We were excited about our progress and we are ready and his ear as ever cause. They know each of you are to C. V O N go to market.
Most importantly, we look forward to helping smokers break the cycle of nicotine addiction and to helping the F. D. A public health policymakers around the world and the tobacco industry itself reduce the enormous harm caused by smoking.
Thank you for your time today and for your confidence in our company I'll now pass you back to Jim Jim.
Thanks, Mike and let's turn just like 10.
And we'll review the cannabis hemp and hops.
You know from the start our focus on him cannabis has been in helping grower secure scalable plant lines that exhibit stable genetic profiles.
Predictable agronomic traits and really high yields.
Took a major step forward in this go with our first harvest, which will feature both biomass off take and the production of a new type of high purity distillate utilizing a new purification technology with a third party.
And potential partner from our first lines of I C. B D and C. B G plans.
We're also closing in on I P agreements as well, which will include both plant I P opportunities with key partners.
And our shared Amanda I P addresses the production of biosynthetic cannabinoid.
But he's really are just first steps.
We're moving aggressively to accelerated additional lines, reaching important trades desired by our partners for the 2022.
2023 growing seasons, as we move our business the scale.
This includes advancing with strategic commercial partners and building on the base, we established with a war we.
We anticipate these will become tangible drivers in 2022 revenue.
For enhancing our international reach to do so.
Which will enable us to accelerate agreements with well recognized pharma food or nutrition.
<unk> recreational and consumer products customers and.
In short our him cannabis business is accelerating to revenue at a very fast pace.
That capability is due to a relentless development of our upstream development capabilities.
Many of you have seen slide 11 in our prior presentations, but I wanted to point out a few important enhancements or upstream value chain, which we believe is the best in the business.
First you can see in the title that dislike now addresses both him cannabism hops because in reality there are two siblings in the same alkaloid plant family.
This relationship enables us across much of our I P into hops and facilitates a faster and more meaningful disruption to the industry.
Our exclusive partnerships with Canada metrics and Caging continues to evolve as we open new opportunities in our franchises.
A big Leap forward came about recently with our breeding partners, who among the most expert alkaloid based plant breeders in the world.
And give us full access to both northern and southern hemisphere locations.
This provides a comprehensive year round capability, the 22nd century to support the commercial scale up and cultivation of disruptive plant lines.
Far beyond the capabilities of independent competitors or in house breathing and consumer product companies.
Finally, as I've mentioned in my opening we have added standards to the extraction and purification call them as we ramp up partnership with teaching him missed to develop definitive new standards for the entire him cannabis industry. This would put us into a thought leader position.
This will stablish, the first ever quality and measurement standards for cannabinoid herpes and other compounds in him cannabis, enabling us not only to better quantify the value on our plant lines, but also ultimately build credibility for our customers and even more importantly, hope consumers know clearly what is in the products that they.
We're consuming.
Through the company's collaboration with teaching will provide diverse lines of cannabis plants containing various levels of THC other cannabinoid profiles and compounds utilizing.
Utilizing these samples missed will establish quality standards for the entire him cannabis industry distinguishing higher quality products from a saturated market place.
The collaboration is pivotal to the growth of hemp cannabis industry is there is a need for consistent stable can I have an alleged herpes another hemp cannabis derived compounds meet the needs of the life sciences, medicinal and pharmaceutical and use markets.
By 12 gives you a sample of the key projects. We are currently advancing to bring disruptive plant lines to the him cannabis industry.
I think it can quickly see how each one of these products projects would be valuable to a grower C. P. G account or industry customer looking for an edge on cost quality and reliability.
And that brings me to our newest franchise the global hops Margaret.
This is a very exciting to us as it utilizes the technology and skills, we already develops before him cannabis.
Which is a close hop relative.
This enabled us to quickly bring highly disruptive plant lines to a massive global market.
With much fewer regulatory requirements.
Hops relies on traditional breeding techniques today that are characterized by a long costly in high risk efforts to take years, perhaps decades to evaluate with little certainty of success.
We're using our experience with tobacco and him cannabis to shorten the cycle and bring greater certainty to hops development programs.
Early programs will center on important advancements, including improve disease resistance better yield and the expression of desirable traits, such as a room of flavor or wellness properties.
As part of her entry into the global hops market.
We have opened up a European subsidiary, which will also be helpful. In facilitating R V O N and him cannabis business in that region.
515 details our value proposition in more detail.
Our programs with T gene are focused on four key programs to disrupt the hops market, which include rapid cycle breeding.
Double haploid sailor grafting and mutagenesis near the Holy Grails, and hops market. The people I've been chasing for decades, we have a high confidence level and working with <unk> on this that have had success with these approaches and other plant lines in the past.
These techniques can lead to more effective breeding programs and lower cost to achieve successful plant varieties versus existing in house and external breeding programs.
The logos of the companies on the right highlight several of the key players throughout the industry ranging from growers to product companies, we can collaborate versus compete with all of them.
One thing you might notice is that our opportunities go far beyond the most common use of hops, which is beer.
And although it's an outstanding opportunity for improved varietals.
Perhaps has a lot of exciting opportunities and nutraceutical when wellness applications. A market segment has been growing quite quickly and represents a key opportunity aligned to a specific value proposition.
And similar to or hemp cannabis section slide 16 illustrates a few of the projects in our pipeline, including the projects with teaching I highlighted.
The first two examples focus disease resistance and you'll both of which are key to production economics and the hops industry had been chased for decades the.
The next to address the consumer aspects of hops focusing on aspects that are key to the actual brewing and taste profile, including both alpha acid and flavor profiles the.
The last is a great example of a wellness program using hops to provide a natural approach to managing health concerns.
I hope that the detail from both Mike and I convey just how exciting it is now a 22nd century and we <unk>. We believe this is just the tip of the iceberg with M. R. T P and overseas V O N launches in the works are first temp cannabis revenue an incredible opportunities in the new hops market I've never been more calm.
Confident excited for this company.
Not gonna pass you over to John to review, our financial performance John.
Thanks, Jim and good morning to everyone.
Starting off on slide 18, I'm sure. Many of you. Many of you are excited to see that we uplifted common chairs to the NASDAQ on August 16th 2021, and continue to trade under the current symbol X X I.
Transferring the lifting to NASDAQ aligns the company with other innovative and growth oriented global science and technology companies.
Joining the NASDAQ will also enable the company to be more agile organization and Ham candidates and good more coverage interest and investment.
We've also cross several mint momentous milestones this quarter, including new research coverage initiated by Vivian as our meeting beverages tobacco in Canada senior analyst at Cowen and company and the addition of 22nd century to the Russell 2000, Russell 3000, and Russell Global indexes.
Looking at a few of the financial highlights net sales increased by 7% to $7.8 million for the quarter through a combination of higher volume and price increases in a contract manufacturing and cigarette business.
We continue to generate new businesses, new business in scale volume ahead of launching a meal and cigarettes. Following your authorization M. B M. R. T P, including additional orders for both of our CMO businesses and variable nicotine research cigarettes.
Revenue in the third quarter was impacted by certain supply shortages that are affecting our industry, causing some shipments to move from the third to the fourth quarter we.
We believe this will ultimately correct and I've taken action in our supply chain from Macy's Some lumpiness in short term as are others in the industry.
Gross profit margin grew 70 basis points, just mark the seventh consecutive quarter of year over year improvement demonstrating our ability to execute on the objectives and strategies, we set to reset to the business.
Every incremental dollar of CMO contributions help cover our operating overhead and fun growth investment rather than utilizing a balance sheet cash to do so.
With zeal and positioned as a premium brand and products, which will command higher revenue. Therefore higher margin, we expect that the launch a V O N. Both in the U S and overseas will be <unk> will be net positive to our revenue and gross margin profile.
That generated margin would be earmarked to initially fun lunch activities.
Additionally, in the mid term it will generate much greater revenue margin per carton and our CMO business.
The cost of production taxes, and other expenses that go into the production will not be notably different from a contract business today, which means that those additional dollars would provide incremental cash for investment to further towards the further development of the dark.
We have again provided a more detailed comparison of our financials for the quarter on slide 19.
Total operating expenses for the third quarter inch.
Increased by 3.5 million driven by 3.6 million of higher S G and a expenses.
Increase in SG&A includes hire personnel insurance financial and strategic consulting costs and marketing costs as we move quickly to market readiness and those tobacco in hand candidates.
Although R&D expenses was lower by 52000, R&D investments are expected to grow in future quarters as the company continues to accelerate the development of new highly differentiated hemp cannabis plants too and expand its R&D efforts to hop plant based franchise.
For the third quarter operating loss of 7.9 million increased by 3.4 million over the third quarter of last year.
Total other <unk>.
Total other income includes non-cash unrealized loss of 1.9 million related to its fair value adjustments for investment in Aurora, Canada stock warrants investment an exact has come in stock.
Turning to our strength and balance sheet, it's more than $55 million of cash a quarter and we have the resources to fund a significant runway for growth has reduced.
Near Katyn tobacco and candidates franchises transition to commercial launch.
We intend to use the proceeds of our 40 million dollar offering to accelerate our revenue progression and a number of ways, including B O N U S launch readiness commencing international V O N market lunches accelerating the commercialization of our disruptive hemp cannabis plant lines and I T and launched.
Our third franchise.
Now I'll pass back to gym.
Thanks, John.
The summary on slide 20, you've seen before and captures our priorities, which a line to the key strategies, we shared at the start of the year.
Paramount is the launch of R V O N product <unk> in support of our mission and tobacco harm reduction.
As Mike indicated we're also seeing renewed momentum and support for reduced nicotine in menthol band mandates both of which we believe strongly favor R V O N product.
The recent actions by F D, a and nominee for commissioner, which seemed to support this outlook and we're very excited about the road ahead.
And him cannabis, we're moving to monetize our portfolio beginning in the fourth quarter of this year accelerating additional revenue opportunities in 2022 and 2023.
Our programs and partners are moving ahead quickly and the prospects in this franchise only continue to expand.
And we've now announced hops is our third franchise with work already well under way toward a goal of revenue in the next 18 months by leveraging the capabilities. We have already developed in him cannabis for large less regulated additional market opportunity.
And we're doing all of this back by a strong balance sheet and good financial discipline them. If you just heard from John to keep us on track to our goals.
And with that operator, please open up the call for questions.
Thank you we will now be conducting our question and answer session.
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Our first question is coming from Vivian a sir what Cowan. Please proceed with your question.
Hi, good morning.
Good morning to you.
So I'd like to start with the F D a and I'm certainly encouraging that you'd have some constructive dialogue with senior staffers as recently as a couple of weeks ago give me give you any indication I'm what may be prompting a delay I mean, my suspicion is that there's been quite a lot of activity on the P. M. P a process.
A positive and negative from the agency in a little self inflicted on their part around he said is that the principle driver goodbye.
Hi, Good morning, Vivian This is Mike yeah. Thanks for the question the yeah. They did not indicate the the reason for the delay to us in in that call.
You know I think your <unk>. Your suspicion is probably well founded we've seen sort of in the public activity around the P. M. T. A said it didn't quite come out with the announcements everyone was expecting around the debate products et cetera. So.
I mean, they have assured us in the past that there are separate work streams for for M. R. T. P's T M T. A but it is possible that you know in this final clearance stage that there's overlap there okay, but they have a show to set. This is this is our or at least they had a sure to set this application.
Our application is.
Is is a very high priority for them.
Okay. That's that's encouraging it certainly yeah.
Dialogue is encouraging as well like maybe I can take with you and we can have it cut into the international opportunity.
I didn't get the Asian markets can can can be quite big and so is there any way for you can dimensionalize you know how we should think about kind of the revenue opportunity as you guys start realizing revenues from international the online sales in the first quarter of 22.
Yeah, So you're right Asia markets. Many of them are large you know I can tell you China is not on the list that's a very difficult market to break into since the entire industry. There is always by by the Chinese government. We are looking at several markets and <unk>.
Asia there are some large ones among those in terms of revenue modeling, we will <unk> will likely take the same approach in the international markets that we're taking in the U S, which is to start with some pilot markets again being Judy.
Just in our in our investments in marketing and sales and testing, our our messaging and marketing mix windows in each of those countries before we look to increase investments in scale. So.
The impact on revenue and profitability I think will will become more obvious once we were in the markets and and then can start seeing what the responses in the marketplace to to the product claims in the product itself and our marketing.
Okay Fair enough and my last one I think it's probably for you.
The candidates have encouraging that you guys are making progress there, but I'd like to understand you know how what you're doing in the marketplace casually be impacted by brodeur candidates industry dynamics.
Typically price deflation in the U S. P. C market has been incredibly cop all yeah, how it had all does that impact or influence the economics around your offerings.
Yeah, that's a great question.
The way we look at it is the the U S market, obviously, we're focusing at least is until legislation catches up on him cannabis.
And there you know we continue to see.
Increasing interest in higher quality higher stable ingredients.
That can build the credibility of the industry and to the consumer. So you know the the material that we grew and needle rock and now we've harvested and is drawing as we as we speak.
Is very high levels of C. B G N C. B D. Two different strains and extremely low levels of T. H C.
That material and even as an estate has caught the attention of you know many groups out there because of the cost impacts and more so the the stable quality impacts and that's where the off take is going you know primarily through a a distributor arrangement into M. S. O's that are still.
Driving C B D and C b G efficacy, but the need additional support on that.
That'll be you know offshore activities that are more in the R&D phase we have not done a full scale growth on the recreational T. H E lines, but that's where we're focusing those efforts and driving really stable T. H C increases off shore is still a high end.
<unk> because of the stability and the variability of THC lines out there is getting worse not better and that is impacting the consumers confidence in the in the entire industry.
So you know our our message of a rally point around increase consistency demonstrating bad on these early plants dreams with the you know the scientific data to back it up and both some of these non THC cannabinoid than an offshore on the higher to you. So you can have a noise is still resume.
Doing very well and that's where people are leaning into wanting to work with us and starting to realize that our approach.
Indeed can work much faster and have more impactful resolved so I expect.
We're <unk>, we're scratching the tip of the iceberg with these first two grows in the day that were that were putting out in place.
But as we are in discussions now for the 2022 grow not only a needle rock, but throughout our breeder network, you know those volume's or or significantly significantly increasing.
Got it.
Where's your amount, but then like if if I hear what you're saying and just paraphrase it back to you so <unk>.
And C V V price deflation in the U S has already occurred but that you're not seeing any downward pressure on your own pricing because of this ability of your a P. I.
That's yeah, that's that's a much more elegant way of saying it. So thank you [laughter] well that's encouraging to hear thank you so much.
Sure.
Thank you. Our next question is coming from the line of gender calorie with Dolphin team. Please proceed with your question.
Thank you good morning regarding the F. D. A meeting that you had is that something you initiated in order to to.
To get an update or is that something day initiated and and if they did can you help us understand what they were looking for.
Good morning question. This is Mike Yeah. Thanks for the question.
The yeah, there's a there's a formal process for initiating meetings, we have had a <unk> a lot of indirect outreach to F. D. A but we did not request. The meeting was was set up the F D A's request.
We have the policy not to reveal the details of discussions with F D a or other regulators. So I can't really get into any more specifics then.
Then well at least discuss so far.
Gotcha.
Okay also.
There was a.
Mike and in your comment comments, you were talking about an off ramp.
With other products at the F. D. A is creating and my question is.
Is is there something about the M. R T P.
That.
That that the off ramp needs to be created first before they deal with the M. R. T. P or is it is it these things are moving simultaneously.
No I think the M. R. T. P is independent of creating that off ramp F. D. A has <unk> has talked about the the off ramp and the importance of that as it relates to a an industry wide.
Reduce nicotine mandate and so you know so this positive movement from F. D. A on these alternative products is.
Is helpful. In understanding you know where F. D. A is with that that broader me on tape, but M. R. T P.
Is is independent of that absolutely.
Okay. Thank you a couple more if you don't mind.
Press release them and and you guys talked about it in the commentary also.
Ah regarding a.
Sure what language you use the pharmaceutical [laughter] partnership or discussion.
I'm trying to understand.
What has changed.
Either in the market or your capabilities or their.
Their confidence that you would start initiating.
This process with a farm a customer.
Yeah, I can I can pick up on that one a bit and asked them like the chime in because you know look I I come out of the pharmaceutical industry has a strong contacts you know around the world.
And as we were working our strategy and obviously, we've been in close contact with strategic partners on the tobacco side and.
And Mike's you know discuss those time and time again.
But the the opportunity to you know.
Introduce the technology and the product.
Into those pharmaceutical houses that have reduced harm products on the market place and are having success to some extent, but you know we feel there's combination opportunities that would you know be sooner just stick to both product lines.
So took it upon ourselves to reach out here in this quarter.
To gauge the interest I'm, not saying where are we have made contact with but I've had personal discussions with the longterm contacts with several large pharmaceutical houses.
And indeed, they have an interest of learning more and exploring more so we will continue to have optionality around strategic partnerships with big tobacco.
But we certainly want to diversify that portfolio and bring in other orange parties of interest in the pharmaceutical was right up our alley in those initial discussions.
At the very least have been quite positive.
And would it be would it be fair to say that that you need M. R. T P before those pharmacy.
<unk> pharmacy discussions advanced further.
Yeah, I would I would certainly say that you know, it's it's not quite as a caveat for big tobacco, but you know big form is going to going to want that F. D. A stamp of approval.
And but we're we're turning our attention you know passed that milestone into you know the four plan here going into early part of next year. So to answer your question, Yeah, we'd certainly be a desirable for them much like their own you know F D. A approved of products as well.
Uhm I would just add to to build on to build on Jim's comments I would just add that.
There is a fair amount independent clinical psych, it's showing that using a V O N or reduced nicotine cigarettes in combination with nicotine replacement therapies and other cessation therapies like Chantix actually.
Improves the efficacy of those therapies for cessation and so obviously, there's been a lot of innovation around alternative nicotine products, including new medicinal nicotine products and the pharmaceutical companies are developing so there's a lot of opportunity here.
Potentially to combine V O N with these other cessation focus products to create new new offerings in that space I think.
Understood Yeah, that's thanks for that clarification like and my last one.
I think I've asked this in the past, but the.
The launch of [noise].
D O N.
I mean, I'm worried about how that impacts whatever cycles are happening at the whatever retail partnerships you're discussing do it do we need to hit a window do we need to get M. R. T. P by make up a date December 1st in order to hit whatever stocking window. It takes place at <unk>.
It's a retail partners.
It's a good question to pilot our pilot partners are working with us on any schedule that will be driven by the M. R. T. P decisions. So in other words, the launch a pilot and our ability to launch within 90 days of the M. R. T P decision or.
Not dependent on.
Those those cycles that would otherwise apply to the cigarette or any category in N D 's retail channels.
You know as we look to sort of a phase two more of a scaling nationally then then that would likely apply but the the folks that were Parker with on the pilots are very much fought in to the the idea of yellow and the importance of V O N N tobacco harm reduction.
<unk>. These are is your change that or thought leaders in in tobacco harm reduction themselves and new introducing needed to nicotine products and so you know, they're they're highly collaborative with us in this regard.
Fantastic. Thanks, a lot guys good luck with everything.
Thanks, Joe.
Thank you. Our next question is coming from Erin Gray with a lion's Global partners. Please proceed with your question.
Hi, good morning, and thank you for the questions. You know first one for me has been just thinking back off you know.
Cannabis speaking with you know cold today, there's no recently and in the past with a lot of conversations about you know F. One seat kind of those first generation sees in terms of you know getting better genetics and consistency. So just wanting some colors from you in terms of you know your product offering and whether or not that would be you know complimentary to that cause I know that'd be a very expensive process.
Take time to get to the F. One seat is better genetic so you know you're often would that be complementary is that something to offer more in the near term until you get to that to get the better yields and consistency. So just any color I think it would be helpful. Thank you.
Yeah sure. Thanks for the questionnaire and it's great. Great question, you <unk> the way we look at it as we could we could build off of what's already been established out there and continue to refine it in a relatively short cycle to your development cycle.
So we could work with a strategic partner from that perspective, but we believe that the the new strains that are coming out of key gene in our in the kind of the seating around now to grow enough to create the seeds for field trials et cetera.
Are equal if not superior to to what's out in the marketplace. The offerings right now it's kind of a next generation. So you know we have the ability to focus on both paths, but from our confidence in what happens at key gene, what's coming out of there and what's moving now into the breeding programs and.
Tasmania, and in North America and in Rotterdam.
For that matter on the to see bearing lines.
You know, we we think they're best the strains on the market.
Prepared for scale up so I hope hopefully that answers or addresses the question.
No great. Thank you that's helpful and then switching over to the hops and that returning to their that's you know and the more mature industry of beer and I know you mentioned other applications, but just given you know hops that there's more stability in the category versus cannabis provide some color in terms of maybe the reception you're getting from some of the more mature.
Hops growers as it relates to the offerings. Thank you.
Yeah sure. Another great question I mean, we're not looking to create the you know five styles and then once a strain that's gonna be dedicated to a new flavor profile.
What we've you know in our discussions with both hotmail fractures enlarge beverage accounts, what's come through loud and clear as the you know they've been chasing a few holy grails of tools to speed up that development. This is this double haploid approach.
The mutagenesis cellular grafting without any success you know for decades now T. Jean has applied that and other plant lines and has had great success with that so we have turned our attention to those tools those three tools any one of which as we secure it.
Can be highly disruptive to the industry, if we hit two or all of them ultimately, it's a new paradigm for the entire industry. So we're focusing on those three programs now in the meantime, we've already developed some disruptive plant strange as it were highlighted and one of the hop slides that already have yield improvements.
Already have disease resistance associated with them and they're based on highly attractive flavor profiled hops that are utilized in the marketplace. So today.
So we we are coming at it from multiple angles here, but really the and we can have a strong success on the new strains that are already and I'm coming out of the of the mid level up with the development pipeline, but you know I've turned our attention to these three technology technological tools.
That we have a growing confidence in being <unk> being able to apply and hops market in any one of those are just paradigm changes for the industry and are well known to the industry and have you know I've just been impossible for them to succeed with.
We first looked at and said well, maybe it's you know too high of a mountain to climb until we understood. The success rate in the approach the key genes already done another plant lines and you know have grown confidence in that area and wanted a detail that in in this presentation.
Okay very helpful. That's a great deal 10, I'll jump back to the queue. Thank you.
Thank you.
Thank you we will now take some questions from the webcast I'll turn the floor back over to make Wow. Thank you.
Thanks caffeine.
Send the first question is for Ya can you elaborate on the Mister Green and and what it means to the 22nd century.
Yeah. So NIST agreement is very exciting for us that you know again I I come out of the ingredients space in the pharmaceutical a P I space and when you take a look at what's developing and it ties back into Vivian question around you the development of the cannabinoid some hip market in the U S and the medicinal over the <unk>.
<unk> and recreational space outside.
And what is typically transpired in other ingredients and consumer goods industries has been a standards establishing standards without establishing standards you know the F. D. A can ultimately set safety standards cause you don't know what you're testing for him. So you know we're not in a position in the finished goods market.
To go after finished goods standards, but we are in a position on the ingredients side and no. One has a map this out.
In in the cannabinoid space as of yet.
So key gene has a very strong relationship with the NIST back their co located our relationship with the key gene then spilled over and our engagement with NIST and there in the in the United States and globally one of the.
Most renown.
Standards, an analytical approach in the you know in the marketplace. So we've we've agreed to to work towards together to develop these cannabinoid standards across multiple cannabinoid that ultimately tie back into our plan strange. So this is really groundbreaking to do <unk>.
Step back and say step one in the industry to gain credibility and broader acceptance and broader grow with in these consumer products markets is to establish a U analytical standard methodology and establish the quality standards that would then be utilized in the entire industry.
And also drive the F D. A approach safety approach on the finished goods.
So for US, it's you know going back to the very beginning and and put it on ourselves in a very strong position in order to lead that.
Ultimately, if you combine that approach with higher quality streams and higher purity ingredients.
The market credibility of our customers, who would be buying that material or licensing the strange goes up dramatically and a consumer finally starts to realize what they're seeing on the label is what they're getting and those purity standards and quality standards are well established and analytically drive so that.
That's why we're excited about it.
Thank you <unk> and it looks like we are out of time and if you have any closing remarks.
No I was always I appreciate everyone's continued to support of this company all of our stakeholders, we're working hard or excitement level hopefully is coming through our confidence level hopefully is coming through certainly on the primary mission around V. O N. An M. R T P and continued.
And it's in all three of the franchises. So work we're excited to to go through Q4 and and move forward. So thank you all for the support and all the time and we'll talk we'll talk real soon thank you.
Thank you. This concludes today's conference all parties may disconnect and have a great day.