Q4 2023 22nd Century Group Inc Earnings Call
Operator: Welcome to 22nd Century Group's fourth quarter 2023 conference call and webcast. At this time, all participants have been placed in a listen-only mode. The floor will be open for questions following management's prepared remarks for our covering research analysts on the call. If you would like to ask a question at that time, simply press star 1 on your touchtone phone. If at any point your question has been answered, you may remove yourself from the queue by pressing star 2.
Welcome to <unk> second century group's fourth quarter 2023 conference call and webcast at this time all participants have been placed in a listen only mode.
Or will be opened for questions. Following management's prepared remarks for coverings research analyst on the call.
If you would like to ask a question at that time simply press star one on your Touchtone phone.
At any point. Your question has been answered you may remove yourself from the queue by pressing star two.
Operator: We ask that you please pick up your handset to allow optimal sound quality. Lastly, if you should require operator assistance, please press star zero. It is now my pleasure to turn the floor over to Matt Kreps, Investor Relations for 22nd Century. Please begin.
Ask that you please pickup your handset to allow optimal sound quality.
Lastly, if you should require operator assistance, please press star zero it.
It is now my pleasure to turn the floor over to Matt Kreps Investor Relations for 20, <unk> century group. Please begin.
Matt Kreps: Hello, and welcome to 22nd Century's fourth quarter results conference call. Joining me today are Larry Firestone, CEO, and Hugh Kinsman, CFO. Earlier today, we issued a press release announcing our results for the fourth quarter of 2023. The release and 10k are available in the investors section of our website at 22ndCentury.com.
Matt Kreps: Hello, and welcome to 20, <unk> Centurys fourth quarter results Conference call. Joining me today are Larry Firestone CEO. Thank you Ken Zhang CFO.
Matt Kreps: Earlier today, we issued a press release announcing our results for the fourth quarter of 2023 release and 10-K are available in the investors section of our website at 22nd century Dot com.
Matt Kreps: We'll start today's call with prepared remarks from Larry and Hugh before moving into a Q&A session with our analysts. If you have questions about our business not addressed on this call, you are welcome to email Investor Relations using the contact information provided in today's press release. Before we begin, a few reminders about today's call. 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 SEC.
Larry Firestone: Start today's call with prepared remarks from Larry in Q before moving into a Q&A session with our analysts.
Larry Firestone: If you have questions about our business not address on this call you're welcome to email Investor relations using the contact information provided in today's press release.
Larry Firestone: Before we begin if your lenders for today's call. 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 on our annual quarterly and other reports filed with the SEC.
Matt Kreps: During today's calls, we may also discuss non-gas financial measures, including adjusted EBITDA, which we define 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 release issued earlier today. And with that, I'll now turn the call over to Larry.
Larry Firestone: During today's calls.
Larry Firestone: 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 measures. Please refer to our release issued earlier today and with that I'll now turn the call over to Larry.
Larry Firestone: Good morning, and thank you for joining 22nd Century's fourth quarter 2023 earnings call. I will cover the business status, and Hugh will cover the financials, and then we will open it up for questions. The timing of this call is interesting since it technically covers the fourth quarter results.
Larry Firestone: Good morning, and thank you for joining 20, <unk> Centurys fourth quarter 2023 earnings call.
Larry Firestone: I will cover the business status and Julie will cover the financials and then we will open it up for questions.
Larry Firestone: The timing of this call is interesting since it technically covers the fourth quarter results.
Larry Firestone: But so much has changed over the past four months that the results are not reflective of how the company is operating today. Since our focus is 100% on how 22nd Century moves forward to become a self-sustaining, profitable, and cash-flowing business, a lot of the information contained in my part of the discussion will be oriented towards the shape of the company in the first quarter, and so some of this will cross over to the first quarter earnings call in mid-May. Our priority is that what is good for the company comes first. We are dedicated to making 22nd Century live within its skin, which is a profitable, cash-positive, NASDAQ-listed company with a strong foothold in the tobacco space focused on nicotine harm reduction. One of the first big changes was the sale of the GVV hemp cannabis business at the end of December. This move helped us on several fronts.
Larry Firestone: So much has changed over the past four months, but the results are not reflective of how the company is operating today.
Julie: Since our focus is 100% on how 'twenty second century moves forward to become a self sustaining profitable and cash flowing business.
Julie: A lot of the information contained in my part of the discussion will be oriented towards the shape of the company in the first quarter and so some of this will crossover to the first quarter earnings call in mid May.
Julie: Our priority is what is good for the company comes first we.
Julie: We are dedicated to making 22nd century live within its skin, which is a profitable cash positive NASDAQ listed company with a strong foothold in the tobacco space.
Julie: Focused on nicotine harm reduction.
Julie: One of the first big changes was the sale of the GBP hemp cannabis business.
Julie: At the end of December.
Julie: This move helped us on several fronts first.
Larry Firestone: First, GVB was the largest source of cash burn in 2023, with a lot of unfunded overhead that was driving some of our largest losses. And second, any company that has operations around cannabis has what I call a tax on the business. This tax comes in the form of a cost premium on just about every cost that the entire company incurs. For example, insurance.
Julie: <unk> was the largest source of cash burn in 2023.
Julie: With a lot of unfunded and overhead that was driving some of our largest losses.
Julie: Second any company that has operations around cannabis.
Julie: What I call a tax on the business.
Julie: This tax comes in the form of a cost premium just about every cost that the entire company incurs.
Julie: For example, insurance, ensuring our business with the cannabis component not only cost significantly more.
Larry Firestone: Insuring a business with a cannabis component not only costs significantly more, but mainstream insurers pass on underwriting the policies due to the fact that cannabis is involved. This same scenario spreads widely across the supply chain, so there's an inherent limitation on what a company can do to keep its cost structure under control. Unfortunately, this tax on the business crosses over to the tobacco side as well. But now, with SANS GVB, we can manage that.
Julie: But the mainstream insurers pass on underwriting policies due to the fact that cannabis is involved.
Julie: This same scenario spreads wide across the supply chain. So there is an inherent limitation on what the company can do to keep its cost structure under control.
Julie: Unfortunately, this tax on the business crosses over to the tobacco side as well.
Julie: But now sands GBP, we can manage that so unloading GBP not only eliminated a substantial portion of our cash drain that the hemp cannabis business was causing.
Larry Firestone: So unloading GVB not only eliminated a substantial portion of our cash drain that the hemp cannabis business was causing but will also allow us to lower our costs in the tobacco business as well. Now, let's talk about the actions we've taken in the past 120 days to strengthen our core tobacco business. We've returned to our fundamental mission of using our patented biotechnology for the creation of products that address the harms of nicotine addiction and commercializing those products. We've cut our ongoing management, labor, and overhead costs significantly, and that includes me. All employment agreements for the company's executives have been terminated, meaning everyone is employed at will. As an example, I do not have an employment agreement.
Julie: It also will allow us to lower cost in the tobacco business as well.
Julie: Now, let's talk about the actions we've taken in the past 120 days to strengthen our core tobacco business.
Julie: We've returned to our fundamental mission of using our patented biotechnology for creation of products that address the harms of nicotine addiction and commercializing those products.
Julie: We've cut our ongoing management labor overhead costs significantly.
None: That includes me all employment agreements for the company's executives have been terminated meaning everyone has employed at will.
None: As an example, I do not have an employment agreement by Phil I can be terminated without a severance payment.
Larry Firestone: If I fail, I can be terminated without a severance payment. For the results in 2023, there are no bonuses paid or planned, and no equity compensation past what was already granted when I came on board. The same is planned for 2024. Spending on consultants and advisors has been terminated, except for those few that are mission critical. Your Board of Directors has been working without compensation effective in the last quarter of 2023, and overall board compensation has been cut aggressively for when payment does resume. We've reduced our overall headcount, and right now, we have about 60 people in the company. We've raised our prices on our filtered cigar business, which has traditionally lost money at the gross profit line. We will get this part of the business on the right side of the profit line or exit it.
None: For the results in 2023, there are no bonuses paid or planned and no equity compensation cost what was already granted when I came on board the same as planned for 2024.
None: Spending on consultants and advisors has been terminated except only those few that are mission critical.
None: Your board of directors has been working without compensation effective in the last quarter of 2023.
None: And the overall board compensation has been cut aggressively for when payment does resume.
None: We've reduced our overall head count and right now we have about 60 people in the company.
None: We've raised our prices on our filtered cigar business, which has traditionally lost money at the gross profit line.
None: We will get this part of the business on the right side of the profit line or exited.
Larry Firestone: We eliminated our second shift at our production facility and consolidated production to one shift, for a substantial productivity gain, closed our facilities in Buffalo and Maryland and consolidated all of our operations to our factory in North Carolina. We sold excess tobacco inventory, and although we took a non-cash accounting charge for the cost of goods sold, this provided us with a non-dilutive cash infusion of approximately $1.2 million. That's an illustration of just some of the major actions we have taken. There are many more, but these are the major ones.
None: We eliminated our second shift at our production facility and consolidated production to one shift.
None: There are substantial productivity gains.
None: We closed our facilities in Buffalo in Maryland.
None: Consolidated all of our operations saw a factory in North Carolina.
None: We sold excess tobacco inventory.
And although we took a noncash accounting charge to cost of goods sold.
None: This provided us with non dilutive cash infusion of approximately $1 2 million.
That's an illustration of just some of the major actions we have taken.
None: There are many more but these are the major ones.
Larry Firestone: As a result of this hard work, we've reduced our cash burn substantially and are still driving towards a much lower financial break-even point than we had as a company in 2023. We expect to reach break-even in the first quarter of 2025. What I can tell you is the cash burn is now massively smaller than last year, when at times, we were burning $15 million and a quarter. As we operate today, we are still working through prior cash obligations, but we're on a downward slope, which is much lower than where we were last year. As a part of closing the gap, in addition to the cost reductions, we're working on new profitable revenue opportunities for both VLN and the contract manufacturing or CMO business to drive higher gross profits and get to our break even as soon as possible. We have several CMO opportunities that are near-term, and once they go live, they will gradually lift our revenue. These will counter some of the contracts that we will be offloading where we lose money. Once the dust settles, we're going to be in better shape.
None: As a result of this hard work, we reduce our cash burn substantially and are still driving towards a much lower financial breakeven point, then we had as a company in 2023.
We expect to reach breakeven in the first quarter of 2025.
None: What I can tell you is the cash burn is now massively smaller than last year.
None: And at times, we were burning $15 million in the quarter.
None: As we operate today.
None: Still working through prior cash obligations, but were on a downward slope, which is much lower than where we were last year.
None: And so prior to closing the gap. In addition to the cost reductions we are working on new profitable revenue opportunities for both <unk> and.
None: And the contract manufacturing your CMO business to drive higher gross profits and get to a breakeven as soon as possible.
None: We have several CMO opportunities that are near term and once they go live.
None: We will gradually lift our revenue.
None: These will counter some of the contracts that we will be offloading, where we lose money.
None: Once the dust settles, we're going to be in better shape.
Larry Firestone: The additional CMO volume also helps our manufacturing overhead absorption. So the more volume we run through the factory on the same overhead cost, the lower our cost per carton will be on existing products. This business will continue to get healthier as we go. Now, I'm going to talk about BLM.
None: The additional CMO volume also helps our manufacturing overhead absorption.
None: So the more volume we run through the factory on the same overhead costs, the lower our cost per card will be on existing products.
None: This business will continue to get healthier as we go.
None: Now I'm going to talk BLM.
Larry Firestone: And I know I'm the new guy and picking up where others have left off, but I couldn't be more excited about VLM and its possibilities in the marketplace for consumer health and for the success of 22nd Century. Let me first say that VLN means very low nicotine. The scientific community uses the acronym VLNC to represent very low nicotine content.
None: And I know I'm, the new Guy and picking up where others have left off but I couldnt be more excited about <unk> and its possibilities in the marketplace for consumer health and.
None: And for the success of 20 <unk> century.
None: Let me first say that V. L N means very low nicotine.
None: Terrific community uses the acronym <unk> to represent very low nicotine content.
Larry Firestone: Our trademark brand, VLN, is to nicotine harm reduction from cigarettes, as decaf coffee is to coffee, or skim milk is to milk. If anyone has told you that you need to cut back, we are the alternative. We are the brand in the marketplace representing the only very low nicotine cigarette, and the VLN name stands for something very important, and it's up to us to make it count. Second, I'm going to do a little level setting for our shareholders. It's been widely speculated and anticipated that various government agencies in the U.S. and other countries are going to enact laws or some form of legislation that will position our VLN cigarettes as the only alternative for smokers, essentially opening up a lane where only VLN can travel. However, we can't simply rely on government action as a part of our business plan. We also can't count on legislation of this type to happen anytime soon, and even with action.
None: Our trademark brand <unk>.
None: So nicotine harm reduction from cigarettes, as decaf coffee as to coffee or skim milk has to milk. If anyone has told you that you need to cut back where the alternative.
None: We are D brand in the marketplace, representing the only very low nicotine cigarettes.
None: And <unk> name stands for something very important and it's up to us to make account.
None: Second I'm going to do a little level setting for our shareholders.
None: It's been widely speculated and anticipated that various government agencies from the U S and other countries are going to enact laws or some form of legislation that will position our <unk> cigarettes as the only alternative for smokers essentially opening up a lane, where only deal and can travel.
None: We can't simply rely on government action as a part of our business plan.
None: We also can't count on legislation of this type to happen anytime soon.
None: Even with action I don't believe that.
Larry Firestone: I don't believe that the U.S. government will enact a law so that VLN is the only cigarette on the market. We must build this brand and this company from the ground up so that our success will not be solely dependent on legislation or federal action that would result in a huge hit to a major industry that provides substantial financial infrastructure within our domestic economy. Think about jobs, taxes, revenue, imports, and export related to the overall tobacco industry. We also cannot assume or bet solely on whether the U.S. government will make sure that our population of menthol smokers have menthol cigarettes available to them if they enact a law that prohibits them from being manufactured or sold in the U.S. Even absent government action.
None: The U S government will enact a law so that <unk> is the only cigarette on the market. We must build this brand and this company from the ground up so that our success will not only be dependent solely on legislation.
None: Our federal action that would result in a huge hit to a major industry that provides substantial financial infrastructure within our domestic economy.
None: Think about jobs taxes revenue import export related to the overall tobacco industry.
None: We also cannot assume or bet solely on whether the U S government.
None: I'll make sure that our population of menthol smokers have menthol cigarettes available to them if they enacted a law that prohibits them from being manufactured or sold in the U S.
None: Even absent government action.
Larry Firestone: I would offer that our government, including the FDA, believes that the smoking population in the U.S. will heed the warnings on the pack and realize the harmful, addictive nature of cigarettes and take the initiative to stop smoking on their own and solve the problem. The overarching cost in lives, healthcare, and infrastructure related to smoking is huge. So how do we move this forward and achieve success without relying on government action? It's common knowledge that a majority of smokers want to quit. And they are trying to quit consistently, year after year, and they need help to smoke less.
I would offer that our government, including the FDA believes that the smoking population in the U S will heed the warnings on the pack and realize the harmful addictive nature of cigarettes.
None: And take the initiative to start.
None: Smoking on their own and solve the problem.
None: The overarching cost in lives healthcare and infrastructure related to smoking is huge.
None: So how do we move this forward and achieve success without relying on government actions.
None: Common knowledge that a majority of smokers want to quit.
None: And they are trying to quit consistently year after year and they need help to smoke less they need tools such as <unk>.
Larry Firestone: They need tools such as VLN. We are an authorized and unique enabler to help reduce nicotine consumption. We are the first and only cigarette to receive FDA authorization that specifically focuses on nicotine harm reduction. We are well protected from an intellectual property standpoint.
None: We are an authorized and unique enabler to help reduce nicotine consumption.
None: We are the first and only combustible cigarette to receive an FTA authorization that specifically focuses on nicotine harm reduction.
None: We are well protected from an intellectual property standpoint.
Larry Firestone: We have a tool, our VLN cigarette, that we believe smokers will want to use in their fight to quit smoking. Introducing a new category in any market, much less the cigarette market, is disruptive, difficult, and very much a ground game to make the smokers in various states where VLN has distribution become aware that this product exists and the benefits of VLNs use. Being in that position, we must focus on developing an audience that uses our VLN products and communicates the positive results our customers have experienced so far and make sure success is known, and the word Like all segments of consumer brand markets, getting consumers to become aware and give a new or different brand a shot takes trusted results, time, energy, and resources.
None: We have a tool or <unk> cigarette.
None: We believe that smokers will want to use in their flight to quit smoking.
None: Introducing a new category in any market much less in cigarette market is disruptive difficult and very much a ground game to make the smokers in various states, where <unk> has distribution become aware that this product exists.
None: And the benefits of <unk> being.
None: Being in that position.
None: We must focus on developing an audience that uses our <unk> products and communicates the positive results our customers have experienced so far in.
None: And make sure successes known and the word is passed to others in the market.
None: Like all segments of consumer brand markets getting consumers to become aware and give new or a different brand under shot takes trusted results time energy and resources.
Larry Firestone: The mission, to drive reduced harm for smokers and acquire customers who want to reduce their nicotine intake, is a simple math equation. The simple math is, from a nicotine content perspective, one pack of 20 VLN cigarettes equals one single cigarette of any standard brand. What that means to a smoker who smokes a pack a day is that the nicotine intake of smoking VLN for a full year would be the equivalent of smoking a standard cigarette for two and a half weeks. In terms of their pocketbook, a pack-a-day smoker is spending the equivalent of $2.50 an hour on a full-time hourly rate to smoke, and more to a part-time worker.
None: The mission to drive reduced harm for smokers and acquire customers, who want to reduce their nicotine intake.
Is the simple math equation, the simple math is from a nicotine content perspective.
One pack of 20 BLA in cigarettes.
None: <unk>, one single cigarette of any standard brand.
None: What that means to a smoker, who smokes a pack a day.
None: Is the nicotine intake of smoking deal and for a full year would be the equivalent of smoking a standard cigarette.
None: Two five weeks.
None: So their pocketbook a pack a day smoker spend.
None: As spending the equivalent of $2 50, an hour on a full time hourly rate to smoke.
None: And more to a part time worker.
Larry Firestone: Financially, for 22nd Century, from the 5,100 retail outlets that currently carry VLN, we need them to sell nine packs per week to completely carry the company's overhead costs, or essentially just one card per week. This does not seem like a heavy lift as we increase the VLN brand awareness, but we need to increase the awareness on a very small budget at this time. We do know that specific retail chains and independent retailers are currently selling VLN and are developing separate in-store categories focused on harm reduction products for smokers. These categories would highlight products like VLN and give adult smokers an alternative to traditional cigarettes.
None: Financially for 20, <unk> century from the 5100 retail outlets that currently carry BLM.
None: Need them to sell nine packs per week to completely carry the company's overhead costs.
None: Or essentially just one card in the week.
None: This does not seem like a heavy lift as we increased the <unk>.
None: <unk> brand awareness.
None: But we need to increase the awareness on a very small budget at this time.
We do know that specific retail chains and independent retailers currently selling BLA.
None: Developing separate in store categories focused on harm reduction products for smokers.
These categories would highlight products like vonn and give adult smokers and alternative to traditional cigarettes.
Larry Firestone: This action and commitment by retailers would be a major step forward in VLN brand awareness. As we continue working on our branding and our product awareness initiatives, while we strengthen our financial capability and move towards profitability, we will increase our spending efforts with strategic retail partners and get the message to smokers. As part of our strategy, we're looking to further increase our store distribution with relevant retailers and continue to build support with the medical and scientific community that understands the importance of the VLN brand to public health. We also plan to continue to drive awareness through social and digital channels and to activate the incredibly important peer-to-peer advocacy process that supports smokers as they take these life-changing steps to reduce their smoking addiction. These efforts to get just the one carton per week store average, plus our plans to improve CMO sales and margin contribution, put us on a path to profitability.
None: This action and commitment by retailers would be a major step forward in <unk>.
None: And brand awareness.
None: We continue working on our branding and our product awareness initiatives, while we strengthen our financial capability and move towards profitability, we will increase our spending efforts with strategic retail partners and getting that message to smokers.
None: As part of our strategy, we're looking to further increase our store distribution.
None: With relevant retailers and continue to build support with the medical and scientific community that understands the importance of the <unk> brand to public health.
We also plan to continue to drive awareness through social and digital channels.
None: And to activate the incredibly important peer to peer advocacy process that supports smokers as they take these life changing steps to reduce their smoking addiction.
None: These efforts to get just the one carton per week store average plus our plans to improve the CMO sales and margin contribution.
None: Put us on a path to profitability.
Larry Firestone: We have laid the foundation, cut the cost, and now we can focus on building the business to get there as quickly as possible. A couple of other topics to cover. As you saw in this morning's press release, we initiated a reverse stock split of 1 to 16 to regain compliance with the NASDAQ listing rules. Trading under the reverse split will begin on April 2nd.
None: We have laid the foundation cutback cost and now we can focus on building the business to get there as quickly as possible.
None: A couple of other topics to cover as you saw in this morning's press release, we initiated the reverse stock split of 1% to 16 to regain compliance with the NASDAQ listing rules.
None: Trading under the reverse split will begin April 2nd.
Larry Firestone: As we evaluated the options, the same way we're turning the company around, we decided to move to the end state and close the discussion around the reverse split. Part of that decision included discussions with our incumbent equity investors who have supported 22nd Century through the past 12 months and, we believe, are willing to support the company's greatly reduced cash needs as long as we close the gap to profitability and remain a NASDAQ-listed company. I will now turn the call over to Hugh to review the financial results for Q4 2023. Thank you, Larry, and good morning to everyone. Our fourth quarter financial results are presented on a continuing operations basis, which excludes our hemp canvas business, which has been classified as a discontinued operation.
None: As we evaluated the options the same way returning the company around we decided to move to the end state and close the discussion around the reverse split.
None: Part of that decision included discussions with our incumbent equity investors, who have supported 20 <unk> century through the past 12 months.
None: And we believe are willing to support the company's greatly reduced cash needs as long as we close the gap to profitability.
None: And remain a NASDAQ listed company.
None: I will now turn the call over to Hugh to review the financial results for Q4 and 2023.
Hugh: Thank you Larry and good morning to everyone.
Hugh: Our fourth quarter financial results are presented on a continuing operations basis, which excludes our hand canvas business, which has been classified as discontinued operations.
Larry Firestone: Net sales decreased by 26% quarter of a quarter to $7.4 million, reflecting our ongoing reallocation of production resources to higher margin products focused on VLN and conventional cigarette products as compared to lower margin filter cigars. Gross profit decreased by $7.8 million due to lower filter cigar unit sales and the shift in product mix from filter cigars to conventional cigars. Additionally, we recorded approximately $8 million in inventory reserves, primarily related to excess and obsolete tobacco leaf inventory. Excluding the inventory reserve charge, gross margin would have been positive $200,000 for the quarter. Net loss for the fourth quarter was $22 million as compared to $11 million in the comparable prior year period.
Hugh: Net sales decreased by 26% quarter over quarter to $7 4 million, reflecting our ongoing reallocation of production resources to higher margin product mix.
Hugh: On beeline and conventional cigarette products as compared to lower margin filtered cigars.
Hugh: Gross profit decreased quarter over quarter to negative $7 8 million due to lower filter supplier unit sales and the shift in product mix from filtered cigars to conventional cigarettes.
Hugh: Additionally, we recorded approximately $8 million in inventory reserves, primarily related to excess and obsolete tobacco leaf inventory.
Hugh: Excluding the inventory reserve charge gross margin would have been positive 200000 for the quarter.
Hugh: Net loss for the fourth quarter was $22 million as compared to $11 million in the comparable prior year period.
Hugh Kinsman: However, adjusted EBITDA losses decreased significantly to negative $3.2 million in Q4 2023 compared to negative $9.9 million for the same quarter the previous year, reflecting a substantial reduction in operating expenses and implementation of efficiency initiatives. As outlined in our earnings release, we provided just EBITDA as a non-GAAP measure aligned with our operating performance. As a result of the efforts undertaken by Larry since joining the company and our cost-cutting initiatives and operational efficiencies, we've substantially decreased the cash needs of our business, as evidenced by improvement in adjusted operating performance. Those efforts are ongoing in 2024, as we work to minimize cash requirements going forward and ultimately move the company to cash positive results. Here are a few key highlights from our balance sheet, including our earnings release today. Of note, total assets decreased substantially to $27.5 million, primarily due to the write-down of intangible assets, including Goodwill, reflecting the divestiture of the hemp cannabis business. Cash balances remained relatively unchanged at $2,000,000 for Q4 2023, reflecting a significant decrease in cash loss from operations due to the Reduction of Operating Expenses and the Hemp Cannabis Products.
Hugh: However, adjusted EBITDA loss decreased significantly to negative $3 2 million in Q4 of 2023 compared to negative $9 9 million for the same quarter prior year, reflecting a substantial reduction in operating expenses and implementation of efficiency initiatives.
Hugh: As outlined in our earnings release, we provide adjusted EBITDA as a non-GAAP measure aligned with our operating performance.
Hugh: As a result of the efforts undertaken by Larry since joining the company on our cost cutting initiatives and operational efficiencies.
Actually decrease the cash needs of our business as evidenced by improvement in adjusted operating performance.
Hugh: Those efforts are ongoing in 2024, as we work to minimize cash requirements going forward.
Hugh: Ultimately the company to cash positive results.
Hugh: And a few key highlights from our balance sheet, including our earnings release today.
Hugh: Total assets decreased substantially to 27 $5 million, primarily due to the write down of intangible assets, including goodwill, reflecting the divestiture of the hand canvas business.
Hugh: Cash balances remained relatively unchanged at $2 million for Q4 2023.
Hugh: A significant decrease in cash loss from operations give reduction operating expenses in the home.
Hugh: Candidates divestiture.
Hugh Kinsman: Finally, I should note that we are vigorously pursuing our lawsuit against Dorchester Insurance Company based on their failure to pay any amount towards our claim for business interruption insurance following a devastating fire that destroyed our Grass Valley, Oregon manufacturing facility. We're seeking $9 million in actual damages, in addition to significant consequential damages. We will now open up the call for questions. Thank you, ladies and gentlemen. We will now begin the question and answer session. If you have a question, should you have a question, please press star followed by the number on your touch screen. You will hear a three-tone prompt acknowledging your request, and your questions will be pulled in the order, Time. Star. Grey with a line.
Hugh: Finally, I should note that we are vigorously pursuing our lawsuit against the war chest or insurance company based on their failure to pay any amount towards our claim for business interruption insurance following the devastating fire that destroyed our grass valley, Oregon manufacturing facility.
Hugh: It's taking $9 million in actual damages in addition to the significant consequential damages.
None: We'll now open up the call for questions.
None: Thank you ladies and gentlemen, we will now begin the question and answer session.
None: If you have a question did you have a question. Please press star followed by the one on your Touchtone phone.
None: You will hear three Tom pop acknowledging you're requesting to your questions will be pulled in the order. They already should you wish to decline from the polling process. Please press star followed by the Q.
None: We are using a speakerphone please lift the handset before pressing.
None: Your first question comes from Aaron Grey with Alliance Global Partners. Please go ahead.
Operator: Hi, good morning, and thank you for the questions. This is Remy Smith on behalf of Aaron Grey. So my first question for VLN is, could you speak to some of the sales or velocity specifically that you've seen so far from VLN cigarettes in any of your markets? Oh, it's, you know, 2023 was largely a stocking year. So we've seen, you know, we've seen stock-ups in the stores. The takeoff of the product has been slow, and in early 2024, in January, we also raised the price, so we had some, we had some full. We had some pull-in coming from that. But it really is now, you know, sort of a traction game out in the market, and that's our challenge. So I would say that our big lift right now is getting from the stocking point of view up to, as I mentioned, a carton per store. But I don't have the exact numbers for you.
None: Hi, good morning, and thank you for the questions. This is rami Smith on for Aaron Grey.
Rami Smith: So my first question for via land could you speak to some of the sales or velocity, specifically that you've seen so far from the cigarettes in any of your markets.
Rami Smith: Oh.
Rami Smith: 2023 was was a largely a stocking year so we've seen.
Rami Smith: We've seen stock up in the stores.
Via Land: The takeoff of the product has been slow.
Via Land: In in early 2024 in January we also raised the price and so we had some we had some pool.
Via Land: We had some pull ins coming from that but.
Via Land: But it really is now.
Via Land: Sort of attraction game out in the market.
Via Land: Our challenge so I would say that are our big lift right now is getting from from the stocking point of view up too.
Via Land: As I mentioned, a carton per store, but I don't have exact numbers for you. That's something we're working on is on the on the sell through side.
Larry Firestone: That's something we're working on. It's on the sell-through side. Okay, I appreciate the color there.
Okay I appreciate the color there and then my second question Im still focusing a little bit on <unk>.
Larry Firestone: And then my second question, I'm still focusing a little bit on VLN. So, appreciate the focus on profitability and the cost cuts this quarter, but given the education need, you know, to continue to build awareness for VLN, can you speak a little bit more, provide additional details on your plan, marketing spend, and initiatives to build that awareness? Yeah, we're working on, we're actually engaging to work on a little bit of brand enhancement around VLN. We've got some strategies that may allow, you know, I would say, additional SKUs to be brought to the market, as well as, as, you know, consumer awareness materials that are out there that comply with the FDA. That's, that's where we've fallen short is, you know, going through 2023. We pulled the funding for it for pretty much all of that.
Via Land: Appreciate the focus on profitability.
Via Land: On the cost cuts this quarter, but given the education need to continue to build awareness for <unk> can you speak a little bit more additional details on your planned marketing spending and initiatives and initiatives to building that awareness.
None: Yes, we're working on where we are.
None: I actually engaging to work on.
None: Little bit of a brand enhancement around deal and we've got some strategies.
None: That may allow.
None: I would say additional skus to be brought to the market.
None: As well as.
None: Consumer awareness materials that are out there that comply with the FDA.
None: That's that's where we've fallen short is.
None: Going through 2023, we pulled the funding for.
None: Pretty much all of that so.
Larry Firestone: So we'll start to present the product in retail again in compliance with the FDA, and that should help attract some attention as well as the packaging and the, you know, the information we provide. We're also redesigning our social networks and, you know, the in the website that we have, and especially the trial and website, which has You know, information has been pretty stale out there.
None: We will start to we'll start to present the product in retail again in compliance with the FDA.
None: And that should that should help.
None: Some attention as well as the packaging and the information we provide.
None: We're also redressing, our social networks.
None: And.
None: <unk>.
None: In the web site that we have and especially the <unk> website, which has.
None: Information has been pretty still out there. So I would say, we're going through right now on our behavior and budget.
Larry Firestone: So I would say we're going through this right now on a very, very thin budget, you know, a total redress of the VLN presentation. Thank you. And my last question, shifting over to CMO. So could you speak to a little bit of the CMO opportunities that you have, given tobacco is a more mature category with structural declines, any color in terms of where you're seeing those opportunities, potentially, and additional white label opportunities? Any color there would be helpful. Yeah, they are additional white label opportunities.
None: Total redress of the of the <unk> presentation.
Thank you and then my last question shifting over.
None: Two CMO, so could you speak to a little bit of the CMO opportunities you have.
None: Given tobacco is a more mature category with structural decline any color in terms of where you're seeing those opportunities potentially an additional white label opportunities.
None: Any color on that would be helpful.
None: Yeah. They are additional white label opportunities. So we have we've got a great asset in North Carolina at our at our production facility that we call nasco.
Larry Firestone: So we have, you know, we've got a great asset in North Carolina at our production facility that we call NASCO. And we've got some customers that need volume that either exceeds their current volume, or they're doing a cost-benefit analysis and figuring out that they'd like to use our tools in their structure. So we've got, I want to say, six opportunities for additional volume coming into NASCO in the form of CMO opportunities, and that's, You know, as we look at it, as I mentioned, it's kind of a two-dimensional play. One is certainly a higher top line, and, you know, we're quoting profitably now.
And we've got some customers that.
None: Need volume that either it exceeds their their current volume are they there.
None: Doing the cost benefit analysis and figure it out that they'd like to use our tools and they're in their structure.
None: So we've got.
None: I want to say six opportunities for additional volume coming into.
None: Nashville in the form of a CMO opportunities and that's.
None: No.
None: As we look at it as I mentioned, it's kind of a two dimensional play.
None: One is certainly higher top line and we're quoting profitably now and the second is as we absorb our overhead will reduce the carton cost for everything that we're doing that at <unk>.
Larry Firestone: And the second is, as we absorb our overhead, you know, it will reduce the carton cost for everything that we're doing out of NASCO. Great. I appreciate the color there, and I'll hop back in the queue.
None: Great I appreciate the color there and I'll hop back in the queue.
Operator: Okay. Yeah, thank you. Good morning.
None: Okay.
None: Your next question comes from Jim Mccanless with Dawson James. Please go ahead.
James A. Mish: Yes. Thank you good morning.
Operator: Morning Jim. Can you talk about the GVB note, whether or not they need to raise capital in order to pay you guys off? Yeah, I'll let Hugh take that one. Yeah. Hey, Jim.
James A. Mish: Good morning, Jim can you talk about the GBP note whether or not.
James A. Mish: They need to raise capital in order to.
James A. Mish: Order to Hey, you guys saw.
None: Yeah, I will I'll, let you take that one.
James A. Mish: Yes, Hey, Jim.
Hugh Kinsman: The answer is yes. Our understanding is they're in the process of getting that completed. I know they've received term sheets for refinancing that.
None: The answer is yes.
None: Our understanding is there.
James A. Mish: And the process is getting that completed.
James A. Mish: I know they've received term sheets for.
Hugh Kinsman: Facility. And I think they're, you know, kind of going through the process of selecting the final lender and then, you know, closing a transaction. So, for the answers, they're making significant progress and steadily moving toward. Okay, and then secondly on the insurance recovery. I know you addressed it. I was just hoping it could be, Maybe a little bit more. Predictive on what you think the outcome will be and when? Boy, I'll take that. You want to take that, Hugh? No, Larry, go ahead.
James A. Mish: Refinancing that.
James A. Mish: Facility.
James A. Mish: And I think they're kind.
James A. Mish: Going through the process is likely to file lender and then closing transactions.
James A. Mish: So the answer is they are making significant progress.
James A. Mish: As we move it towards a refinancing.
James A. Mish: Okay, and then secondly on the on the insurance recovery.
James A. Mish: I know you addressed it I was just hoping it could be.
James A. Mish: Maybe a little bit more.
James A. Mish: <unk>.
James A. Mish: Predictive on on what you think the outcome will be and when.
None: Sure I'll take that or you want to take that view.
Larry Firestone: No Larry go ahead.
Larry Firestone: Yeah, I'll just take the front end of that. If I miss anything, you fill in the blanks, but we have a hearing coming up in April, the first hearing, and so that should kick off the process. But I think, Jim, as you know, I mean, this is in the courts. It's in Oregon. It's in federal court in Oregon.
Larry Firestone: Yes.
Larry Firestone: The front end of that if I Miss anything you fill in but.
Larry Firestone:
Larry Firestone: So we have a hearing coming up in April.
None: First hearing.
None: And so that should kick off the process, but.
None: I think Jim as you know I mean this is this is in the courts in Oregon in Federal Court in Oregon. So.
Larry Firestone: So, you know, the timing wise, it's going to be a docket question. But being more predictive about the outcome, we feel pretty strong about the outcome. You know, we have, just to kind of put a point on it, you know, we have business interruption insurance. It's there for a reason. The business got interrupted. We went to the... Insurance Company to get paid, and they didn't pay.
None: The timing wise.
None: It's going to be a docket question.
None: But being more predictive on the outcome, we feel we feel pretty strong about the outcome.
None: We have.
None: Just to just to kind of put a point on it.
None: We have business interruption insurance.
None: It's there for a reason the business got interrupted we went to the.
None: The insurance company to get paid.
None: And they didn't pay.
None: <unk>.
Larry Firestone: So that's a huge problem, a huge gap in their commitment, a huge gap in the policy. And so, you know, the numbers are the numbers. They were put together, and, Unfortunately, instead of having them hit their commitment and what we paid for, we've got to take them to court in order to win. So it's a longer drawn-out process, but we feel pretty confident in everything that's been put together. Okay, thank you. I'm just trying to understand the conflict between the growth of BLM and the limited resources to make it grow, and it seems like you really can't make it; you really can't get it to grow and drive that business until you get it.
None: That's a huge problem huge gap in their commitment.
None: GAAP in the policy.
None:
And so.
None: The numbers are the numbers.
None: Put together.
None: And so unfortunately, we instead of having them hit their commitment and what we paid for it we've got to take them to court in order to win.
None: All of them.
None: Longer process drawn out, but we feel pretty confident in everything that's been put together.
None: Okay. Thank you.
None: I'm just trying to understand that there seems to be a conflict.
None: Between the.
None: <unk>.
None: The growth of <unk> and the limited resources to make it grow it it seems like.
None: You really can't make it you really can't get it to grow in and drive that business until you get.
Larry Firestone: Additional cash resources, and so I'm just puzzled over the timing and how you guys are looking at Accomplishing Growth and VLN given the limited resources right now. Well, first of all, you know, there's, there's many, there's many ways that we can. I would say Enhance the presentation of ELN in the market. Price is one. I don't like to touch price as a first option, but it's certainly out there for us.
None: Additional cash resources and so on.
I'm just puzzled over.
None: The timing and how you guys are looking at.
None: At accomplishing growth in <unk>.
None: Given the limited resources right now.
None: Well.
None: First of all there is.
None: <unk>.
None: There's many.
None: There's many ways that we can.
None: I would say.
None: Enhance the presentation of deal in the market prices one.
None: I'd like to touch price as the first option, but it's certainly out there for us.
Larry Firestone: And then, you know, we've got some major chains that are carrying VLN right now. And so, you know, to move some market awareness material into a major chain, the good news is, whatever money we spend gets pretty widely distributed, so those will be discussions that we'll be having with the chains. And then, of course, the digital world that we have has been pretty dormant for the last, you know, when I looked at our website and I looked at our social media. I'd say it's been dormant now for about... Yeah, I'll just draw a number, six months.
None: And then we've got some major changes that are carrying carrying dealing right now.
None: And so it's a move.
None: To move some market awareness material into a major chain.
None: It's the good news is whatever money we spend.
None: It gets pretty widely distributed so those.
None: Those will be discussions that will be having with the chains.
None: And then of course, the digital the digital World is.
None: But we have been pretty dormant for the last you know when I looked at our website, there and looked at our Socials I'd.
None: I'd say, it's been dormant now for Bob.
None: I'll just throw a number six months.
Larry Firestone: So, we can start to activate, you know, a lot of that on a very small, little budget. As we go, as we grow, as VLN starts to sell, it's a very profitable product for us, margins are very healthy, very tobacco industry healthy, so we just need to get, we need to get the product moving through the store, and that should start the, you know, Generation to Cash Generation to Profitability.
None: So we can start to activate a lot of that on the very little little budget as.
None: As we go as we grow as <unk> starts to sell.
None: This is a very profitable.
None: Product for us margins are very healthy.
None: Great tobacco industry healthy.
None: No.
None: We just need to get we need to get the product moving through the stores.
None: And that should start to.
None: The generation of cash generation and profitability.
Larry Firestone: Okay, yeah, thank you. That's helpful. That's it for me.
None: Okay.
None: Yes. Thank you that's helpful.
Operator: Thank you. Thanks, Jim. I don't know.
None: It for me thank you.
None: Thanks, Jim.
None: There are no further questions at this time I will now turn the call over to Larry for closing remarks.
Larry Firestone: Thank you. I'd like to thank everyone for joining our call today. In closing, I'll emphasize that we are absolutely focused on turning 22nd Century around and becoming a profitable company for the first time in the company's history. This, as I described earlier, is going to require our full focus on the business of making and selling cigarettes, our VLN brand, and our CMO brands as well, and keeping our costs in line.
Larry Firestone: Thank you.
Larry Firestone: I'd like to thank everyone for joining our call today in closing.
Larry Firestone: Emphasized that we are absolutely focused on turning 22nd century around.
Larry Firestone: And becoming a profitable company for the first time in the Companys history.
Larry Firestone: This as I described earlier is going to require a full focus on the business of making and selling cigarettes, our <unk> brand and.
Larry Firestone: And our CMO brands, as well and keeping our costs in line.
Operator: We look forward to updating you again soon on our first quarter 2024 conference call. But lastly, I'd like to thank our employees who keep driving 22nd Century forward. That concludes our remarks. Conference call for today. We thank you for participating, and after you, please disconnect.
Larry Firestone: We look forward to updating you again soon in mid May.
None: On our first quarter 2024 conference call, but lastly, I'd like to thank our employees, who keep driving 22nd century forward.
None: That concludes our remarks.
None: Ladies and gentlemen, this concludes your conference call for today, we thank you for participating and ask that you. Please disconnect.
None: Okay.
None: Yes.
None: [music].
Okay.
None: Yes.
None: Yes.