22nd Century completes deeply discounted sale of hemp/cannabis business

22nd Century, based in Buffalo, has its cigarette-manufacturing operations in a 62,000-square-foot plant in Mocksville where the bulk of its workforce is employed. That workforce approached 50 at its peak, but has since been reduced through cost-cutting initiatives.

The manufacturer cautioned in a Nov. 29 regulatory filing that unless it is able to secure additional funding by Jan. 31, “it will have to cease operations and liquidate its assets.” The manufacturer cautioned at that time it has no arranged sources of financing currently available to it.

The manufacturer said in a Nov. 27 regulatory filing it had entered into an agreement to sell its GVB Biopharma business for $2.25 million to a group identified as Specialty Acquisition Corp. of Nevada.

GVB Biopharma, founded in 2016 and based in Las Vegas, is one of the largest providers of hemp-derived active ingredients involving CBD products for the pharmaceutical and consumer goods industries worldwide.

According to Investopedia, a special purpose acquisition company, known by the acronym SPAC, is a company without commercial operations. It is formed strictly to raise capital through an initial public offering for the purpose of acquiring or merging with an existing company.

In a regulatory filing Thursday, 22nd Century said two key terms in the sale agreement were finalized Dec. 22.

The cash payment from Specialty to 22nd Century’s senior lender would rise from $1 million to $1.1 million. The secured promissory note would increase from $1.25 million to $2 million by Specialty to 22nd Century’s senor lender. The note would be paid by June 30.

The GVB sale proceeds, and how they are being distributed, represent both a dramatic decline in the value of GVB and the desperate status of 22nd Century’s finances.

When 22nd Century purchased the privately held cannabis manufacturer in May 2022, GVB was valued at between $55 million and $60 million.

Meanwhile, the sale of GVB doesn’t end its consideration of potentially selling its tobacco assets, including its very-low-nicotine traditional cigarette products.

“The only way this makes any sense is if 22nd Century is in such dire straits that it simply must sell off the core of its businesses to raise cash immediately,” said Tony Plath, retired finance professor at UNC-Charlotte.

“Otherwise, how can you justify selling that portion of your business that’s really growing while retaining a dying business like low-nicotine cigarettes?”

22nd Century said in a news release it expects to reduce its outstanding debt to $8.8 million following the completion of the distribution of the sale proceeds and the payment of the $2 million promissory note.

Another sale element is 22nd Century agreeing that within 30 days of completing the sale of GVB, it would it would sell 224 acres in Delta County, Colo., identified as Needle Rock Farms, in exchange for a $1 million reduction in debt.

The manufacturer appears to be counting on up to $9 million in insurance proceeds from the 2022 fire at its Grass Valley manufacturing facility to further reduce, if not pay off, its remaining debt.

“We are excited to close this transaction and dramatically reduce our operating costs going into 2024, an important step in moving the business to a sustainable, cash positive operating basis,” said Larry Firestone, 22nd Century’s chairman and chief executive.

Firestone, 65, took over in both roles on Nov. 29, becoming 22nd Century’s sixth full-time or interim chief executive since July 2019. FDA timing delay

Firestone said completing the GVB sale allows 22nd Century to put its “full focus on our tobacco assets, including our FDA authorized branded harm reduction products.”

However, the Food and Drug Administration said Dec. 18 it plans to roll out in April its standards for very-low-nicotine traditional cigarettes.

22nd Century makes traditional cigarettes with 95% less nicotine than competitors, the only current commercially viable manufacturer.

The FDA proposal on lowering the nicotine level is controversial in part because the burning of tobacco leaves is the cause of most carcinogens associated with traditional cigarettes. Nicotine, while addictive and potentially harmful to the brain, heart and lungs, is not considered as a carcinogen.

In December 2022, the FDA approved the designation of 22nd Century’s VLN King and VLN Menthol King brands as modified-risk options to traditional cigarettes. 22nd Century’s packaging and advertising must include “Helps You Smoke Less.”

Some anti-smoking advocates have questioned whether cigarettes with a low nicotine level will only compel smokers to consume more. Others ponder whether it lead smokers to pursue black-market traditional cigarettes that contain the current levels of nicotine.

“CTP is saying April, but all the signs are that they are struggling to get the menthol rule through (the Biden administration) in the election year,” said Clive Bates of Counterfactual, a London-based public health and sustainability consultancy.