Good morning, LD Micro. We are in Track Four. We have 22nd Century Group. Presenting is Larry Firestone.
Thank you. Welcome. All right. I love an applause. Thank you, everybody, and welcome to 22nd Century. We are just a little bit. I'm Larry Firestone. I'm the Chairman and CEO. I joined last December, and we've got a great little company on our hands here. We're listed on the NASDAQ under XXII, and we're headquartered in Mocksville, North Carolina. We're a pure-play tobacco company with really two revenue streams and two revenue streams that are building. The first revenue stream that we have is around our branded products, and the second is our contract manufacturing products. The synchronicity between the two is very, very important. As we go and we grow the company, you're going to see how these mold together. On the branded side of the business, we've got a branded product patented known as VLN, and that stands for very low nicotine.
And what we produce is a low nicotine cigarette. And we'll get into that a little bit more as we go. But it's the only low nicotine cigarette on the market. And you're going to hear me say it a bunch of times, but it really is a choice to control your nicotine. And then on the private label side, on the contract manufacturing side, we manufacture for other private labels who don't really want to take on the cost of setting up a factory, all the infrastructure, all the CapEx that goes into that. And so they'll bring us their products, and we'll produce it for them. We're targeting right now to break even and have been to break even in Q1 of 2025, and that's very important for us. And we're here as a company to offer a choice for nicotine control.
So if you've been paying attention, and there's a lot of vehicles that bring this information to you, nicotine is addiction. It's pure and simple, and we are leading the nicotine harm reduction movement. And we've been doing that since 1998. So in 1998, the people that preceded me took on the challenge of taking nicotine out of tobacco. And that's a big deal. That's a long investment, a long ride. But if you're watching what's happening and the awareness around the country, around the world, is billions, literally billions, are being spent on nicotine harm awareness campaigns, be it TV and radio campaigns. There's some websites that are very graphic like undo.org, CDC, American Heart Association, other associations, societies that are having conferences on this, healthcare restrictions. There's people who can't get surgeries because they're smokers and they have nicotine, heavy, heavy smokers. The FDA and then court-ordered warnings.
You'll see a little bit about that as we go on the retailer doors with point of sale. But one of the issues is it's falling on deaf ears, so we have the choice. We have the only choice with our VLN product, our low nicotine tobacco, to help control people's nicotine habits, and so one of the ideas, and I'll plant this in your head early, is it's kind of the difference between a three-pack-a-day smoker and somebody who smokes a cigar every day, so if you have—if you're going through that transition, it's going to be you can still work your way through. You can still do the motion, but you don't have to be driven to smoke three packs a day, so let's talk a little bit about VLN, so as I mentioned, we're the only low nicotine cigarette, period. FDA authorized, patented.
We've got that, and it's in the market. So our goal here, if you can follow me, is to create a separate category called low nicotine. So when you go into the store, be it a convenience store, grocery store, anybody who's selling cigarettes or tobacco products, we want you to find the low nicotine category. And that's what we've been starting on this year. What we did prior since 2021 was kind of tuck it into the cigarette category, and it's not really that pronounced. So we've changed that. We've changed our approach and our strategy around this. So we want it to be seen as very similar to decaf coffee is to coffee. Light beer is to beer. Diet soda is to soda. And I could go on and on. But there's all these health-oriented alternatives.
Nobody's going to tell you that diet soda is healthy for you, but the perception's out there that you're not going to have all that sugar in you, so we're really synonymous with addressing smoker health and smoker choice, and the choice is a big deal because people can make those choices, so the way we're going to bring ourselves to market is what I call flanker brands, so on the far right, you have our VLN, which is just one of our packs, but what we've adopted this year and recently are the brands on the left where we're going to our contract manufacturing customers and saying, "We're producing your full broad line of regular cigarettes, regular nicotine cigarettes. Why don't you tuck a VLN in your product SKU set?" and one of the advantages for them is the people we produce for are not big tobacco.
They're Tier 4. Low price, low margin. Everything is squeezed at the bottom. This is a premium product that gives them a different margin profile as they're selling their products and also a different place in the market. It can move to a friendly place. But what you see here is we're building out the category with the help of other brands. And that's very, very important. And the margin profile for this for us is very, very strong. It's very much like what you see in big tobacco. So we're pretty excited about the way this is rolling out, the adoption and the acceptance of our brand owners that we contract manufacture for and them taking the VLN product into their brand family. So let's talk about the math.
One pack of VLN cigarettes, the pack that you saw on the previous screen, equals one cigarette of a full nicotine variety cigarette. That's huge. If you think about it, if any of you have, for example, said to yourself, "You know what? I'm going to stop drinking coffee for a month or stop drinking coffee forever." You may get some headaches. I'm just going to call it detox because that's what it is. It's really the same thing here. You start smoking. You go through your normal habit. You've got your hand to mouth. But what's happening in your body is it's cleansing. Same as what happens with decaf coffee. For the retailer, for the customer, it's a healthier advantage. You're starting to control your nicotine. For the retailer, it's an answer to the nicotine warning on the door.
Now, the interesting thing about what I said earlier is that things are falling on deaf ears. We all walk in and out of stores every day. People get gas at gas stations and go in and maybe buy some chips or whatever, and what faces you at the door is a nicotine warning, and I'll show you what that means here in a second, but when I ask people if they've seen it as they walk in and out, they haven't seen it, so we're going to provide a little bit of an answer there, and the retail establishments are starting to find alignment with the public messaging, so the billions that are being spent to make us all aware of nicotine, the retailers are starting to embrace this, so as I said, we want to have a new category in the store called low nicotine.
We want to own that category and put our products and our customers' products in there as the flanker brands and start to drive that in retail. Now, for us, we're a small company. So what we need is we've got 5,100 points of distribution today, and we're actually adding to that as we go. We've got some pretty exciting distribution adds that we're going to be doing this year and next. But we need 223,000 cartons to be sold, which is about one carton a week per retailer to break even. Beyond that, it's pure profit. And when we launched the product in 2021, we had some stores that were three and a half cartons a week. So we know the thesis has been proven, and we know it can be worked.
And we're going to help this brand move from just two little facings in the cigarette aisle to something called the VLN category. Now, I mentioned the sign on the door. Maybe you've seen this. Maybe you haven't. But it's very interesting to me that as consumers, we'll walk into a store and hear something that hits you right in the face that's actually, I call it the gift from the federal courts and big tobacco, is, "Hey world, Reynolds, Lorillard, Philip Morris, etc., intentionally designed cigarettes to make them more addictive." That's on every door or every case. When you go buy beer, if you go buy light beer, there's not a warning. That's pretty loud in my mind. So the middle section is our answer.
The far right is the ultimate answer, which is wherever there's one of those signs, we want to stick one of our signs on the door so you can see it, you can feel it. By the way, we think ours is probably a little more noticeable than theirs because it astounds me when people walk in and out with a pack of cigarettes, didn't even see it, didn't notice it, didn't see it. The way I look at it is we've got the problem, we got the answer, and we just need to present it to the retailers that way. That's already getting started with the Smoker Friendly stores in Colorado, believe it or not. To our distribution, Smoker Friendly in the top right is one of the brands I showed that's adopting VLN. But we've got 5,100 retail outlets today.
Like I said, we've got net new that we're going to bring in, and we've got, I'm going to call it the old, which is the 5,100 that we have to bring forward to start to present some of these new marketing ideas. The team is working very, very hard to get that done. I'll say, because I always ask the team about the TAM, where are we going? To get this done 100%, we would be in 274,000 outlets versus 5,100. There's the universe, if you will, when I look at the world. When I'm looking at VLN, which is one of our primary revenue streams, will be, we've got the original VLN. We've got flanker brands. Now start to think about other product extensions. If you're big tobacco, what are you doing right now?
You're spending a lot of time, energy, money, advertising, noise, moving the cigarette smoker from this vehicle to another high nicotine product. And so again, we've got our patented tobacco leaves that have low nicotine. It's our desire, and what we're working on is to take that into product extensions that actually match up to big tobacco and offer a low nicotine answer. So once you move, you stay within the brand, you stay within the product profile. You don't need to go back up to full nicotine. As we know from the marketing standpoint, it's everything that comes along with any consumer product: emotion, distribution. If it's not on the shelf in front of you, you're not going to buy it. Pure and simple. So it's kind of a two-dimensional.
We've got to seed the market with the brands, get the category going, and then we've got to expand into the other 200,000, 270,000 outlets. So let's talk a little bit about contract manufacturing. I've done personally four tours of duty in contract manufacturing in other industries, mainly tech. Also did Tier 1 automotive. This is a very straightforward solution. You have somebody who's got a product, they've got a brand, they want it in the market, they know how to get it there. We handle the front end, they handle the back end. So we manufacture their cigarettes for them in our factory. We've got five lines, and it's just a regular process. Doesn't matter whether we do it turnkey or consigned. We can handle even a mixed bag of that where they'll give us the tobacco and we'll take the rest, etc.
This is a low-margin, high-volume business for us. But right now, it's paying the bills. But the next step for us for this is to have what happened with Smoker Friendly, which is one of the brands we contract manufacturing for, is to have them adopt a VLN SKU inside their product family. That's very exciting. So I went through. Did I have that? I didn't have that up, did I? I goofed that up. So I just talked through that slide. On the R&D side, so I mentioned 26 years of R&D for our company. And what you've taken is you've taken a tobacco leaf and you've designed out through mutation, through deep science, way over my head, through mutation, you've taken out the nicotine or almost all the nicotine. It's kind of like in coffee where you wash out the coffee bean.
There's still caffeine in there, but it's a really minuscule amount. Same with the nicotine. So we've taken it through two strains of tobacco. We've got a third that we're working on right now. And then so our R&D team is working not only on the base technology of the tobacco leaf, but they're working on the product extensions as well. So there's research, and then there's product development that's happening here. So when we talk about or when you think about what's coming into the market, heat-not-burn , e-cigarettes, pouches, etc., etc., all the offloads that big tobacco's working on, we have a nice avenue to take the low nicotine tobacco that way. Everything that we have that we're working through is patented, and we're working on patent extensions with that.
We work with North Carolina State University and their research team, and we're linked at the hip on that. So very strong R&D profile, very great direction. I'm really excited about the way we're going. So the company, a little bit on our P&L. As I mentioned, I joined in December of 2023. Last year, I'll just say generically, we were burning about $20 million a quarter in cash. We've pulled that way down. So last quarter, you can see our EBITDA number is a minus 1.4. And our target is to get that into the positive by what'll be next quarter. So we've had a huge transition really in all parts of the business. And I've been doing this for 44 years. So this is kind of what I do and how I do it and reorganizing the pieces.
But once we get ourselves into next quarter and we get VLN moving and the contract manufacturing side adopting the new brands, we'll be on our way. So as a summary, our VLN strategy is solid. It's developed over 26 years. It's in place. And now we've gone to the market. The market's accepting it. The customers are accepting the flanker brands, and we're moving to expanding the footprint of VLN. Positive cash flow next quarter. One asset that we have that when I joined is we got ready for a big launch in 2021, so we grew a whole bunch of tobacco. We've got $72 million of equivalent revenue and inventory of tobacco for VLN. So I don't need to spend a lot of money making a lot of product out there in the market. We just got to move it, generate cash.
The margin profile we talked about, not only on the contract manufacturing side, we've been able to eke up the margins a little bit, but the VLN volume is a nice strong margin for us. And then operating expenses, I showed you on the prior slide. We brought those down nicely. And then we're continuing to do our R&D, developing new strains as well as new products. And our goal is next quarter, we're going to make money. So with that, I'll open it up to apologize for my voice. I'm fighting a cold. So I'll open it up to questions.
Yeah. What's the biggest barrier here in 26 states now? What's the biggest barrier for getting into the other 24? Pardon my ignorance, but is each state going to be—is it different for each state kind of getting in there with some tobacco, even a low tobacco product?
Yeah. With VLN, we're in 26 states already. And with our CMO, our contract manufacturing customers, right now, I would say the average of the guys that are adopting, they're in 35 states. So regulatory state penetration, low barrier. We're already in. And with respect to the FDA and those kind of things, we went through all the rigor of the FDA to get the MRTP and PMTA. And so for the FDA, we can move through as long as we don't change the recipe, we can move through and extrapolate the brand pretty easily.
Yeah. Is there a risk of obsolescence on your VLN inventory?
Nope. It's vacuum sealed. So there's a lot. I went through that. There's a lot of big boxes with a lot of vacuum sealed. So yep, it comes out fresh.
My other question is, so when people compare soda to diet soda, they still say the diet soda, in order to be diet, they put a lot of other chemicals and things of that nature into the soda. With you guys, do you have to put anything additional into yours?
We take it out. We just remove the nicotine. Nothing gets added in to replace. Nope. Nope. When we go to some of the tobacco-flavored products, so I'll just give you an example, like a pouch that would have wintergreen in it. Everybody who's selling Skoal, whatever, they're putting wintergreen flavoring in there. So when we would get to those kind of SKUs, we would have to flavor them. But in my background, I did a coffee company and also did an adult beverage company. So flavoring products is also kind of in the norm. Other questions?
Is the tobacco plant considered GMO given all the research we've done?
The original tobacco that we worked through was GMO, but the strains that we're working on now are non-GMO. So this is a great question. I should probably add that to the presentation. So the non-GMO versions, let me reverse that. The GMO versions, we can't sell internationally. The non-GMO that we're growing now, we can sell those around the world.
Okay. Follow up then. Is that what you're going to sell into South Korea? Yeah. Yeah. Do you have competitors?
Nope. Well, we have competitors for shelf space. The consumer competitor of who gets what, how much is Coke, how much is Pepsi, how much is Marlboro, how much is what. The market for U.S. cigarette market, just the cigarette market, is $84 million. Sorry, $84 billion. Big tobacco controls 85% of that.
Little tobacco, which is where we are and all the brands that we contract manufacture for, they fight for a piece of $12.4 billion. So if we work our way into that non-big tobacco space, there's a $12.4 billion SAM sitting there that we can help ourselves to. But does anybody else have anything that's close to this? The answer is no. We are the only ones that have low nicotine cigarette product. And it's FDA approved. So we're it. Other questions?
Yeah. Question for the last one from me. What's the market missing? Because over the last year, the stock just hasn't been really, it hasn't been going up. It's been hard.
I think the market, if I was to answer candidly, I think the stock was, in previous management, the stock was ahead of the market because it was in R&D. It was all on the come.
It was very much in a development phase. When we put VLN in the market, we put it in like big tobacco would put it in. We went and hunted a couple of facings here, a couple of facings there. None of the and not expensive, but promoting the product and the awareness around nicotine, it was just put on the shelf, so if you went to, I'll just scroll back to a picture, so if you went into a store and you saw the product on the right on the shelf next to 40 facings of Marlboro, you might not even see it, and I would even argue if the consumers aren't seeing this sign, they probably wouldn't see the product either, so I think that's what's and it looks like we're at triple zeros, but happy to take any other questions outside or give you a business card.
You can email me, call me, but thank you very much.