Welcome back, everyone. Next, we have 22nd Century Group, Inc. It trades on the NASDAQ under the symbol XXII and is the pioneering nicotine harm reduction company in the tobacco industry, enabling smokers to take control of their nicotine consumption. Happy to welcome Chairman and CEO Larry Firestone. Welcome back to the conference today, Larry. We're really excited to hear your presentation and some updates.
Thanks, Anna. It's always great to be here with you. I'll skip through the forward-looking statements. As Anna mentioned, we're traded on the NASDAQ under XXII. We're a pure-play tobacco company with a unique portfolio of brands, and we're the true leader for 27 years of the tobacco harm reduction movement. This started back in 1998. We're the only company that's fully aligned with the FDA's low nicotine mandate, which was issued in the most recent issue in January of 2025. We're poised for profitable growth and value creation with our house of brands. We are the only company that offers a choice with nicotine consumption in a combustible cigarette. Let's talk about the tobacco market. It's a $1.1 trillion market in annual sales with $873 billion in annual cigarette sales worldwide, with 1.1 billion smokers. Unfortunately, 8 million smokers a year die due to smoking-related health conditions.
That's 21,900 smokers that die daily from smoking conditions. In the Unites States, it's $109 billion in annual sales and $83 billion in annual cigarette sales, with 28.8 million smokers and 480,000 is our attrition rate of deaths due to smoking and health-related conditions in the U.S. That's 1,315 smokers per day. It's actually, if you do the math, a smoker a minute. On average, we've been on this call for two minutes. We've already lost two people. Ironically, the U.S. tobacco industry is expected to grow to $180 billion by 2030. That's an 8.15% CAGR. Nicotine addiction is something the tobacco industry does not want to talk about. According to the University of California, San Francisco, nicotine has been proven to be as addictive as cocaine and heroin and even more addictive. People who develop a nicotine addiction really can't quit. It's so difficult to quit on your own.
In fact, 70% of the smokers really report that they want to quit, but many can't and don't until they develop a serious health condition like heart disease, cancer, stroke, or any other thing. In the U.S., just remember the size of the U.S. market, the smoking market is about $110 billion in sales annually. In 2018, more than $600 billion was spent on smoking-related illness and chronic health conditions from smoking. I'm sure that in 2025, that number is quite a bit bigger. Nicotine harm reductions and warnings have been in our existence in the United States since the early 1950s. That's 75 years of warning us, and it's not getting through. Now we've got, due to the ease of access to nicotine and with even synthetic nicotine, we've created a new problem, and that's nicotine poisoning in children and youth.
What this is, this is children emulating their parents or other adults, who are using these products, and they put it in their mouth and their little bodies can't handle that level of nicotine. They end up in the hospital. They get rushed to the hospital and they go into the poison ward. The newest efforts and claims from Big Tobacco are trying to migrate people from smoking into other devices and other nicotine delivery systems, to reduce the exposure to harmful tobacco-specific nitrosamines or TSNAs. With NNN and NNK, that's a little scientific, but we'll come back to that. Those being the most harmful, they think they've done a good job for society. The answer is they haven't. The tobacco industry is just trying to keep their consumers addicted to their products while they figure out how to migrate them and talk about the TSNAs.
The good news is, for us, the tobacco harm reduction movement is now alive and well. We are the leader. We've been the leader. I could say we started this back in 1998, as the mission of the company of 22nd Century. The market is now shaping into four lanes. Lane one is pouches and moist snuff. That's a nicotine delivery system, pure and simple. Then we've got heat not burn and heated tobacco products. In lane two, lane three is low nicotine or VLN products, and that's the lane that we play in. Lane four is the standard combustible cigarettes. That's where people are going to continue to smoke. They can't quit, and they don't want to change to a different device. The first three lanes are sort of coined as being part of the tobacco harm reduction movement.
It's clear that VLN products in all forms will be directly competing with heat not burn and heated tobacco products, for those smokers who want to convert out of standard combustibles. When the FDA low nicotine standard is enacted, 22nd Century's VLN products will be competing for all smokers in lane four with their full strength cigarettes when they become unavailable. We see this as a real opportunity to expand our partner VLN and our VLN inside concept and expand into other brands as well, and even engage a license model for low nicotine tobacco in the VLN brand. Just to point out some numbers, if 70% of the smokers want to quit, reducing their dependence on nicotine is the key. That would be over 20 million smokers.
The FDA mandate for 75 years, as I mentioned, we've been seeing warnings caused, you know, that's on the pack, it's on the windows, it's on everywhere you buy cigarettes. They've stopped cigarette advertising. For 75 years, the government's been telling us this is a bad thing. There have been billions and countless billions in pharmaceuticals, messaging, smoking cessation programs, rehab, you name it, around trying to get people to move off of nicotine. The definition of addiction is not having control over doing, taking, or using something to the point where it can be harmful to you. Nicotine does not get a pass card in this category. It's a full addiction vehicle. This is the control that we're on a mission to give back to the smoker. Even though others are saying they haven't, I'll say the FDA has gotten it right.
With the FDA proposed rule, which the comment period closes on September 15th, the FDA is mandating that 0.7 milligrams per gram of nicotine content per cigarette, which falls right in the center of our 95% low less nicotine cigarette. Our VLN products, actually, the FDA references them in their mandate. Not only can we say this is possible, but it's probable that we can have a world without this level of nicotine addiction. With that, the future being in mind, that's a very exciting opportunity for us. Now that we've engaged with the partner VLN brands, where it's not just the 22nd Century brand, but our early adopters are moving into it, we see that this concept can move across other brands in the market as well. Our technology made this mandate possible.
Our extensive patent portfolio in low nicotine genetics firmly cements us as the leader in low nicotine tobacco. Technology development since 1998 with NCSU, attacking the problem at the root, with no pun intended, the tobacco leaf. Our IP-protected process for producing non-GMO, low-nicotine tobacco is, and we're also investigating the potential link between non-GMO, low-nicotine tobacco and substantially lower levels of the harmful tobacco-related nitrosamines that I mentioned before, the TSNAs, with the most harmful known as NNN and NNK, which are the major carcinogens in a cigarette. We continue to invest in next-generation technology that will help us further enhance our leadership in the tobacco harm reduction movement. We've got ongoing plant genetics into additional tobacco strains and enhanced disease resistance to open up new products for 22nd Century .
Our continued research is also very focused on the TSNAs in the tobacco leaf, and that's a very important part of the tobacco harm reduction movement. We have scientific proof. In 2024, there was an independent research study using our 95% less nicotine spectrum research cigarette, which is our VLN cigarette, in over 450 subjects. 40% of them changed their smoking habit dramatically and reduced their consumption of cigarettes per day over only a 12-week period. When I extrapolate that over the 28.8 million smokers in the U.S. smoking population, that would mean 11.5 million smokers could potentially dramatically change their smoking habit and take control of their dependence on nicotine and their addiction in roughly the same amount of time. The smoker can simply transition to a VLN cigarette, a form factor they're comfortable with.
It really eliminates the need to buy a big battery-operated nicotine delivery device such as a heat-not-burn, manage that device, charging, and changing the form factor of their habit. The same VLN cigarettes are now available in the market with VLN, with Pinnacle VLN, Smoker Friendly VLN, and 22nd Century VLN products. VLN is the only low-nicotine cigarette that complies with the FDA's new proposed low nicotine standard. Here's an example. This is just a visual example of 20 cigarettes of VLN equal one traditional cigarette. With 95% less nicotine, one pack of VLN cigarettes, which, you know, we've been told the product tastes very, very good, equals one cigarette. You can kind of see how that transition of moving away from dependence on nicotine happens in as little as 12 weeks. Here you see our products.
Right now, we have eight SKUs in the market, three of them with Smoker Friendly, two of them with Pinnacle, and we have our three 22nd Century VLN products that are moving into the market. On the left are our early adopters of their own brands, of tucking in a VLN inside, if you will, concept. On the right, we've got the 22nd Century brands. These are starting to show up. We started shipping the partner brands on the left, and they're at the distributor, they're moving into the market for sale on September 1st with a soft launch, and then they'll go into a full launch at the beginning of October, late September, early October. We're very excited about that. This is an example of how we're going to market the VLN products.
On the left, you see a representation of what could be a low nicotine category in the store. Our VLN presentation on the top, Smoker Friendly VLN presentation in the middle, and Pinnacle VLN presentation on the bottom. We're going in with a lot of customer communication: change mats, counter mats, garbage can stick-ons, and floor mats. We'll have door stickers. There'll be a lot of communication around VLN to the consumers. Based on that, and the fact that we've been shipping and continue to ship, we have a major strategy shift at the company. We're going to dial back the high volume, low or no margin CMO volume. That's really been a challenge for us, and it shows up in the form of negative gross profit and negative gross margin.
With the fluctuations that we get from our CMO customers, and they're not doing anything wrong or deliberate, it's just the way their business runs. This was a strategy that we employed to displace our manufacturing overhead over a larger volume of products to lower the per unit cost. When the swings happen, our DLOH cost goes way up, and it ends up costing us more to make the products than it is than our selling price. That market's very sensitive. It's a tier four market. There's not a lot of room for price increase, and the working capital strain and the cash strain and the negative gross margins, we've decided to shift away from this business, and it's not core to our future mission, which is what we've been talking about on the prior slides.
We're shifting our focus towards the branded product portfolio, and VLN and partner VLN are going to ride along with the brands that we support. In the near term, that's going to cause lower revenues, but we're focused on gross profit and gross margins, positive gross profit and gross margins. The company is going to focus on the branded business. When I talk about the branded business, here's our branded portfolio. In the middle, you see our three VLN SKUs, 22nd Century VLN, and then Pinnacle VLN right under that, and then the Pinnacle standard cigarettes underneath that. To the left, we've got Pinnacle Moist Snuff, Pinnacle Filtered Cigars, and Pinnacle Cigarillos. Over to the right, we have Smoker Friendly, their core brand at the top, which has 22 SKUs, I believe.
Smoker Friendly Black has eight SKUs, and that competes with Natural American Spirits at a much, much friendlier price point for the consumer. Smoker Friendly VLN is at the bottom right. This is a very, very nice portfolio of products for us to take into the market and continue to move our product forward. Distribution-wise, we've got our VLN, and partner VLN is now, as I mentioned, in the middle of launching into 2,000 retail outlets, with Smoker Friendly and another retailer that we have that's a very, very large retailer. That is, by the way, the largest deployment of VLN in the company's history. We've got 30 states approved. VLN is going to ride along with the other branded products in the same chains. The 22nd Century VLN launch is planned with key state approvals.
Once we get the approvals, we've already engaged with retailers, and we know which states we're going to be going into. That also opens up, we think, once the industry sees how this is laying out, the potential for additional partner VLN or product licensing to other tobacco brands. We're progressing towards a 50-state approval for all branded products. That's Smoker Friendly, Pinnacle, and 22nd Century, and additional chain opportunities as well. When we talk about R&D, the VLN brands that you've seen, we've got eight VLN SKUs that are currently in king size, and we're developing a 100 millimeter version, which would give us another eight SKUs to add to our lineup. That's already in progress, and we'll be moving that forward here pretty soon. Other low nicotine tobacco strain development is ongoing.
When it comes to nicotine and the plant varieties, that's where you get your flavor profiles and your different blends. Our team is working on different strains for future VLN blends. Continued research on TSNAs is a huge one for us. As we've seen evidence of a relationship there, the more we can prove out on that, the more we can pronounce that as part of the smoking harm reduction movement. Our partnership with N C S U has been going on for a long time, and we're working on disease resistance for the tobacco plants and a bunch of other improvements as well. In the future, non-combustible low nicotine product extensions and future FDA filings are planned. Financially, here you see we're weaning ourselves away from the high volume, low margin business. We still produce a negative gross profit, but we're minimizing that negative gross profit.
That was a much, much higher number in the past. We've organized our operating expenses to be around the $2 million mark per quarter. As we start to produce positive gross profit, that's where we're going, to bring ourselves profitable with profitable brands. In summary, with the VLN cigarettes, the science has been proven and the product strategy has been solidified and launched. With the science, even as recent as the 2024 scientific study and the strategy solidified and launched, now we've got partner brands and they're moving into the market. Our product portfolio allows us to cross-sell into other markets and other retailers. We've got other retailers that are very interested. That's going to give us some gradual growth through 2025. We are the only ones who are fully aligned with the FDA's low nicotine mandate.
As I said before, 22nd Century Group and VLN actually make that mandate possible. That's exciting for us. We've got the potential of a low nicotine content category that I showed you on the left side of the marketing slide and continued development of low nicotine strains and related nicotine content products. That includes the NNN, NNK, TSNAs as we continue to drive the low nicotine tobacco. We're focused on growth in the branded products portfolio, including the partner VLN brands, either CMO or licensed. Our target to achieving EBITDA break-even is in the first half of 2026. Our keys to success right now are scaling points of distribution and focusing on rate of sale for the branded products. With that, Anna, I will open it up for questions.
Okay, great. Thanks, Larry. Yes, I want to, there's lots of questions for you. Let's start with Braylyn. Have you gotten any, or can you get any governmental support? Talk a little bit more about that.
Governmental support with funding or I'm trying to figure out how, I mean, the FDA.
Social funding and shortage of support for what you're doing.
Yeah, I think the answer to that is with the independent research, we can't be directly affiliated with any of the independent research. The best that we can do is make sure that, you know, our products are presented well in the independent research and let the results speak for themselves. This has been a long endeavor as well. When you look at that 2024 independent study, you know, that happened without our knowledge and, of course, independently. I think there's a host of 20 PhDs that conducted that. As far as government funding behind this, I think that's off the table as we are a public company. I think that, you know, we're kind of on our own on that one.
Okay. Janice asks, when will VLN be available everywhere in the U.S.?
We've got approval in 30 states, and we've got a retailer that's in the largest retailers in 23 states, I believe. We're working on other key states as they get approved. We're in discussions with other retailers. Once we get to the 50-state approval, as we've talked to other retailers that have their retail networks across the U.S., just like the retailer that we engaged with that has 1,700 outlets, what they like to see is the product and have it approved in every state so they can do a full launch. That's kind of the way major retail works. Doing it piece by piece and one state at a time inside a big retailer, like for example, Circle K or something like that, is not their idea of a good time. We're going to get to 50 states here pretty soon.
We filed every state in April, or applied to every state in April. The states are moving their way through.
Dennis says some retailers have a cash-only policy with regard to cigarettes. Do you see this as an issue at all?
I don't. I mean, if the consumer's buying cigarettes on a cash-only basis now, that's in the $28.8 million U.S. consumers that are smoking, buying a different brand is just going to be a matter of buying a different brand.
Gage says, for those of us who don't know, can you explain the low nicotine mandate from the current administration you mentioned earlier, and do all of your SKUs comply?
Yes, all of our SKUs comply. In fact, we're the only one that complies. That's pretty groundbreaking for us. What the FDA put out in January was a huge document that actually started in 2018 with the first Trump administration, and then it sat idle through the Biden administration. Now it was put back out in January of 2025, calling for every combustible cigarette to be below 0.7 milligrams per gram of nicotine. That's essentially 95% less nicotine. They put it out, and it's got a comment period of September 15th of this year. They'll take the comments and they'll consolidate them and figure out what it all means. As written, they described, well, more than described, they called out our cigarette in the middle of the document as the enabler.
The path to success on this would be a two-year walk-off for the tobacco industry to implement that every brand sold in the market would have to be 95% less nicotine.
Wow. Wonderful. Good news.
That is good news. It's actually great news for the consumers if we can get them to move there.
Tom asks, are there any majors in the industry showing interest?
We haven't disclosed any other discussions. I'll just reiterate, I'm really proud to have the early adopters that we had embrace the product and push it forward. We'll see. We've got some other discussions of partner VLNs out there, but like I said, we make it possible. If you think back to leaded gasoline when it went to unleaded gasoline, if this ends up being the major sea shift, we have the technology to help everybody get there.
Two financial questions. Are you raising capital through the stock currently? Is the company close to a cash flow break-even?
We're going to cash flow break-even in the first half of 2026. Like I mentioned, we're going to pull our revenues down and offload the high volume contract manufacturing business that's kind of eating our gross profit. Our model shows, as we go here and with the forecast that we have, that we're moving in the right direction there. We've got full court press, but we've got a new product that's going into the market and we've got to get ready to sell. On the raising capital, we certainly want to support the company and have supported the company with equity issuances. As we need capital, that would be our vehicle to do it.
Perfect. Do you have any closing remarks for our viewers today, Larry?
No, we're very excited. I think there's been a lot of twists and turns in this story over the last 20 months. I think we finally got a line of sight, and we're excited to go make this happen.
Thank you so much for coming back on our conference and giving us this really great update. Thank you. We'll see you again real soon.
Thanks, Anna.
All right, everyone. We'll be right back.