22nd Century Group Q2 2026 Earnings Report

22nd Century Group EPS Results

• Actual EPS: -$15.60
• Consensus EPS: -$6.00
• Beat/Miss: Missed by -$9.60
• One Year Ago EPS: N/A

22nd Century Group Revenue Results

• Actual Revenue: $2.87 million
• Expected Revenue: $7.48 million
• Beat/Miss: Missed by -$4.62 million
• YoY Revenue Growth: N/A

22nd Century Group Announcement Details

• Quarter: Q2 2026
• Date: 8/13/2026
• Time: Before Market Opens
• Conference Call Date: Thursday, August 13, 2026
• Conference Call Time: 8:00AM ET

22nd Century Group (NASDAQ:XXII)., founded in 1998 and headquartered in New York, is a plant biotechnology company that applies proprietary breeding and gene modulation technologies to tobacco, hemp and related plant species. The company’s core mission is to develop and commercialize plant-based solutions that address public health, consumer wellness and agronomic needs. Its flagship reduced nicotine tobacco platform is engineered to deliver significantly lower levels of nicotine than conventional tobacco products while retaining the sensory characteristics sought by adult smokers.

Through its branded reduced nicotine tobacco products, marketed under the NEXT Generation™ portfolio, and its GenCanna® subsidiary focused on hemp cultivation and cannabinoid extraction, 22nd Century serves both commercial markets and contract research clients. GenCanna produces and distributes hemp-derived phytocannabinoids—including cannabidiol (CBD)—in bulk and finished-goods formats for nutraceutical, wellness and personal care manufacturers across North America and select international markets. The company’s integrated value chain encompasses seed development, greenhouse propagation, analytical testing and large-scale processing.

In addition to product commercialization, 22nd Century offers contract research and development services that leverage its greenhouse, field and laboratory facilities. Its R&D capabilities support trait discovery, regulatory compliance testing and pilot-scale production, enabling partnerships with government agencies, clinical researchers and industry stakeholders. With research centers in New York and North Carolina, the company pursues ongoing collaborations aimed at advancing low-nicotine tobacco science and expanding plant-based cannabinoid applications globally.

22nd Century Group Q2 2026 Earnings Call Transcript

Key Takeaways

• Positive Sentiment: Retail distribution is expanding: The company plans to grow its VLN and Pinnacle VLN presence from approximately 2,000 stores in 20 states to 5,000 outlets across 35 states by year-end 2026, including new distribution in Metro New York, Northern New Jersey, and California.
• Positive Sentiment: Management reported progress toward improving product mix and margins, with second-quarter gross loss narrowing to $0.3 million from $0.6 million in the first quarter and year-earlier period, driven by greater emphasis on higher-margin Pinnacle and VLN products.
• Negative Sentiment: Revenue declined during the transition: Second-quarter net revenue fell 29% sequentially to $2.9 million, while the company continues to exit low-margin contract manufacturing volume that is expected to be substantially wound down over the next two to three quarters.
• Negative Sentiment: The company remains unprofitable, reporting a $3.3 million operating loss and negative adjusted EBITDA of $3.5 million in the second quarter; it ended the period with $6.1 million in cash and no debt, making successful retail sell-through and repeat orders important to its liquidity outlook.

Presentation

[Operator]

Conference call and webcast. At this time, all participants have been placed in a listen-only mode. It is now my pleasure to turn the call over to Dan Otto, Chief Financial Officer of 22nd Century Group. Please go ahead.

[Dan Otto, CFO at 22nd Century Group]

Good morning, everyone. [Chief Executive Officer]. Before we begin, please note that today's remarks include forward-looking statements that are subject to risks and uncertainties that could cause actual results to differ materially from those described in these statements.

[Dan Otto, CFO at 22nd Century Group]

Please refer to the company's earnings release and SEC filings, including our most recent annual report on Form 10-K for a discussion of these risks and other factors. In addition, during today's call, management may refer to certain non-GAAP financial measures. Reconciliations of those measures to the most directly comparable GAAP measures are included in the company's earnings release. With that, I'll now turn the call over to Larry.

[Larry Firestone, CEO at 22nd Century Group]

Thanks, Dan, and good morning, everyone. Thank you for joining us today and for your continued interest in 22nd Century Group. The second quarter was an important period for our company. We continued executing a strategy that is reshaping 22nd Century into a stronger, more focused, and ultimately more profitable business.

[Larry Firestone, CEO at 22nd Century Group]

That strategy is centered on building a scaled distribution of our higher margin products, improving our product mix, and moving decisively away from the legacy business that did not generate acceptable economics.

[Larry Firestone, CEO at 22nd Century Group]

22nd Century is the leader in low-nicotine tobacco and low-nicotine combustible cigarettes, designed with authentic tobacco to help smokers reduce their nicotine consumption. We're seeing smokers choose our VLN products as an alternative to full-strength combustible cigarettes, and we believe this category has meaningful room to grow. More broadly, our direction is clear. We are prioritizing profitable growth over uneconomic volume.

[Larry Firestone, CEO at 22nd Century Group]

We are investing behind brands that can win at retail, and we are aligning our commercial model, pricing strategy, and manufacturing footprint to support a strong. Historically, too much of our business was tied to high volume, lower negative margin contract manufacturing.

[Larry Firestone, CEO at 22nd Century Group]

That volume may have added scale to the true earnings power of the branded platform we are now building. Today, we are taking a different path. We are building 22nd Century around higher quality revenue streams, branded products, differentiated offerings, and categories where we can compete on value, innovation, and margin rather than simply on price. We believe that shift is the right one for shareholders and the right one for retail partners, and the right one for the long-term future of the company.

[Larry Firestone, CEO at 22nd Century Group]

Let me turn now to what we believe were the most important developments in the quarter: commercial progress, pricing discipline, and the foundation for margin improvement in the second half of the year. The second quarter delivered meaningful validation of the opportunity in front of us.

[Larry Firestone, CEO at 22nd Century Group]

We announced new distribution that will be ramped up to begin selling in Q4 for Pinnacle VLN in Metro New York and Northern New Jersey through one of the nation's largest cigarette retailers. This expansion adds nearly 150 high visibility store locations in a dense and attractive market, creating another strong platform for consumer trial, brand awareness, and incremental high margin revenue.

[Larry Firestone, CEO at 22nd Century Group]

That matters for several reasons. First, it is another proof point that retailers are increasingly willing to allocate space to the Pinnacle platform and to low nicotine offerings under the Pinnacle brand.

[Larry Firestone, CEO at 22nd Century Group]

Broader distribution is one of the key levers for accelerating awareness, trial, and repeat purchase over time. We also continued to build out the broader Pinnacle branded portfolio, including the launch of Pinnacle Pure. This is strategically important because we do not view Pinnacle as a single product story.

[Larry Firestone, CEO at 22nd Century Group]

We view it as a growing brand family that can compete across multiple product types, price points, and merchandising positions. The more complete our portfolio becomes, the more relevant we are to retailers and the more leverage we have in distribution discussions, and we believe our Pinnacle brand is poised to become a national brand.

[Larry Firestone, CEO at 22nd Century Group]

Further, we believe Pinnacle Pure opens up a particularly compelling opportunity. In the premium tier two cigarette category, especially within tobacco and water style product offerings, there are relatively few strong options available from major retailers and traditional cigarette purveyors.

[Larry Firestone, CEO at 22nd Century Group]

That gives us room to differentiate our brand, win new shelf space, and support the broader momentum of the Pinnacle franchise. Importantly, the success of the conventional Pinnacle portfolio also supports the adoption of Pinnacle VLN, because both the retailer and the company benefit from broader brand recognition and the ability to merchandise the brand across multiple slots in the store. Beyond what we announced during the quarter, we are encouraged by what we are seeing in the pipeline.

[Larry Firestone, CEO at 22nd Century Group]

The progress we made in Q2 is generating follow-on interest from additional large retailers and cash and carry operators. We are also seeing growing interest from new classes of trade, including drug and digital-first convenience. In other words, the funnel is broadening, and that is exactly what we want to see at this stage of commercialization. At the same time, we want to be clear about where we are in the revenue cycle.

[Larry Firestone, CEO at 22nd Century Group]

Much of the volume we have seen to date still reflects initial load-in orders. That is an important milestone, but it is only the beginning. The next phase is about execution, converting initial placement into repeat purchasing, increasing velocity at store level, and building a recurring revenue base that becomes more predictable and more profitable over time. That is why our focus in the back half of the year is not just on adding slots, but on activating those slots.

[Larry Firestone, CEO at 22nd Century Group]

Our objective is to grow total store count from approximately 2,000-5,000 by year-end across roughly 35 states, while also improving rate of sale and consumer pull-through. Those two goals must work together. Distribution without sell-through is not enough, and strong unit economics require both broader placement and better recurring movement at retail. We will strengthen commercial execution in the second half. Our goal is straightforward.

[Larry Firestone, CEO at 22nd Century Group]

Faster adoption, deeper penetration, and better conversion of pipeline interest into productive, durable accounts. Another major theme of the quarter is pricing discipline. Across the tobacco industry, successful operators manage pricing carefully to recover declines in unit volume, increases in excise taxes, and offset inflationary pressure across material, labor, and overhead. We are doing the same.

[Larry Firestone, CEO at 22nd Century Group]

We have taken steps to ensure that our pricing better reflects the real economics of manufacturing and distribution, and we believe that this discipline is necessary if we're going to build a sustainable and investable business. This is especially relevant in the legacy CMO business, where significant volume historically came with low or even negative gross margin. Instead, move to lower cost suppliers. We view that as an acceptable consequence of rational pricing. Let me be very clear.

[Larry Firestone, CEO at 22nd Century Group]

We are not interested in holding on to revenue that undermines gross profit and consumes factory capacity without creating shareholder value. If a piece of business stages of this transition over the next two to three quarters. Just as important, the business we are building in its place is better business. Our branded platform, and particularly products under the Pinnacle brand, offers stronger margin potential, greater brand equity, and better strategic positioning than legacy contract volume ever could.

[Larry Firestone, CEO at 22nd Century Group]

While our low-quality CMO revenue will decline, we believe the mix shift is underway and is directionally very positive for the company. As we look forward, or early first quarter of 2027, we believe the majority of the remaining legacy CMO volume in categories such as filtered cigars, white label cigarettes, and export cigarettes will be substantially transitioned away from our factory, and those contracts will be largely wound down.

[Larry Firestone, CEO at 22nd Century Group]

That does not mean factory utilization stops mattering. It still does. Our contracts and pricing are now much better aligned with the economics. While our pricing reset has been critical, it is only part of the equation. The other part is replacing low-quality volume with better quality, higher margin revenue streams that can scale.

[Larry Firestone, CEO at 22nd Century Group]

That is why we continue to view the Pinnacle platform, our broader branded portfolio, and our expanding commercial reach as the primary drivers of financial improvement going forward. When you put these pieces together, the gross margin story becomes clearer. We believe three forces are beginning to work in our favor.

[Larry Firestone, CEO at 22nd Century Group]

First, we are expanding distribution of products that carry better margin potential than the legacy volume they're replacing. Second, we are moving from initial load-in towards repeat sales, which should help improve revenue quality and factory absorption over time.

[Larry Firestone, CEO at 22nd Century Group]

Third, we believe our major contract and pricing action. Then we believe the second half of the year should begin to show the benefits of the repositioning we have been discussing over the last several quarters. We are not declaring victory, and we know execution remains critical. But we do believe the building blocks for gross margin enhancement are materially stronger than they were at the start of the year.

[Larry Firestone, CEO at 22nd Century Group]

Over the long term, we are building a strategy that is succeeding in the U.S. and that can ultimately extend beyond the U.S. to international markets facing many of the same challenges. We were first to market with our low nicotine technology, and maintaining that leadership will require continued investment in product development, technology, and distribution. Our pipeline of retailer discussions remains very active as our low nicotine products continue reaching consumers in the market.

[Larry Firestone, CEO at 22nd Century Group]

We expect to keep building awareness, generating sales data needed to support the broader national and over time, international expansion. We have clear targets for the second half of 2026 that we believe can establish the foundation for a stronger 2027.

[Larry Firestone, CEO at 22nd Century Group]

Shipments of our branded products in the second CMO business and focus our resources on growing branded products. To summarize, the second quarter reinforced that 22nd Century is moving in the right direction. We expanded commercial distribution. We advanced the Pinnacle brand platform. We broadened our operational results in more detail.

[Dan Otto, CFO at 22nd Century Group]

Thank you, Larry. For the second quarter of 2026, net revenue was $2.9 million, compared to $4.1 million in the first quarter of 2026, a sequential decline of approximately 29%. For the first half of 2026, net revenue was $7 million, compared to $10 million in the first half of 2025.

[Dan Otto, CFO at 22nd Century Group]

As Larry noted, our first half top line, as well as expected over the next two quarters, continues to reflect the intentional transformation of the business that we've already been discussing for several quarters, shifting away from the majority of our contract manufacturing business and focusing on our reduced nicotine products and branded offerings, which we believe provide substantially better gross margin potential. Turning to gross margin, both quarters in the first half of 2026 generated gross losses, but the trajectory is informative.

[Dan Otto, CFO at 22nd Century Group]

Gross loss for the second quarter was $0.3 million, compared to a gross loss of $0.6 million in the first quarter of 2026. On a year-over-year basis, our second quarter gross loss also narrowed meaningfully versus the $0.6 million recorded in the second quarter of 2025, reflecting our deliberate shift away from low-margin CMO export volume and toward higher-margin Pinnacle and VLN SKUs.

[Dan Otto, CFO at 22nd Century Group]

Included in second quarter gross margin were two discrete items. First, we recorded a one-time charge of approximately $196,000 for the reversal and write-off of aged inventory discontinued by one of our contract manufacturing customers. Second, and offsetting the first, we recognized a one-time MSA NPM excise tax recovery of approximately $692,000 covering prior tax periods. We view both items as non-recurring, and neither is reflected in our forward planning.

[Dan Otto, CFO at 22nd Century Group]

For the first half of 2026, gross loss was $0.9 million, compared to $1.2 million in the first half of 2025. While the narrowing of gross loss year-over-year is a positive directional signal, the pace of improvement has not been as fast as we planned. I'll come back to our expectations for the second half of 2026 in a moment.

[Dan Otto, CFO at 22nd Century Group]

Operating loss for the quarter was $3.3 million, compared to $3 million in the first quarter of 2026. Net loss from continuing operations for the quarter was $3.3 million, compared to $3 million in the first quarter, and adjusted EBITDA was a negative $3.5 million, compared to $2.6 million in the first quarter of 2026. Turning to the balance sheet, we ended the quarter with cash and cash equivalents of $6.1 million and no outstanding debt.

[Dan Otto, CFO at 22nd Century Group]

We continue to manage liquidity carefully and remain focused on aligning spending with our highest priority commercial and regulatory initiatives. Capital allocation remains disciplined. Resources are being directed toward distribution growth, VLN commercial support, Pinnacle portfolio launch, marketing initiatives, and advancement of our reduced nicotine pipeline.

[Dan Otto, CFO at 22nd Century Group]

Looking ahead, our focus for the remainder of 2026 and the central reason we continue to believe in a second half inflection is execution across two priorities: distribution growth and margin improvement.

[Dan Otto, CFO at 22nd Century Group]

First, distribution. We ended the quarter with a retail presence of approximately 2,000 stores across 20 states, and we're targeting expansion to approximately 5,000 retail outlets by year-end 2026 across 35 states for our VLN and Pinnacle VLN cigarette products. That expansion is already underway, with recent entries into Metro New York, Northern New Jersey, and California.

[Dan Otto, CFO at 22nd Century Group]

Looking beyond the convenience channel, we anticipate onboarding additional independents, cash-and-carry operators, and a new digital-first convenience chain to help fill out that 5,000-store footprint, each contributing incremental stocking orders that support gross margin improvement.

[Dan Otto, CFO at 22nd Century Group]

Second is mix and absorption. We expect continued expansion of our product portfolio together with higher margin Pinnacle Pure and Pinnacle VLN reorder activity to improve the gross margin. That balance, better mix offset with lower legacy volume essential to the second half story. Our 2026 strategic priorities remain unchanged: expand VLN distribution, manage costs with discipline, and advance toward meaningful improvements in gross margin. With that, I'll turn the call back to Larry for closing comments.

[Larry Firestone, CEO at 22nd Century Group]

Thanks, Dan. Many companies in the tobacco and adjacent industries describe themselves as a leader or leading within a particular niche. We believe 22nd Century has earned a differentiated leadership position as we are the leader in low-nicotine tobacco and low-nicotine combustible cigarettes made from authentic tobacco, designed to help smokers. [Low-nicotine] that has brought us to this point.

[Larry Firestone, CEO at 22nd Century Group]

Today, our VLN low-nicotine products are in the market, consumers are buying them, and we have a strategy to expand the category further through additional blends and brands. We will continue to engage with the FDA. With our current authorizations, we believe our first-mover advantage remains significant.

[Larry Firestone, CEO at 22nd Century Group]

We're building a different 22nd Century, one driven by better brands, better distribution, better pricing, and better economics. We believe the commercial traction we're seeing today is laying the groundwork for stronger margins, stronger recurring revenue, and stronger shareholder value over time.

[Larry Firestone, CEO at 22nd Century Group]

Our job now is focused on execution, getting our brands and products into the hands of adult smokers who are looking for a familiar alternative to their full nicotine cigarette. We are pleased to welcome Katherine Rouse-Bailey as our vice president of marketing. Consumer awareness is critical, and navigating brand building within the constraints of the tobacco marketing requires the right expertise.

[Larry Firestone, CEO at 22nd Century Group]

We believe Katherine is well equipped to lead that effort. We also expect to add talent selectively in other parts of the organization, including sales and R&D, to support our expanding retail presence and the continued work required across science, product development, and technology. We expect to have additional developments to share in the coming months, and we also plan to present at the H.C. Wainwright Conference in New York in September, along with other conferences in the fourth quarter.

[Larry Firestone, CEO at 22nd Century Group]

Finally, I want to thank our team for their hard work and commitment. The road to this point has not been easy, but we believe the road ahead is exciting and rewarding. The dedication of our employees has been and will continue to be critical to our success.

[Operator]

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

Participants

Executives

• Dan Otto, CFO
• Larry Firestone, CEO