22nd Century Group Sales Drop 49 Percent

22nd Century Group (XXII 12.19%), a tobacco harm reduction company developing and marketing very low nicotine content (VLNC) cigarettes under its VLN® brand, reported its second quarter 2025 financial results on August 14, 2025. The quarter saw GAAP revenue of $4.1 million fall well short of analyst expectations of $5.44 million, with actual GAAP revenue at $4.08 million versus the $5.44 million estimate. Compared to the prior year period, GAAP revenue declined by 48.6%. Gross profit was negative, and the operating loss increased to $3.0 million, compared to $2.6 million for Q1 2025. Despite these financial setbacks, the company advanced in distribution deals, continued cost reductions, and reduced debt. However, the lack of material VLN® sales in the quarter highlights the ongoing challenge of translating product milestones into commercial traction.

Source: Analyst estimates for the quarter provided by FactSet.

About 22nd Century Group and Core Focus Areas

22nd Century Group is a tobacco harm reduction company focused on developing and commercializing very low nicotine content (VLNC) cigarettes under the VLN® brand. Its proprietary plant genetics enable cigarettes that meet or fall under the U.S. Food and Drug Administration’s (FDA) proposed reduced nicotine standards. The company aims to give adult smokers options to control nicotine consumption in a market where regulatory and consumer health trends are shifting.

Recently, the company has shifted away from hemp and cannabis to concentrate solely on reduced nicotine tobacco products. It emphasizes distribution deals with partners like Smoker Friendly and Pinnacle, state-level regulatory wins, and the development of new VLN® product types.

Quarter in Review: Key Developments and Performance Drivers

During the quarter, the company’s GAAP revenue fell to $4.08 million, missing the $5.44 million GAAP analyst estimate for Q2 2025 and marking a sharp 48.6% decrease in GAAP net revenues compared to Q2 2024. The largest segment, contract manufacturing (making cigarettes or cigars for other brands), saw a year-over-year GAAP revenue drop compared to Q2 2024, with GAAP cigarette net revenues at $2.72 million and GAAP filtered cigar revenue was $1.32 million. The VLN® branded cigarettes, meant to drive growth in the tobacco harm reduction market, had negative GAAP revenue of $45,000 due to product returns and accruals, reflecting ongoing struggles to ramp commercial adoption.

Operating loss (GAAP) widened to $2.98 million from $2.05 million in Q2 2024. Gross profit (GAAP) was negative at $0.64 million, down from a positive $0.57 million in Q2 2024. Adjusted EBITDA, a non-GAAP cash flow metric that strips out non-core and non-cash expenses, showed a small decline of 2.0% versus the prior year. The net loss from continuing operations (GAAP) was $3.3 million, up from a $2.2 million loss a year earlier. These figures signal that, despite improvements in cost structure and focus, the business model is not yet achieving profitable scale.

From a business operations perspective, the company made further progress toward its goal of becoming a tobacco harm reduction firm. It expanded VLN® state-level authorization to 44 states for its main product, and to 30 or more for its partner brand versions. Pinnacle VLN® launched in nearly 1,000 stores in 12 states through a national convenience store chain, with the formal rollout starting in September 2025. Smoker Friendly and Pinnacle, key partner brands for VLN®, also advanced toward multi-state launches. However, revenue recognition from these expanded points of sale is expected to show in later quarters, not in the period under review.

Product innovation continued as the company advanced a 100mm VLN® cigarette prototype toward an anticipated FDA submission in the fourth quarter of 2025. It stressed that its product is unique in already meeting the FDA’s proposed new low-nicotine content standard for cigarettes. Sequentially, the contract manufacturing segment showed a recovery in cigarette volumes (594,000 cartons, up from 319,000 in Q1 2025), but promotional activity and one-time sequential revenue recognition in Q1 weighed on reported GAAP revenue. Filtered cigar and cigarillo sales remained well below prior year levels.

The restructuring program begun in late 2023 continued, with Operating expenses were $2.3 million, compared to $2.6 million in Q2 2024 and $2.0 million in Q1 2025. The company paid down $1.0 million in debt during the quarter, bringing Net debt (non-GAAP) at period end stood at $0.7 million, with $3.1 million in cash and equivalents versus $3.8 million in debt principal as of June 30, 2025. Cash and equivalents (GAAP) were $4.4 million as of December 31, 2024. Shareholder equity (GAAP) increased to $5.6 million, but the share count has been heavily diluted from prior reverse splits and warrant exercises.

VLN® revenues remained negative as the company accrued for product returns, an indicator that commercial sell-through has yet to take off. Management emphasized that expansion in state-level approval, retail launches, and new product types is expected to start yielding tangible growth in later 2025 as additional products reach retail shelves and gain consumer recognition. Importantly, the company did not declare or pay a dividend for the quarter.

Looking Ahead: Guidance and Key Watch Items

No explicit quarterly or annual guidance for revenue, operating margin, or earnings per share was provided in this release. The company did state its expectation that positive gross margin may be reached as early as the second half of fiscal 2025 if sales targets and operational efficiencies are achieved, but no concrete figures or targets were shared.

With commercial momentum for VLN® critical to future growth, continued cash burn, further dilution from warrant exercises, and the need for additional working capital remain ongoing risks. The company’s ability to translate expansion in state approval, product launches, and new partnerships into real revenue gains and eventually positive cash flows will be the essential focus throughout the second half of the year. XXII does not currently pay a dividend.

Revenue and net income presented using U.S. generally accepted accounting principles (GAAP) unless otherwise noted.