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22nd Century Group (AMEX:XXII)
Q4 2018 Earnings Conference Call
March 7, 2019 4:00 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

See all our earnings call transcripts.

Prepared Remarks:

Operator

Good day. And welcome to the 22nd Century fourth-quarter 2018 business update conference call. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr.

Thomas James. Please go ahead, sir.

Thomas James -- Vice President, General Counsel and Secretary

Thank you very much. Thank you, everyone, for joining the call today. My name is Thomas James, the vice president, general counsel, and corporate secretary of 22nd Century Group. And thank you also for listening to the required legal safe harbor text that I'll now read.

The statements made on today's call that are not based on historical information are forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include, but are not limited to, statements regarding our company's business strategy, future plans and objectives, and future results of operations or that may predict, forecast, indicate or imply future results, performance or achievements. The words estimate, project, intend, forecast, anticipate, plan, expect, believe, will, will likely, should, may or the negative of such words, or words or expressions of similar meanings are all intended to identify forward-looking statements. These forward-looking statements are not guarantees of performance, and all such forward-looking statements involve risks and uncertainties, many of which are beyond our company's ability to control.

Actual results may differ materially from those expressed or implied by such forward-looking statements as a result of various factors, including but not limited to, the risk factors disclosed in our company's most recent annual report on Form 10-K for the year ended December 31, 2018 as filed with the U.S. Securities and Exchange Commission yesterday on March 6, 2019. The company does not undertake and it disclaims any obligation to update any forward-looking statements or to announce revisions to any of the forward-looking statements. During this call, we will also disclose certain non-GAAP financial measures, including adjusted EBITDA, which we define as earnings before interest, taxes, depreciation, and amortization as suggested by 22nd Century for certain noncash and nonoperating expenses as described in our company's earnings press release for the year ended December 31, 2018 as publicly issued yesterday on March 6, 2019, and which is available on our company's website.

And with that, I will turn it over to our Chief Financial Officer John Brodfuehrer.

John Brodfuehrer -- Chief Financial Officer

Thank you, Tom. Good afternoon, everyone, and thank you for participating in the 22nd Century business update call for the year of 2018. For those of you that may be new to the call, my name is John Brodfuehrer, and I'm the CFO of 22nd Century Group. Today's conference call will be one hour in duration and will conclude promptly at 5 p.m.

We will take questions at the end of the presentations as time permits. This afternoon, I will provide you with a summary of the company's financial results for the year ended December 31, 2018. I will now address some of our financial disclosures for the 2018 year. First, I will discuss our work -- our net sales revenues generated from product sales.

As reported in our Form 10-K filed with the SEC yesterday and stated in yesterday's press release, net sales revenue for the year ended December 31, 2018 was $26,426,000, our highest annual net sales revenue in our history as compared to net sales revenue for the year ended December 31, 2017 of $16,600,000. The quarterly net sell -- sales revenue increased by 900 -- 800 -- by $9,826,000 or 59.2% for the year ended December 31, 2018 as compared to the net sales revenue for the year ended December 31, 2017. Net sales revenue increase is primarily the result of additional net sales revenue generated from our contract manufacturing of cigarettes and filtered cigars during 2018 as compared to 2017. Next, I will address our gross profit on product sales.

Our factory in North Carolina continued to utilize additional production capacity that resulted in the increased net sales revenue as just discussed above. As a result, we generated gross profit on net sales revenue for the year ended December 31, 2018 in the amount of $899,000. In comparison, we experienced a growth -- gross loss on net sales revenue for the year ended December 31, 2017 in the amount of $708,000. This positive change from the gross loss to gross profit amounted to $1,607,000 for the year ended December 31, 2018 as compared to the year ended December 31, 2017, and this improvement is primarily the result of increased factory utilization.

Next, I will move on to discuss our operating expenses. Our net cash operating expenses that exclude noncash equity-based compensation, amortization, and depreciation for the year ended December 31, 2018 was $20,388,000, an increase of $9,685,000 or 90.5% from net cash operating expenses of $10,703,000 for the year ended December 31, 2017. The increase was primarily due to increased expenses attributable to our Modified Risk Tobacco Product application with the FDA for our BRAND A very low nicotine content cigarettes. Our expenses related to the MRTP application amounted to approximately $9,800,000 for the year ended December 31, 2018.

Next, I will address our net loss. We experienced a net loss for the year ended December 31, 2018 in the amount of $7,967,000 or a negative $0.06 per share as compared to a net loss of $13,029,000 for the year ended December 31, 2017 or a negative $0.13 per share, which is a decrease in our net loss of $5,062,000 or 38.9%. The decrease in the net loss of $5,062,000 was primarily attributable to the aggregate realized gains on the [Inaudible] award transactions in the amount of $14,493,000, an unrealized gain on the Aurora stock warrants in the amount of $284,000, an increase in net interest and dividend income of $1,176,000, and an increase in our gross profit on product sales of $1,607,000. Both numbers were partially offset by an increase in net cash operating expenses of $9,685,000, and as discussed earlier, an increase in equity-based compensation of $2,246,000 and an increase in depreciation and amortization expense of $395,000.

The significant gain on the [Inaudible] award transactions in the amount of $14,493,000 consisted of the following three items: unrealized gain of $4,516,000 on our equity investment in Anandia was acquired by Aurora Cannabis in the third quarter of 2018. We received 1,947,943 shares of Aurora common stock and a warrant to purchase 973,971 shares of Aurora common stock as a result of the acquisition of Anandia by Aurora. No. 2, a gain of $3,830,000 on the subsequent sale of the Aurora common stock that we received in the acquisition of Anandia by Aurora, which also occurred in the third quarter of 2018.

The sales of the Aurora common stock also generated $13,052,000 in net cash proceeds for the company. And thirdly, an unrealized gain in the first quarter of 2018 in the amount of $6,147,000 under U.S. GAAP accounting rules on our investment in Anandia. This amount became a realized gain upon the acquisition of Anandia by Aurora, boasting numbers in aggregate to the $14,493,000 realized gain.

It should be noted that we still own the warrant to purchase 973,971 shares of Aurora common stock that does not expire until August of 2023. The Aurora stock warrants had a value of $3,092,000 at December 31, 2018, and we recorded an unrealized gain and the adjustment to fair value in the amount of $284,000 for the year ended December 31, 2018. At future quarter and year-end dates, if the warrant is still owned by us at that time, we will record the fair value of the warrant and any unrealized gain or loss will be recorded in net income or loss for that quarter or year end. Next, I will address our adjusted EBITDA.

Our adjusted EBITDA, a non-GAAP financial metric previously defined by Tom James in his opening statement, for the year ended December 31, 2018, was a negative $19,489,000 or a negative $0.16 per share as compared to a negative $11,411,000 or a negative $0.11 per share for the year ended December 31, 2017, which is an increase in the negative adjusted EBITDA of approximately $8,078,000 or 70.8%. This increase is primarily the result of the previously discussed increase in our net cash operating expenses of $9,685,000 and is partially offset by an improvement in our gross profit on product sales of $1,607,000. Finally, I will discuss the cash position of the company at December 31, 2018. We continue to be in a strong cash position with cash, cash equivalents, and short-term investment securities totaling $56.4 million at December 31, 2018, an amount we believe will be adequate to cover normal monthly operating expenses of approximately $850,000 and meet all current obligations as they come due for a number of years.

In addition, we expect to incur an estimated amount of approximately $1.5 million in additional expenses relating to our Modified Risk Tobacco Product application with the FDA by the end of the second quarter of 2019. That concludes my remarks. Thank you for your time, consideration, and continued interest in 22nd Century Group. I will now turn the remainder of this conference call over to our President and CEO, Henry Sicignano, who will provide you with a business review and update.

Thank you very much.

Henry Sicignano -- President and Chief Executive Officer

Thanks, John. Good afternoon and thank you again to our conference call participants for joining us. Today, I have a host of important issues to discuss. In brief, I will discuss Dr.

Scott Gottlieb's recently announced decision to resign as commissioner of the FDA and what his departure may mean to 22nd Century shareholders; two, I'll talk a bit about the FDA's plan to dramatically reduce the nicotine content of all cigarettes sold in the United States; three, provide an update on 22nd Century's Modified Risk Tobacco Product application and its progress at the FDA; and four, perhaps most significantly, I will talk about 22nd Century's cannabis research initiatives and strategic vision. At the end of our time together, I will also briefly touch on the wholly frivolous class action lawsuits that have been filed against our company in recent weeks. First things first. As you likely know, this week, we learned that Dr.

Scott Gottlieb has decided to resign as commissioner of the FDA. This is unfortunate. Dr. Gottlieb has moved the ball forward on a number of important FDA initiatives, including speeding the approval process for important new drugs, addressing the opioid epidemic, questioning the place for flavors in e-cigarettes, and of course, in advancing the FDA's broad nicotine reduction plans across a host of tobacco products.

We appreciate the work Dr. Gottlieb has done and we will miss him as commissioner. However, it is important to point out 22nd Century's Modified Risk Tobacco Product or MRTP application is under review at the FDA Center for Tobacco Products, also known as the CTP, not the FDA at large. Accordingly, Mitch Zeller, director at the FDA's Center for Tobacco Products, is actually the one who is overseeing our MRTP application.

It is also important to realize that the FDA's Center for Tobacco Products is the division of the FDA that is advancing the agency's plan to limit nicotine in all cigarettes sold in the U.S. to minimally or nonaddictive levels. With respect to this larger-planned national mandate, Dr. Gottlieb was a terrific champion.

It was not, however, the beginning or the end of the FDA's nicotine reduction movement. Actually, the FDA began to collaborate on 22nd Century's spectrum research cigarette initiative in 2011, which was six years before Dr. Gottlieb arrived on the scene. The FDA and various agencies of the U.S.

federal government spent many tens of millions of dollars on independent research with very low nicotine content cigarettes long before Dr. Gottlieb made his historic 2017 announcement that all cigarettes in the United States should contain drastically lower levels of nicotine. Indeed, there were many at the FDA who were working on the Very Low Nicotine initiative long before Dr. Gottlieb came into office and there are many more who will continue to work on the nicotine reduction plan after Dr.

Gottlieb leaves the FDA. That said, in a March 5, 2019 New York Times article, Dr. Gottlieb indicated that he actually plans to advance the FDA's pending tobacco regulations before he leaves. And indeed, I'm quite sure that the FDA itself is absolutely committed to enacting its new rule to require that all cigarettes sold in the U.S.

contain only minimally or nonaddictive levels of nicotine in order to assist the more than 30 million American smokers, who are addicted to conventional cigarettes, and the 2,000 youth under the age of 18 across the United States who smoke their first addictive cigarette each and every day. Of course, the FDA's efforts to limit nicotine in all cigarettes are complemented by 22nd Century's Modified Risk Tobacco Product or MRTP initiative. In December, our company submitted a premarket tobacco application and an MRTP application to the FDA's Center for Tobacco Products for our company's proprietary very low nicotine content cigarettes. With these applications, 22nd Century is seeking the FDA's authorization to commercialize the company's very low nicotine content cigarettes under the proposed brand name, VLN, and to advertise to consumers that VLN cigarettes contain 95% less nicotine as compared to the 100 leading cigarette brands in the United States.

Since the beginning of this year, 22nd Century regulatory specialists and scientists have been in virtually constant communication with FDA regulators charged with reviewing the company's PMT and MRTP applications. In fact, in the last two months, we have had more than 20 conversations with the FDA on matters relating to our MRTP application. We believe this is a very positive sign. While our PMTA and MRTPA efforts are independent of the FDA's planned new rule to limit the nicotine in all cigarettes to minimally or nonaddictive levels, we view the two initiatives as complementary and wholly reinforcing.

Our very low nicotine content tobacco is the foundation of our VLN cigarettes and at the same time, our very low nicotine content tobacco makes possible the FDA's planned nicotine reduction rule. It is precisely because of those connections that we continue to believe that the FDA and public health will benefit from the approval of 22nd Century's PMTA and MRTPA submissions. In this way, the FDA will have a commercial very low nicotine content cigarette on the market to prove the feasibility of the agency's nicotine reduction plan and to generate real-world consumer data in support of the FDA's proposed new rule to reduce nicotine in all cigarettes sold in the United States. And of course, potentially, the world's only approved MRTP product will greatly enhance 22nd Century's commercialization efforts and will pave the way for a lucrative third-party licensing opportunities.

All of that said, and as important as our tobacco initiatives are for the company and for our shareholders, our strategic initiatives in hemp and cannabis, together with significant recent legislative changes have combined to give our biotechnology efforts a massive boost in the emerging hemp/cannabis industry. At the conclusion of 2018, more than half of U.S. states had approved the sale and use of medical cannabis with another 10 states allowing adult recreational consumption. Even more importantly, in an effort led by U.S.

senate majority leader, Mitch McConnell, the U.S. federal government enacted the 2018 Farm Bill, including an important provision to legalize hemp, which is defined as a cannabis plant containing not more than 0.3% THC. The enactment of this new federal law has accelerated hemp/cannabis biotechnology developments and spurred a slew of multimillion-dollar investments in hemp/cannabis production and extraction. 22nd Century is well-positioned to take advantage of the opportunities represented by these changes in the federal law.

Our company's foundation in hemp/cannabis research is already well-established. In 2014, a wholly owned subsidiary of 22nd Century entered into a worldwide license agreement with Anandia Laboratories in Canada, through which our company was granted an exclusive sublicense in the United States and a co-exclusive sublicense in the remainder of the world, excluding Canada, to patents and patent applications relating to the hemp/cannabis plant that are required for the production of cannabinoids, the major active ingredients in the hemp/cannabis plant. It is important to note, these incredible valuable licenses survived the Aurora Cannabis acquisition of Anandia. What's more, our subsequent investments in research with Anandia generated important new cannabis streams, including one with zero-THC.

Besides Anandia, 22nd Century is entering the third year of a research agreement with the University of Virginia to optimize our company's proprietary hemp plant for growth in the historical tobacco belt states in the southern part of the United States. Further, we already possess a valuable New York State hemp research license for our research laboratory in New York. Utilizing our proprietary technology, 22nd Century's primary mission in hemp/cannabis is to develop proprietary hemp/cannabis plant lines for important new medicines and robust agricultural crops in order to improve the health and lives of people around the world. Going forward, I am pleased to announced 22nd Century will substantially increase the company's investment in the development of hemp/cannabis intellectual property.

While our company's molecular biotechnology laboratory is an important component in achieving our mission of creating new varieties of hemp/cannabis, our strategy also includes assembling an entire network of accomplished hemp and cannabis researchers, partner companies and universities. In addition to our existing research relationships, we are currently in negotiations to enter into several new strategic alliances. 22nd Century is forming a vertically integrated hemp and cannabis nexus that combines research, production and extraction. And combining our technology with the assets and abilities of our strategic partners, 22nd Century will have access to advanced gene-editing techniques, valuable hemp/cannabis germplasm, extensive growing facilities, dozens of experienced hemp and cannabis scientists, and much more.

The foundation of any biotechnology effort is the acquisition of genetic material. To this end, we have already developed or acquired exclusive rights to dozens of unique and proprietary varieties of hemp and cannabis plants, each with valuable agronomic traits and/or exceptional cannabinoid profiles. Though we are continually adding to our genetic library, we already have an incredible inventory of genetic variability. Literally, the building blocks for dozens of new improved plant varieties.

Our library of hemp/cannabis germplasm is unique and crucial, and of in crucial importance to our research objectives. It sets us apart as a major player in the hemp/cannabis biotechnology field. Using genome sequences from the hemp/cannabis varieties to which we have developed and/or acquired exclusive rights, we are working to identify genes responsible for regulating cannabinoid biosynthesis, drought tolerance, disease resistance, increased flower production, increased cannabinoid production and overall plant growth and yields. Currently, in our own labs, 22nd Century is working to reproduce cannabinoid biosynthesis independent of the hemp/cannabis plant.

In this way, we hope to develop hemp plants that yield single high-value cannabinoids instead of the cocktail of cannabinoids produced by conventional hemp/cannabis plants. A single cannabinoid plant that produces high levels of a rare cannabinoid would be a boon for our own extraction activities and for third-party extractors. Each project that we initiate is expected to lead to valuable intellectual property and products. All of our hemp and cannabis research must deploy our mission to develop new varieties of hemp and cannabis plants to improve the health and lives of people around the world.

As we assemble hemp/cannabis strategic partnerships, as we develop new biotechnology methods for manipulation of plant genes, and as we create new hemp/cannabis varieties to improve lives, we will simultaneously enhance shareholder value. Although we do not intend to enter the complex regulatory arena of marketing hemp/cannabis-based consumer goods, we do plan to become a source of highly coveted hemp/cannabis genetics, plant varieties, and high-value extracted cannabinoid. Now after a discussion of such positive meaningful progress that the company has made over the last year, I'm obliged to say a few words about the wholly frivolous class action lawsuits that have been filed against the company and certain of its executive officers in recent weeks that allege violations of federal security laws. We believe that any claims alleging violations of security laws by the company and its executive officers are without merit and we intend to vigorously defend our position.

As you likely know, the lawsuits appear to be based on the information taken from Seeking Alpha short articles by Fuzzy Panda Research, which were written by authors who were admittedly "short" in 22nd Century stock. As you realize, this means that the authors had an economic motive to suggest improper action by 22nd Century. The lawsuits repeatedly referred to these articles without any apparent effort to determine whether the statements in the articles are accurate. For example, the lawsuits include an incomplete photocopy of an SEC response letter to a Freedom of Information Act request that misleads an uninformed reader to incorrectly believe that 22nd Century is under some sort of SEC enforcement action.

Let me state unequivocally, 22nd Century has not received any notice of, and the company has no knowledge of, any enforcement proceeding against 22nd Century by the SEC or by any other regulator. Simply put, 22nd Century believes the statements and the charges in such class action lawsuits are like the misleading short articles, incorrect and meritless, and the company intends to defend vigorously against these lawsuit claims. But in spite of these legal issues, our company is, really, is in a terrific place. Our spectrum research cigarettes make possible the FDA's proposed plan to limit nicotine in all cigarettes sold in the United States to minimally or nonaddictive levels.

The next step in the FDA's plan is to issue a Notice of Proposed Rulemaking or NPRM. In this notice, the FDA will spell out the proposed product specifications and the details for how the agency will implement its new nicotine reduction rule. The FDA has publicly indicated that the NPRM should be expected this year. Following the NPRM, including a public comment period, the FDA should thereafter move forward with the final rule, and the time schedule for the implementation of the new rule.

We believe the FDA is moving at a steady deliberate pace in this initiative. That said, a much sooner opportunity for 22nd Century comes in the form of our company's MRTP application for our VLN cigarettes. With 95% less nicotine than contained in conventional cigarettes, our company's proprietary VLN cigarettes are modeled after the lowest nicotine content file of our spectrum cigarettes. Our recently accepted for-review MRTP application relies on numerous independent clinical studies funded by more than $125 million from U.S.

federal government agencies on our spectrum research cigarettes, the same scientific studies that the FDA itself references in conjunction with its proposed new nicotine reduction rule. The review process by the FDA for our PMT and MRTP applications is already well under way. We are encouraged by the FDA's prompt attention to our applications, and we look forward to the approval and the launch of what may very well be the world's first Modified Risk Tobacco Product. Finally, intense demand from consumers, combined with legalization victories, have resulted in a number of companies playing catch-up active multiyear speculative investments in cannabis.

In contrast, 22nd Century has been building on a foundation in hemp/cannabis research and unique plant development for several years through our partnerships with Anandia Labs, the University of Virginia, the work done in our company's own labs, and the work done with other strategic partners. We are assembling an extraordinary hemp/cannabis germplasm library of unique plants, a talented team of experienced researchers, and a number of strategic corporate partners to accelerate our hemp and cannabis biotechnology. Now is clearly the time to capitalize on opportunities in hemp/cannabis. As we strive to improve the health and lives of people everywhere with our hemp/cannabis technology, 22nd Century intends to deliver very substantial value in this area for our shareholders.

With so many momentous events converging for the company, we are incredibly excited for the future and we are eager to share more good news with you in the coming weeks and months. Thank you so much for joining us today and for your continued interest in 22nd Century. At this time, I will open up the call to your questions. 

Questions and Answers:

Operator

Thank you. [Operator instructions] We'll take our first question from Jim McIlree with Chardan.

Jim McIlree -- Chardan -- Analyst

Yes. Thank you, and good afternoon, Henry and Tom and John. Can I start with expenses? So you -- last year, expenses were $25 million, give or take, but you're -- this year, you're not going to have the $10 million or so of the application of expenses but it sounds like you're going to ramp up in the hemp area. Can you just kind of help me understand how much you're going to spend on hemp and if there's anything else out there that would sop up the savings from the $10 million of the applications' expenses that are going away?

John Brodfuehrer -- Chief Financial Officer

All right. Jim, this is John. So first of all, in, right, in 2018, we had nearly the $10 million spent on our MRTP application, which accounts for most of the difference between 2018 and 2017's expenses. We can't really comment at this time on the quantity of the amount of expenses that we'll spend in the hemp/cannabis area.

Henry Sicignano -- President and Chief Executive Officer

It will be significantly less than the $10 million, Jim.

John Brodfuehrer -- Chief Financial Officer

So -- but you're right on the $10 million difference between the two years.

Jim McIlree -- Chardan -- Analyst

And now are there any other initiatives that would require a meaningful amount of expenses in 2019?

John Brodfuehrer -- Chief Financial Officer

Well, as we said, Jim, there would be a small amount we anticipate approximately $1.5 million of additional expenses on our MRTP application. And at this point, we really can't comment on any other significant additional expenses.

Jim McIlree -- Chardan -- Analyst

OK. Let's see. Henry, I don't want you to -- I don't expect you to be up to comment in detail about what you can with the FDA as far as the NPRM goes. But can you talk about what it is you do to help move the process along with the MRTP and the PMTA? And it sounds like when you're looking at this year, your priorities are building out the hemp franchise and then advancing the MRTP and the PMTA.

Is there anything else that is a top priority for you that you control, so again, excluding the FDA schedule on the NPRM?

Henry Sicignano -- President and Chief Executive Officer

Well, those are the top priorities. In terms of pushing the MRTP alone, the best thing that we can do is to answer all the FDA's questions on a timely basis. And having had more than 20 conversations with the FDA in the last 60 days, we think that's given us an opportunity that we didn't have in prior years and we've really appreciated that dialogue with the FDA. So we think that's our biggest area of leverage in terms of pushing that application forward.

We don't believe that we'll have any additional science to provide the FDA. So really, we're just answering questions and we have some addendums that we're working on that will be submitted in coming weeks. But everything seems to be on pace and actually going more smoothly and quicker than we had anticipated. In terms of hemp and cannabis research, we anticipate making investments this year, and some of those investments might be multiyear investments.

So I guess, stay tuned. I hope that we'll have some interesting news in the coming weeks on some of those. I guess, I can't say much more than that, but we're pretty excited about the opportunities that we've been working on.

Jim McIlree -- Chardan -- Analyst

And as far as the decision-making for the MRTP, the FDA, you indicated, is engaging with you now about your application. Is there -- I guess, does that imply that -- does that imply anything about the likelihood of acceptance? Or is it more of they're going to get all of their information and then give you the thumbs up, thumbs down, whenever, three months, six months, nine months from now?

Henry Sicignano -- President and Chief Executive Officer

All I can say, Jim, is that we think it's a very good sign. When we submitted our preliminary application in 2015, we had very sparse dialogue. We had a meeting early on in the process, and then we didn't hear again from the agency for nearly a year. This time around -- again, more than 20 conversations in 60 days.

I think that speaks for itself.

Jim McIlree -- Chardan -- Analyst

OK. All right. OK. Very good.

And then my last one, on the revenue, is there any -- is there anything about the $26 million or so in revenue generated this year that would -- that was onetime-ish in nature or that would -- that has a feature to it that would suggest you can't do the same thing this year?

Henry Sicignano -- President and Chief Executive Officer

No, we expect to do at least that much. So as long as we weren't to lose any contracts and if we were to gain additional business, we would expect that number to grow.

Jim McIlree -- Chardan -- Analyst

Yes, yes. Of course. OK. Great.

Thanks a lot. Good luck with everything.

Henry Sicignano -- President and Chief Executive Officer

Thanks, Jim.

Operator

Thank you. yWe'll take our next question from Greg Adimos.

Unknown speaker

Hi. Yes, thank you for taking my call here. Just -- can you just walk us through maybe your business plans [Inaudible] busy MRTP timeline or the mandating events? It kind of drags out longer than expected, possibly through 2020. As the dates go on, we can -- we have a pretty large cash burn and with further expenses coming up possibly on the hemp side, I think day by day, maybe even our patents and our technology could be less valuable at the negotiating table with any type of company.

Can you explain -- give us some advice on that?

Henry Sicignano -- President and Chief Executive Officer

Well, I think you should cheer up. I mean, I think things look a lot better than you've implied. By my math, with regular operating expenses, we have about four years worth of cash -- more than four years worth of cash in the bank, so that's good news. There are some outstanding warrants that must only be exercised for cash that will bring in, at the $2.15 exercise price, $23 million or $24 million additional dollars that further supplement that four years of cash.

So I think in terms of cash, I think we're in great shape and I'm very pleased that we were able to raise the money we did a year and a half ago. So that's all good news. In terms of the calendar, as I just mentioned when I was talking with Jim McIlree, MRTP, I think is going more smoothly and more quickly than we ever imagined it could, given our experience in 2015. So we're very excited about that.

I can't guarantee or sort of predict the timeline, but I think it's going really, really smoothly and much more rapidly than we expected. In terms of the national mandate, that we certainly have no effect or influence over but Dr. Gottlieb had mentioned in a Wall Street Journal interview in the fall that he had planned for the NPRM to be issued in 2018, I believe. In December of '18, he said he expected the rule to be published.

He said, this year, I think, was the quote. So I don't know if this year meant 2019 or if it meant 2018. If it meant 2018, I guess FDA missed. If it meant 2019, well then that's pretty exciting news that, that rule would be coming out sometime this year.

So I hope that's helpful. I think we're in a good place with cash. MRTPA is going very well and I think the national mandate remains on track.

Unknown speaker

OK. Thank you. Now lastly, just on the hemp side and our cannabis side of our business here. Pretty much, just about anything related to cannabis or hemp, CBD or anything recently has just been blooming.

And I understand our philosophy a little bit on the not PR-ing everything as you do choose to really only PR most of the important things that you tend to release to shareholders here. But it kind of feels as though many shareholders and then also an investing group that I'm sure are listening to this as well, we feel that we are mainly left to our own devices by finding -- doing our own due diligence in finding patents that are awarded to the company that are not PR-ed and we have to do some extreme digging. Now we're back to share price of levels of back to prior to the 2017, first movement that Gottlieb even started on the mandate here. I mean, I understand the share prices you don't want to artificially pump up, but we certainly are undervalued now.

Do you feel that you should maybe move a little bit stronger toward releasing some news on the hemp side to provide some investor confidence or even some information that would attract new investors because we do have great technology and it seems like, moving forward, there's a lot of opportunity for our business to be able to provide some significant new revenue streams. I just feel that there are a lot of potential investors out there that do not know this and do not know anything about 22nd Century due to the lack of media exposure. And do you plan to change that and whether it is to possibly try to get on new media's outlets, whether CNBC, anything, anything that can get our name out there? What do you feel about that?

Henry Sicignano -- President and Chief Executive Officer

Yes, those are all good points and, I guess, let me try to answer them as directly as I can. We're very careful. You're exactly right. We're very careful about what we press release because we don't want to provide a roadmap to our competitors of exactly what we're attempting to do in either cannabis or in tobacco.

We feel that we have a tremendous competitive advantage in terms of Very Low Nicotine tobacco. I'm going to tell you squarely, definitively, we believe we're the only company in the world that can grow tobacco with 95% less nicotine. Full stop. So that's really important to realize.

Of course, big tobacco companies have been working on this kind of technology. We're aware of the fact that some of them might be able to grow low nicotine tobacco, but there is a world of difference between low nicotine tobacco, which maybe, I don't know, have 20% or 30% less nicotine, and tobacco that is Very Low Nicotine at the levels of 95% less nicotine and below, which make them minimally or nonaddictive levels of nicotine. So that's the reason why we're not out there press releasing all of our tobacco patents in particular but maybe even more so with cannabis, it's such a rapidly developing industry. We're out right now competing behind the scenes with essentially scientific labs that we want to work with us and not with our competitors.

And so we're being very cautious about press releasing names or specifics of any of these folks. That said, some of our -- especially, some of our investments that will be material, they will be 8-K-ed, and you're going to know about them. So I guess I'd keep your eyes open for those. And as we're able to describe the projects that we're working on, we'll certainly do that broadly.

We'd like to keep our shareholders informed, and that's the whole point of today's discussion and of the press releases we do issue but understand, we have some folks who are litigating against us saying that we "pump up" the company and puff our achievements. And then we've got folks like you who are asking us to pump up our achievements and brag a little bit on CNBC. So at the end of the day, we're very proud of what we do achieve. We're never going to exaggerate our accomplishments or the technology that we have.

So that's the fine line we need to walk. But we don't have a bunch of time, so I should move on to our next caller. Thank you very much. Your questions were very good.

Unidentified speaker

Thank you. Thanks.

Operator

Thank you. We'll take our next question from Joe Postilione

Unknown speaker

Yes, thank you. This has been very informative, Henry, Tom, and John. And my son and I are private investors in the company. Very excited about everything, of course, you spoke about here today and all that we've read prior.

And I appreciate all the comments you just made from the previous question about being very careful about what you say, and it makes perfect sense. The concern I have is the bad press that comes out with these Business Wire, frivolous lawsuits, statements, and actually asking for people to contact, and they're almost soliciting people to jump into this fray. And from a comment back from the company, fighting back, vigorously defending, I'm sure that's going to happen behind the scenes in ways that you need to do it, but statements that could, in some way shape or form, leave potential investors or existing investors a bit more comfortable with the fact that this is all nonsense, and I don't see much of that coming out.

Henry Sicignano -- President and Chief Executive Officer

Well, I mean, I said sort of what I could say about pending litigation today on our conference call, but I would strongly encourage you to look at Page 31 on our 10-K, Page 31, Page 32. And there is extensive detail there about these lawsuits, including the names of the folks, who filed them, and including the number of shares that they hold, and I think that speaks volumes. I think there are a couple of shareholders there, and off the top of my head, I think they own fewer than 4,000 shares and I don't know. What more can I say? That should speak for itself.

You can read about those on Page 31 and Page 32 of the 10-K.

Unknown speaker

Yes. And I appreciate that and I will certainly look at that to get to the detail that you're saying. I guess, I was more speaking about these blast statements that come out on Business Wire and such. And perhaps it's just not a good practice for you to respond in any way shape or form, which I guess, in some ways, it makes sense.

But I guess, I suspect that we'll feel so much better to hear something coming out to say that these are frivolous and -- at least in some way, shape or form, to offset some of the bad press that it sends.

Henry Sicignano -- President and Chief Executive Officer

Yes. Well, you're exactly right. And I've tried -- I think I used that word "frivolous" at least twice, maybe three times in my talk. And I don't exactly understand how these lawyers work.

But obviously, we've seen some of those -- I think what they're doing is they're trolling for clients. To the best of my knowledge, there have been only four suits filed. And I know there are far more lawyers that are looking for plaintiffs on the Internet than the four suits that have been filed. So it looks to me like those are hungry lawyers looking for clients.

Unidentified speaker

Yes. Yes, I don't doubt that at all. I appreciate the comments. Thank you for taking my questions.

Henry Sicignano -- President and Chief Executive Officer

Thank you very much, sir.

Operator

Thank you. We'll take our next question from Robert Branciforte with Morgan Stanley.

Robert Branciforte -- Morgan Stanley -- Analyst

Thanks. Thanks for taking my question. I hate to beat a dead horse with the litigation stuff, and it is frivolous. It's obvious.

And we all know the type of lawyers that are -- that get involved in that. But rather than just playing defense on this, which is costly in terms of my money -- our money and human capital, the reputational damage that it does and the share price destruction to a certain extent that it's caused, I think what's wrong with filing a counterclaim for damages against these sleazebag lawyers. I mean, play a little offense. And most companies don't do that and maybe you don't want to get involved in that but this is ridiculous.

I mean, generally, you see one or two law firms. But I think I've seen four, five, six. It's just -- they're jumping on the bandwagon. So that's one thing.

Very quickly. On the cannabinoid situation, the strategic partnership -- corporate partners, you're probably not in a position to name who those corporate partners may be, but with Canada producing so many start-up companies, doing this and another thing, I mean, are companies like Canopy or Tilray some of the major companies? Will they be potential strategic partners?

Henry Sicignano -- President and Chief Executive Officer

I'm going to ask Tom to address the lawsuit question, and he might as well talk a little bit about strategic partners.

Thomas James -- Vice President, General Counsel and Secretary

Sure. Robert, this is Tom James, the general counsel.

Robert Branciforte -- Morgan Stanley -- Analyst

Hi.

Thomas James -- Vice President, General Counsel and Secretary

As you rightfully point out, we cannot, when it midst of litigation, discuss details. But we are investigating all options and we're not afraid of pursuing all options. We're not going to sit back idly by. As Henry said, the field of lawsuits are without merit, they're frivolous, and we intend to defend them vigorously.

What other options we may take, you'll have to wait and see. So again, that's the most we can say at this time for that. On cannabis, we cannot, as you can imagine, mention strategic partners or ones that we're in discussions with. Nobody is off the table, but we feel that we've got great advantages.

We're not a grower. We're a producer of unique plants that we'll also grow and also extract. The germplasm that we have people covet and we're very concerned to be careful about who we affiliate with. So we have talked to a lot of people internationally, globally, not just Canada, and we will announce them appropriately when the time is right.

So that's the best we can say at this point in time, and I hope that's comforting to you.

Robert Branciforte -- Morgan Stanley -- Analyst

Yes. Thanks, guys. Keep up the good work. I appreciate it.

Henry Sicignano -- President and Chief Executive Officer

Thanks very much.

Operator

Thank you. We'll take our next question from Paul Sleady with -- a private investor.

Unknown speaker

Yes. Thank you very much for taking my call. My question has to do with the competitive situation in your hemp business. You, many times, have pointed out that you have -- you believe you have the only zero or close-to-zero nicotine tobacco.

But are there other companies that actually can safely make hemp that has zero-THC? Or I mean, how -- what is the competitive landscape in that part of your business?

Thomas James -- Vice President, General Counsel and Secretary

So, Paul, this is Tom James. I'll answer that question. We, in 2017, two years ago, decided to go after the low- to no-THC plant because at that time, the 2014 Farm Bill did not allow for crop insurance to farmers. So if their crop grew above the legal limit for hemp, they called it growing hot.

They'd have to destroy their entire crop, and so that was a problem. So we came out with a zero-THC as a solution to that. The 2018 Farm Bill cures that problem by allowing crop insurance for farmers to a zero-THC plant is interesting still, as we say in our 10-K, but it's not as positive. There needs to be other agronomic traits of robust cannabinoid profile or higher yield, things of that nature that make agronomic sense.

So there are other people that would like to say, "Oh, they have come out with a zero-THC plant too." And again, that's scientifically interesting. It's two years behind us and they would like to try and get rare cannabinoids, they're again behind us. And so there are people that are going to come out and claim a whole lot of things, but we know what we have and we've publicly stated what we have and we'll continue to say when appropriate the things that we achieved. Not before because, as Henry said, we don't want to give a road map to our competitors as to where we're going.

We will state once we've achieved where we intend to be. So you could take comfort in that.

Unknown speaker

So is it safe to say that there's a fair number of potential competitors and you've got a couple of years of head start. That's your, I would say, competitive advantage. But this is really a race in its early days for -- on the hemp side.

Thomas James -- Vice President, General Counsel and Secretary

Yes. Don't take the zero-THC as being competitive or a race somewhat now. That's an interesting scientific plant. But again, after the 2018 Farm Bill, it's -- you need other agronomic qualities.

And we think we're substantially ahead from a number of players that are involved, and when we are ready to publicly announce, we'll let people know why we feel that way.

Unidentified speaker

All right. Thank you. I certainly feel like my questions have been answered and I thank you.

Henry Sicignano -- President and Chief Executive Officer

Thank you. We started about five minutes late, so we're going to hold the call open for about five minutes after the hour, and I apologize to those of you who won't get through. I see that there are quite a line of callers waiting, but we'll go as quickly as we can to see if we can answer a few more questions. Go ahead, operator.

Operator

We'll take our next question from Brian Desenditz

Unknown speaker

Yes. Thank you, guys. Most of my questions have been answered. I just wanted -- I think John may have commented on his initial remarks.

But how much spend is left with the FDA on the MRTP? Is it every 90%? Where were we, or I guess how much are we looking at in the future? Would that be this year, kind of, to finish the course?

Henry Sicignano -- President and Chief Executive Officer

By current projections, we think 90% is about right. There's probably less than $2 million. Now the only caveat there is if FDA came up with, I don't know, some new thing that they might ask us to do and then we'd have to budget anew for whatever that new project is. But at this point, we do not expect any new science or any new projects or any new studies that have to be done.

So all we need to do is sort of pay the bills for the remaining things that we're just tying up now.

Unknown speaker

Perfect. And the balance sheet is in amazing shape. It looks like a growth company that's been making money for years. You guys are way ahead of the game on that, and congrats on the balance sheet position.

Henry Sicignano -- President and Chief Executive Officer

Thank you very much.

Thomas James -- Vice President, General Counsel and Secretary

Thank you.

Operator

Thank you. We'll take our next question from Frank Colbert..

Unknown speaker

Hi. Thank you for taking my question. I noticed, of course, in the last day or so, that the value of the stock went down a tremendous amount. I read that it was because of the resignation of the FDA Chairman, I guess.

Is that your opinion? Or what was the main reason for such a high volume and such a tremendous drop in the stock?

Henry Sicignano -- President and Chief Executive Officer

I think you're -- yes, I think you're right. I think that bit of news probably sparked some selling. And then I think there are some folks who short our stock, who use that bit of news to scare investors, who didn't realize that, actually, the Center of Tobacco Products is the agency that is reading our Modified Risk Tobacco Product application and that, in fact, the national mandate is under the Center for Tobacco Products, so I think you're exactly right. I think that's what sort of sparks people's -- I don't know what the word is, spark people's concern.

And then I think you have folks out there that bet on that concern because they had a bet that gave them economic incentive to drive the price of our stock down.

Unknown speaker

I mean, I was watching it. It was down $0.16 with about 0.5 hour to go before closing. And the next thing I saw was down $0.50. And actually, it was down as much as $0.80 and came back a little bit.

And of course, it came back the day after, but it went down a little bit today because the market went down but I was shocked. I mean, I've never seen a percentage like that. I mean, it must have shocked you too.

Henry Sicignano -- President and Chief Executive Officer

Yes, of course. It did. And all we can do is keep doing the best job that we can here. And at the end of the day, I think we're going to look back and see this as a blip.

I don't know if you were a shareholder in 2011, our stock went from something like $0.70 to $0.15 one day and a lot of people threw in the towel and I don't know, all those folks that bought stock at $0.15 or $0.16 are quite pleased.

Unknown speaker

Yes. I noticed one thing, and then I'll let you go to someone else if you have time, that there's an ETF that carries a lot of your shares. I think you should advertise that in some way. I think it's the harvest-something that has a big share of your -- shares of your company.

I think that's a good thing. What do you think about that?

Henry Sicignano -- President and Chief Executive Officer

Well, I -- sure. I think it's a good thing when any holder amasses a large position, especially if it's for the long term. I think that's a good thing. I'm not sure how it -- the appropriateness of promoting that fact, but we do notice those disclosures when they're made.

And I agree with you, I think it's a positive development.

Unidentified speaker

OK. Thank you so much for your call and good luck to the future.

Henry Sicignano -- President and Chief Executive Officer

Thank you, sir. Appreciate it. I think this will be our last question. Move to the next one.

Operator

Thank you. We'll take our next question from Jim Sckellton.

Unknown speaker

Yes, gentlemen. Thank you for taking the call. I'll be brief here. There's one significant product that I have not seen mentioned in the last year and that is, at one point, you were talking about putting out a smoking cessation kit that would include VLN cigarettes along with, I suppose, other devices to help people get off your cigarettes.

Can you tell me where we stand with those?

Henry Sicignano -- President and Chief Executive Officer

Yes, sir. That was actually sort of my favorite project and that's actually the project that encouraged me personally to invest in 22nd Century in 2010. I was very excited about that project and we championed that for many years. But why we haven't been as active with that product since July of 2017 is because the national mandate would essentially make that product obsolete in the United States, at least.

The national mandate would require that every single cigarette sold will contain 95% less nicotine than a conventional cigarette, and our X22 smoking cessation product in development was exactly that. It was a cigarette designed to be sold through prescription from your doctor with a 95% less nicotine content. So I guess if there were -- if the national mandate were ever to be put on pause, we would immediately pick up the prescription smoking cessation product or avenue. But right now, we believe that the bigger opportunity and the most important opportunity for public health is to make all cigarettes in the United States nonaddictive.

Is that helpful?

Unknown speaker

I couldn't agree with you more. Yes, it is. So that's sort of dead in the water. It's unnecessary.

If we can just skip the VLN brand out there and start marketing that, then people can do their own smoking cessation, such as myself, who has been a 50-year smoker and suffer tremendous health disabilities because of that. Thank you very much for your time, and let's just look onward and onward.

Henry Sicignano -- President and Chief Executive Officer

Thank you very much, sir. Thank you. We appreciate your support.

Operator

Thank you.

Henry Sicignano -- President and Chief Executive Officer

OK. So I think we're going to wrap up the call now. I appreciate everyone's participation. I apologize that we weren't able to answer everyone's questions, but we'll certainly have another call in a couple of months and we'll take questions again then.

Duration: 62 minutes

Call Participants:

Thomas James -- Vice President, General Counsel and Secretary

John Brodfuehrer -- Chief Financial Officer

Henry Sicignano -- President and Chief Executive Officer

Jim McIlree -- Chardan -- Analyst

Robert Branciforte -- Morgan Stanley -- Analyst

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