In the first three weeks of 2018, shares of 22nd Century Group (NYSEMKT:XXII) soared nearly 50%. Now, though, the stock has given up all of those gains and then some.

You'll find 22nd Century Group included in most lists of marijuana stocks, because the biotechnology company is developing cannabis plants that have no THC -- the primary psychoactive compound in cannabis -- as well as cannabis plants that have optimized levels of cannabidiol (CBD) and other cannabinoids. But 22nd Century Group's primary focus for now is its capability to genetically engineer tobacco to have low levels of nicotine.

On Thursday, the Food and Drug Administration (FDA) announced that it was moving forward with plans to require tobacco cigarettes sold in the U.S. to have minimal or nonaddictive levels of nicotine. You'd think this news would have provided a nice boost to 22nd Century Group stock, but instead the share price actually dropped.

Why isn't this stock booming? The answer is a little complicated.

Man breaking cigarette into two pieces

Image source: Getty Images.

A long and winding tobacco road

First of all, it's important to understand the FDA's process. The FDA doesn't just decide one day to make changes then implement those changes the next day. There's a long and winding process involved before any changes go into effect.

The announcement last week related to the issuance of what's called an advance notice of proposed rulemaking (ANPRM). Ultimately, the FDA wants to to set a maximum nicotine level in cigarettes so that they are minimally addictive or nonaddictive. However, there are several issues involved with setting such a standard.

Probably the most important issue is what maximum nicotine level should be used. There are also questions about the best way to implement a new standard. Other issues include how nicotine levels should be measured and the technical feasibility of cigarette companies to comply with new requirements. The ANPRM is intended to allow the public, including tobacco companies and anti-tobacco advocates, to weigh in on these issues.

All comments must be submitted to the FDA by June 14, 2018. The agency will then review the feedback that it received. There are three different possible paths after this review. One is that the FDA could decide not to do anything. Another is that another proposed rule could be issued, with the process starting over. It's also possible that the FDA issues a final rule. If this third path is taken, typically the FDA will set an effective date for the new rule far enough in the future for impacted parties to have time to make the necessary changes to achieve compliance.

What's holding 22nd Century Group back?

One reason that likely explains in part why 22nd Century Group stock hasn't skyrocketed is this long, drawn-out process that the FDA follows. It's going to be a while before anything is finalized and even longer before any change might be implemented -- and the market realizes that.

Also, the FDA first announced its approach to regulation of nicotine, including the plan to set maximum levels for nicotine in cigarettes, back in July 2017. That announcement lit a fire beneath 22nd Century Group stock, so much of the anticipation of regulatory changes is already baked into the stock price.

Some investors could be concerned that some of 22nd Century Group's key patents expire in 2018. These patents relate to the QTP gene in tobacco. The expiration of these patents will clear the way for third parties to target the QPT gene in an effort to lower nicotine levels. 

Another potential factor that could be causing some investors to hold off on buying 22nd Century Group is that there are several alternative methods for tobacco companies to lower nicotine levels. The good news for 22nd Century Group was that FDA's ANPRM specifically mentioned genetic engineering, including a reference to 22nd Century Group's technology, as one way to reduce nicotine levels in tobacco. 

However, the ANPRM also noted that very low nicotine content (VLNC) cigarettes have been around since the 1970s. The tobacco industry could use breeding and cultivation practices to lower nicotine content. Chemical extraction of nicotine is another potential technique that could be used. And there are other possible approaches to reducing nicotine levels as well. The bottom line is that there's no guarantee that tobacco companies will be lining up at 22nd Century Group's door, even if a new requirement for very low nicotine levels is implemented.

There's one thing that isn't a problem for 22nd Century Group, though: cash. Through early October of last year, 22nd Century Group stock was on fire -- and even ranked as the top-performing marijuana stock of the year. (Again, even though the company's primary focus is tobacco, it's still viewed by many as a marijuana stock.) However, the stock plunged after 22nd Century Group announced a stock offering to raise cash.

But that stock offering put the company in great shape from a cash standpoint. As of the end of 2017, 22nd Century Group had a cash stockpile totaling $62.6 million, including cash, cash equivalents, and short-term investments. The company said that amount would be enough to fund operations "for a number of years." 

A boom ahead?

Will 22nd Century Group stock skyrocket yet again as the FDA process moves along? It's quite possible.

Although it's true that tobacco makers have several options available to reduce nicotine levels, genetic engineering of tobacco plants could be one of the best ways to do so. 22nd Century Group holds several patents on genes that are instrumental in lowering nicotine levels in tobacco plants. Even with its QPT patent family expiring this year, there would be a lot of hurdles for other companies to jump to develop genetically engineered tobacco plants with lower nicotine levels. 

However, it's still early. 22nd Century Group, for now at least, is an unprofitable company with a stock that remains a speculative play. That would rule this stock out for many investors. For those who are willing to place a bet that the FDA will deliver on its promise to dramatically lower nicotine levels in cigarettes, though, buying a small position in 22nd Century Group might be a gamble that pays off nicely.

Keith Speights has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.