After a blistering 2017, shares of the marijuana stock 22nd Century Group, Inc. ( XXII 1.64% ) have struggled this year. Specifically, the stock has lost 12.1% of its value halfway through 2018, according to data from S&P Global Market Intelligence. What's behind this reversal of fortunes?
Although there is no specific event underlying this weakness, 22nd Century appears to have gotten ahead of itself from a price point last year. The short story is that the company's shares took flight after the Food and Drug Administration announced its plan to implement a so-called tobacco harm reduction initiative aimed at lowering the amount of nicotine in combustible cigarettes to nonaddictive levels. 22nd Century is hoping that its Spectrum Very Low Nicotine research cigarettes will prove to be top choice for tobacco manufacturers looking to comply with this new initiative by the FDA.
While 22nd Century made its bones as a marijuana stock through the development of cannabis plants that produce zero THC, the company also has its foot firmly planted in the world of tobacco through the same general approach. Namely, the biotech has developed its Spectrum research cigarettes to sport a mere 0.5 mg nicotine per gram of tobacco. That amounts to a staggering 95% reduction in nicotine levels compared to those that are commercially available in the United States right now.
Unfortunately, the FDA's long-winded process of actually implementing this low nicotine initiative has meant that tobacco companies have yet to agree to any meaningful licensing deals or partnerships with 22nd Century that could transform the company into a profitable operation on a consistent basis.
The open comment period for the FDA's Advance Notice of Proposed Rulemaking on a nicotine product standard for cigarettes reportedly ends next Monday, July 16, 2018. However, it's really anyone's guess as to how this process will play out thereafter.
The FDA does appear to be serious in its quest to lower cigarette consumption, but tobacco companies probably aren't going to simply sit back and allow their most profitable products to get taken to the woodshed, either. In fact, Wall Street isn't expecting this initiative to result in any type of revenue boost for 22nd Century this year or next. The biotech's zero THC platform also isn't on track to produce much in the way of revenue in the near future. And that's why investors may want to shy away from this highly speculative plant biotechnology stock for the time being.