With so much hype around cannabis legalization at the state, and potentially federal, level, it can be easy to lose track of the debate involving cigarette smoking and nicotine addiction. But for 22nd Century Group (XXII -7.33%), that debate doesn't get lost. In fact, it's at the center of the company's product portfolio, and a primary driver of revenue for 2021, through expansion of its growing program and premium pricing for its very low nicotine (VLN) cigarettes.

Now comes word that the Biden administration is considering a proposal from the U.S. Food and Drug Administration (FDA) to reduce nicotine levels in all cigarettes sold in the U.S. to minimally or non-addictive levels. This one major move could have drastically different impacts for "cigarette" companies. For 22nd Century, in particular, this could be the moonshot it's been waiting for.

Two cigarettes burning in the foreground of an open field

Image Source: Getty Images

A one-two punch

22nd Century is a plant biotech company with a market cap of $734 million and a history of focusing on low nicotine content tobacco and cigarette products, as well as becoming more involved in the cannabis market through partner collaborations. These days, I'd consider that a solid one-two punch. In fact, the company is a leader in developing low nicotine cigarettes, which already has the attention of the FDA by way of a recent order for 3.6 million of its variable nicotine cigarettes for independent scientific studies funded in part by the FDA.

The icing on the cake for 22nd Century is that the company has a current application submitted to the FDA – a Modified Risk Tobacco (MRTP) authorization for VLN cigarettes -- and is highly confident that the FDA is in final stages of review. Should a federal mandate arise out of an FDA approval and successful Biden administration review, the stock price of 22nd Century may just beat SpaceX to the moon.

I feel like I've heard this before

The counter argument to such a mandate is not about saving lives. It's that changes of this strong a magnitude could lead to a disruption for market leading tobacco producers such as Altria Group (MO 0.56%), which would likely see a major shift in strategy, and potential product revenue declines or delays as it moves to more reliance on JUUL e-cigarettes. Expenses could also be impacted through licensing needs in order to quickly get approved products into the market. This, in turn, could lead to job loss for individuals.

One thing for investors to keep in mind as the stock share price for 22nd Century catapults upward, is that we've heard a version of this story before. In 2017, 22nd Century was awarded a patent for producing cigarettes with reduced amounts of harmful components. At that time, President and CEO, Henry Sicignano, III, was quoted as saying:

We are excited about the FDA's bold plan to mandate minimally or non-addictive levels of nicotine in cigarettes, and we are already taking steps to produce enough of our proprietary Very Low Nicotine tobacco seed to supply the entire U.S. industry.

A brief summary of the stock's price chart can tell you how that turned out. It climbed from the $0.90 level to $3.40 in a matter of 12 months as hype built, followed by an agonizing slow decline for over two years, bottoming out at $0.64. A similar spike took place four years earlier, in 2013, when the share price went from $0.60 to $4.34 in a time span of seven months, before bottoming out around $0.75 only 17 months later after a more dramatic drop.

A sense of change

So, what makes this time different? For starters, the FDA review process of 22nd Century's application, and any actions taken by the Biden administration will be two key items to watch more closely. After struggling through a year that saw healthcare become more of a focal point for nearly everyone in the world, there is a great deal of momentum for pushing through with changes that parlay those efforts to further improve our healthcare system. The FDA is now proposing to reduce nicotine content to minimally or non-addictive levels in all cigarettes sold in the U.S., and the Centers for Disease Control and Prevention (CDC) published a report in which it found that  80% of adult smokers would favor lower nicotine levels. With a new administration pushing for better healthcare combined with support from the FDA and CDC, the time may finally be here for 22nd Century to make its mark.

The upside for 22nd Century is astronomical if mandates are pushed through. The stock price is in the midst of a large spike -- currently at 119% year to date -- so jumping in now may involve some price chasing. But it is worth noting that the company is coming off of a solid year that saw sales revenue increase by 8.8% year over year.

If you have the stomach to accept rollercoaster volatility and the potential to be let down, this one could be one of those high risk/high reward companies that turns into a game changer for your portfolio. If lower nicotine mandates are put in place, it should be an excellent ride for investors. If not, remember the stock price's history.