Up until recently, investors knew that plant biotechnology company 22nd Century Group (NASDAQ:XXII) was in both the tobacco and cannabis industries, plus another unnamed sector (which it initially alluded to last year). On Aug. 30, the company finally unveiled what that last business was: specialty hops. And with an estimated addressable market of $1.3 trillion across all three industries, there's significant potential for the business over the long term.

But while there's less mystique about its business model since the revelation, that doesn't mean the stock is any less risky. It's down by more than 35% in the past three months (the S&P 500 has risen 5% during that period) and the company is consistently incurring losses, meaning investors still need to be careful with 22nd Century Group as it could be awhile before its financials improve.

Person making a presentation at a company meeting.

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The company is establishing a new subsidiary in Europe

In addition to announcing that it was entering the specialty hops market last month, 22nd Century Group also said it would be adding to its operations and setting up a subsidiary in the Netherlands. While the company says the goal is to "open new revenue opportunities in hops," the new subsidiary (22nd Century Group Europe B.V.) is also going to facilitate growth opportunities in the region for its other businesses -- tobacco and cannabis. Today, the company says its revenue comes from customers primarily located in the U.S.

The establishment of the new Dutch business puts 22nd Century Group in a position to reach many key producers and customers in the hops market in Europe. Hops are used in beer, but the company clarifies that it won't actually be making beer -- rather, it will be looking to enhance it (and other products that use hops), helping both beer producers and nutritional/pharmaceutical companies use "revolutionary new ingredients."

A big opportunity, but it will take time for investors to see the results

22nd Century Group estimates the specialty hops segment is worth $500 billion, which is more than the $100 billion market opportunity it has in hemp/cannabis but less than the $714 billion addressable market it estimates it can reach in tobacco. That said, it may be awhile before the company starts generating any meaningful results from hops, as it anticipates its first revenue from the segment won't come for another 12 to 18 months.

Although the business has been generating revenue from tobacco for years, in 2020, the top line was just 8% higher than it was a few years earlier.  The more promising growth opportunity lies in its very low nicotine (VLN) products, which can make it easier for smokers to kick the habit. But in order for it to market those products as containing 95% less nicotine (which could undoubtedly lead to significant sales growth), the U.S. Food and Drug Administration (FDA) first needs to approve the company's modified risk tobacco product (MRTP) application. The company notes that two-thirds of adult smokers (which it includes in its total addressable market estimate) want to quit and its VLN products could help them do that.

But none of that has happened yet, and while 22nd Century Group is optimistic that it will, there's no set date as to when investors can expect the stamp of approval. Once it gets the OK, the company says it will launch the VLN products in the U.S. within 90 days. Internationally, where the process is a bit easier, 22nd Century Group estimates that it will be able to launch VLN products by the first quarter of 2022.

In its hemp and cannabis business, 22nd Century Group anticipates that it will begin generating revenue before the end of this year. 

Is 22nd Century Group a buy on this news?

Now that there's more clarity surrounding 22nd Century Group, there's a bit less uncertainty for investors -- but the stock is still far from a safe buy. There are too many "ifs" surrounding its operations. If its MRTP application is successful in the U.S. market, its VLN products could be game-changers.

But even then, it might be difficult to determine whether that will be enough to make the company profitable. If its cannabis operations can generate meaningful revenue, that can also help push the needle in the right direction. But investors shouldn't overlook the fact that many cannabis businesses struggle to turn a profit, and there's plenty of risk there as well.

With losses totaling $20 million over the trailing 12 months (on revenue of $30 million, all from tobacco), 22nd Century isn't exactly delivering the results that would normally get investors excited about a business. It has also burned through cash from its day-to-day operations in each of the past four quarters.

If all goes well, 22nd Century Group's stock could soar in the years ahead, but it could also crash if its MRTP application ends up failing. Given the many question marks that still remain, this isn't an investment I would consider for my portfolio. And unless you have a high risk tolerance, you're likely better off steering clear of it too, at least until the FDA makes a decision on the company's MRTP application.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.