Snapshot
22nd Century Group, Inc. reported $4M of revenue in Q2 2025, up -48.6% year over year, with diluted EPS of $-3948.00 and an operating margin of -73.0%.
- Revenue
- $4M
- YoY growth
- +-48.6%
- Diluted EPS
- $-3948.00
- Operating margin
- -73.0%
What management said
- •In the U.S., we spend six times more in health costs than the combined Big Four tobacco companies report in worldwide revenue annually.
- •Adding the high margin volume will depend on a number of variables such as state registrations, number of stores in distribution, rate of sale, among others.
- •We've already begun shipping Pinnacle VLN in August, with the first stocking orders being over 3,000 cartons.
- •Adding the higher margin branded products will break open gross margin profitability as we maximize the capacity and efficiency of our factory that has largely fixed labor and overhead.
- •We've also improved our working capital outlay by tightening finished good inventory on hand.
- •The increase in volume reflects a significant increase in CMO cigarettes, including export, which has high volume but low priced product.
- •First and foremost, it sounds as if break-even on EBITDA might be pushing back.
- •Can you give some visibility on when you might achieve break-even on a quarterly basis EBITDA?
- •So this, Andy, this is one of the reasons why we're shifting away from the low margin, and some of its lost margin, the CMO businesses.
- •It will take a little longer as we give up the margin contribution from the high-volume mix, but the focus on the branded business will pay off.
What went well
- •Began shipping newly branded VLN products into the market, with Pinnacle VLN first stocking orders over 3,000 cartons in August, marking entry of VLN and partner VLN products.
- •Made further progress improving the balance sheet, reducing debt by approximately $1 million during the quarter.
- •Improved working capital outlay by tightening finished-good inventory on hand.
- •Established a sustainable operating expense base that supports rapid growth of high-margin branded products without significant additional OpEx spend.
- •Advanced the Dorchester business interruption lawsuit ($9 million actual damages claim) with significant discovery completed and a trial date set for November 2025.
What went wrong
- •Net revenue declined sequentially to $4 million from $6 million in Q1 2025, with gross margin a loss of $0.6 million.
- •Profitability timeline slipped, with the company now expecting to reach profitability in the first half of 2026 due to delays and latent barriers in going to market with branded VLN and partner VLN SKUs.
- •Net loss from continuing operations was approximately $3.3 million and adjusted EBITDA loss widened to $2.6 million from $2.3 million in Q1 2025.
- •Cash stood at about $3 million at quarter end, prompting acknowledgment that an additional, smaller capital raise may be needed in the near term.
Guidance changes
| Metric | Period | Previous | Current | Change |
|---|---|---|---|---|
| Profitability / break-even | First half of 2026 | — | Now expect profitability in first half of 2026; definitely Q2, working on Q1, based on timing of branded product stocking, rate of sale, and store count | |
| Revenue and gross margin | Beginning Q3 2025 | — | Expect distribution and customer adoption to begin generating steady revenue growth and gross margin expansion | |
| R&D spend | Next two years | — | Anticipate additional R&D spend to maintain low-nicotine IP stronghold and fund clinical research, market studies, and additional PMTA/MRTP filings |
Performance breakdown
| Metric | YoY change | Reason |
|---|---|---|
| Net revenue | — | Decreased sequentially to $4 million from $6 million in Q1 2025 |
| Total cartons sold | — | Increased to 779,000 from 478,000 in Q1 2025, reflecting a significant increase in high-volume, low-priced CMO and export cigarettes |
| Gross margin | — | Consistent at a loss of $0.6 million |
| Operating expenses | — | $2.3 million versus $2 million in Q1 2025; level described as sustainable going forward |
| Net loss from continuing operations | — | Approximately $3.3 million, consistent with Q1 2025 |
| Adjusted EBITDA | — | Loss of $2.6 million versus a $2.3 million loss in Q1 2025 |
Earnings call themes & trends
| Topic | Previous mention | Current period | Trend |
|---|---|---|---|
| Regulatory tailwind | — | FDA proposed standard requiring combustible cigarettes/filtered cigars to contain less than 0.7 mg/g nicotine (95% less) over a two-year transformation; 22nd Century holds the only authorized compliant combustible cigarette | |
| Partner / Flanker VLN strategy | Introduced over the past ~18 months | Two early adopters (Smoker Friendly and clinical brands) now carry VLN SKUs, positioned to benefit when the FDA mandate takes effect | |
| Business model transition | Running high-volume low/negative-margin CMO products | Cycling out of low-margin CMO and replacing with high-margin branded VLN/partner VLN products to break open gross margin profitability | |
| Profitability timeline | Earlier expectations within 2025 | Pushed into first half of 2026 due to latent go-to-market barriers including state registrations, store count, and rate of sale |
Q&A summary
It sounds as if break-even on EBITDA might be pushing back. Can you give visibility on when you might achieve quarterly EBITDA break-even?
Daniel Otto: Looking at the first half of 2026, definitely the second quarter and working on the first quarter, based on the timing of high-margin VLN and partner VLN branded products as the company watches initial stocking, rate of sale, and number of stores.
Cash is about $3 million at the end of Q2. Is that sufficient to reach break-even in the first or second quarter of next year, or will you need an additional raise?
Larry Firestone: This is a reason for shifting away from low- and lost-margin CMO businesses that consume working capital. The company is tracking toward positive branded-product gross margin that carries overhead and contributes to working capital. There is a chance of raising money in the near term, but the size will be less than past raises.
Your debt is rolling over around March 2026. What are your plans for rolling over or handling it?
Larry Firestone: In conversations with the debtor about paying it off and becoming debt-free; as the company raises money, a piece will go to extinguishing the debt, balancing turning profitable while eliminating the debt.
Is there any chance that VLN would not be renewed under the MRTP renewal process?
Larry Firestone: Given the FDA's January mandate and the fact that VLN complies and is in the market enabling that mandate, there is very little chance the MRTP won't be renewed.