InvestmentThink Peice — 22nd Century Group

Overview:

22nd Century operates in a very unproven and volatile industry. It is focused on technology that allows it to increase or decrease the level of nicotine and other nicotinic alkaloids in tobacco plants and levels of cannabinoids in cannabis plants.

Strategy:

The firm garners most of its revenue from government supported projects to lower nicotine levels in tabbacco. In 2015, the company extended its agreement for another 5 years.

Currently, they are seeking to meet FDA requests to create a product containing 95 percent less nicotine. Along with meeting FDA timelines, the company is seeking agencies in other countries to work with.

Financial Viability:

Operating income currently falls short of covering operating expense by 4 percent. In 2016, operating income fell short by 35 percent. By 2018, operating income should cover the costs. If that happens, the stock will likely stabilize.

Investing Thesis:

22nd Century has had an incredible run thus far in 2017, gaining over 100 percent. The major question is- how much more does it have to run?

Essentially, the firm should be treated like a pharmaceutical company that is dependent on FDA approval for survival. As such, the risks in owning the stock are high.

Late summer months are notorious for poor overall market returns. Considering this, an investor should wait until the end of September before jumping into the stock- but expect it to hit 3.05 a share.