May 25th, 2016 — Current Issues
CLARENCE, N.Y.–(BUSINESS WIRE)–
22nd Century Group, Inc. (NYSE MKT:XXII), a plant biotechnology company that is a leader in tobacco harm reduction, announced today the receipt of an initial purchase order for MAGIC 0 Very Low Nicotine cigarettes from French distributor, Royal Distribution. Beginning in June, Royal Distribution will promote and sell the MAGIC brand in France as the world’s lowest nicotine tobacco cigarette. Before the end of 2016, Royal Distribution projects it will have placed MAGIC 0 cigarettes in more than 750 tobacco stores throughout France.
22nd Century is also negotiating with distributors in several additional countries to introduce MAGIC 0 Very Low Nicotine cigarettes broadly to European smokers who wish to reduce their exposure to nicotine. The Company expects to accelerate rollout of MAGIC 0 in Europe and in other markets in the months to come. The American MAGIC website, www.magiccigarettes.com, is available in 8 languages including English, French, Spanish, Italian, Dutch, German, Chinese, and Japanese, and provides details on the science that makes the world’s lowest nicotine cigarettes possible – all without any artificial extraction or chemical processes.
Mr. Mourad Senouci, Director and co-owner of Royal Distribution explained: “MAGIC is different from any other cigarette brand on the French market. Royal Distribution has always been a trendsetter, and this will be also the case with MAGIC. We will focus our marketing on the unique benefits of MAGIC and on its innovative Very Low Nicotine tobacco.”
22nd Century’s MAGIC cigarettes are made with the Company’s proprietary Very Low Nicotine tobacco and are manufactured for sale in Europe on behalf of 22nd Century by Orion Tobacco Corporation. Designed to appeal to discriminating consumers and positioned to compete with premium cigarette brands, MAGIC 0 cigarettes yield only 0.04 mg nicotine per cigarette – 95% less nicotine than conventional cigarette brands. The proprietary tobacco used in MAGIC cigarettes is grown on independently owned farms in the United States and results in an extraordinary cigarette with all of the taste of a conventional cigarette, but with non-addictive levels of nicotine. Unlike conventional cigarettes, MAGIC cigarettes are crafted with a specialty carbon filter which provides full air flow for a smoking experience that smokers describe as “exceptionally smooth and rich.”
“The public health implications of a virtually nicotine-free tobacco cigarette are enormous and 22nd Century is proud to be in a position to bring such an important product to market in France,” explained Henry Sicignano, III, President and Chief Executive Officer of 22nd Century. “Indeed, France is the first of many European countries that will receive MAGIC 0 Very Low Nicotine cigarettes this year; we are now accelerating rollout of this extraordinary product.”
About 22nd Century Group, Inc.
22nd Century is a plant biotechnology company focused on technology which allows it to increase or decrease the level of nicotine in tobacco plants and the level of cannabinoids in cannabis plants through genetic engineering and plant breeding. The Company’s primary mission is to reduce the harm caused by smoking. 22nd Century currently owns or exclusively controls more than 200 issued patents and more than 50 pending patent applications around the world. Visit www.xxiicentury.com or www.magiccigarettes.com for more information.
Cautionary Note Regarding Forward-Looking Statements: This press release contains forward-looking information, including all statements that are not statements of historical fact regarding the intent, belief or current expectations of 22nd Century Group, Inc., its directors or its officers with respect to the contents of this press release, including but not limited to our future revenue expectations. The words “may,” “would,” “will,” “expect,” “estimate,” “anticipate,” “believe,” “intend” and similar expressions and variations thereof are intended to identify forward-looking statements. We cannot guarantee future results, levels of activity or performance. You should not place undue reliance on these forward-looking statements, which speak only as of the date that they were made. These cautionary statements should be considered with any written or oral forward-looking statements that we may issue in the future. Except as required by applicable law, including the securities laws of the United States, we do not intend to update any of the forward-looking statements to conform these statements to reflect actual results, later events or circumstances, or to reflect the occurrence of unanticipated events. You should carefully review and consider the various disclosures made by us in our annual report on Form 10-K for the fiscal year ended December 31, 2015, filed on February 18, 2016, including the section entitled “Risk Factors,” and our other reports filed with the U.S Securities and Exchange Commission which attempt to advise interested parties of the risks and factors that may affect our business, financial condition, results of operation and cash flows. If one or more of these risks or uncertainties materialize, or if the underlying assumptions prove incorrect, our actual results may vary materially from those expected or projected.
View source version on businesswire.com: http://www.businesswire.com/news/home/20160525005440/en/
May 25th, 2016 — Current Issues, Electronic Cigarettes
|Hong Kong, May 23, 2016 – A top cancer research organisation has published a simple Q&A to help smokers switch to safer alternatives and recommending use of e-cigarettes.
Cancer Research UK is the world’s leading charity dedicated to cancer research. All its activities are directed towards its ultimate goal of beating cancer.
Following last month’s high-profile Royal College of Physicians’ report encouraging smokers to consider e-cigarettes as a less harmful alternative, Cancer Research asked Dr Andy McEwen, executive director of the UK’s National Centre for Smoking Cessation and Training, to answer some of the most commonly asked questions about the devices. The Q&A can be seen here:
10 common questions about e-cigarettes answered
Among Dr McEwen’s conclusions are:
• “switching from tobacco to e-cigarettes substantially reduces a major health risk”
• “nicotine doesn’t cause smoking-related diseases”
• “using an e-cigarette is different from smoking a cigarette”
• “there’s no evidence that second-hand e-cigarette vapour is dangerous to others”
• “e-cigarettes aren’t recommended for use by non-smokers and children”.
Cancer Research is the latest in a line of respected and impartial medical and public-health bodies to confirm scientists’ research that e-cigarettes represent a major advance in harm reduction for smokers. It is well known that people find it difficult to stop smoking, and switching to vaping reduces the risk by “at least 95 percent”. Other recent reports endorsing advice to smokers to switch to e-cigarettes include the Royal College of Physicians, Royal Society for Public Health, the British Lung Foundation and Public Health England.
factasia.org is an independent, not-for-profit, consumer-oriented advocate for rational debate about – and sensible regulation of – the rights of adult citizens throughout Asia-Pacific to choose to use nicotine related products. factasia does not promote smoking or the use of nicotine, opposes all under-age use of cigarettes or any other product containing nicotine, and does not engage in any manufacturing or distribution activities.
For more information, please contact:
John Boley: +61 484 634 533, +61 2 8091 4711
Heneage Mitchell: +66 95 760 4122, +852 8198 2302
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May 24th, 2016 — Electronic Cigarettes
The Impact of the FDA & Automation on Operational Efficiency in E-Liquid Production
Dave Cloud – VP Business Management PS&D
I’m somewhat of a newcomer to the vaping industry and so I offer this analysis without any preconceived notions about the industry. I do know a few things about process control and operating efficiency from my decades at Boeing in engineering, operations and R&D and my educational background. My many years in aerospace were mostly on the defense side of the industry where regulatory oversight is abundant via Federal Acquisition Regulations. Therefore, the emerging FDA deeming regulations are no real surprise to me with regard to their depth and detail. The regulations are somewhat redundant in an effort to convey the objectives and no doubt more will be revealed. Surely a litany of literature will soon follow the FDA’s deeming regulations (FDA-DR) and various interpretations of what they mean to the vaping industry in practical terms will be proffered. Therefore, I will refrain from dissecting the regulations yet again here in favor of focusing on the economic future of the e-liquid industry. One thing is certain, the FDA-DR will have a significant impact on the way business operations are currently structured. That impact will drive cost, both nonrecurring and recurring on e-liquid producers and others in the industry but will also yield long-term benefits to those who can leverage the opportunity. These events should be a driver for significant manufacturing system improvements which will ultimately reduce production costs while improving quality assurance and answering the mail on the FDA-DR. It’s not hard to see how the e-liquid industry would have moved in this direction due to competitive pricing pressure over a longer period of time anyway, even without a strong push from the FDA.
On the non-recurring side, new product qualification (PMTA), manufacturing entity registration and possible certification will drive costs in addition to investment in equipment and software. On the recurring side, improved quality assurance, record-keeping/retention and reporting will drive costs. Once established, ongoing management of current good manufacturing processes (CGMP) will also add to the cost of production. The good news here is that prudent investment in the capable hardware and software supported Manufacturing Execution Systems (MES) will pay huge dividends by reducing the recurring cost of e-liquid production while maintaining a safe, sanitary and FDA compliant environment. The net effect will be positive once returns on initial investment are realized. By all accounts this should occur within months not years.
Product cost reduction by moving towards a fully-automated or semi-automated e-liquid production line will be significant and is likely to be an industry disruptor going forward. I’ll stop short of suggesting that the FDA did the industry a favor but the FDA-DR did in fact accelerate an inevitable revolution in a still maturing industry. That’s not because the FDA cares about e-liquid producer costs or profit but because the controls that they are mandating and the data that they want can only come from a well-conceived, efficient manufacturing system. CGMP is great to talk about but it doesn’t come without changes to operational infrastructure created by investment and managed with discipline. Again, the cost savings that come with these systems via automation in physical processing and process and data management can pay for the system design/installation and the emerging PMTA qualification costs in fairly short order. This assumes of course that the leadership team understands and can craft a plan to manage a few key elements: the market, the competition including the entry of bigger players, how to create its own competitive advantage or leverage what exists, operational as-is and to-be cost structure and can clearly measure the impact of the FDA-DR on the industry but more importantly their business. Those who have done their homework, have researched other parallel industries and sought out the required expertise will likely move quickly towards mechanized, integrated, software-driven automation across the total value stream. This includes everything from raw materials to retail-ready bottling and labeling.
Some of the mid-level e-liquid producers have already begun the shift albeit slowly starting with bottling and labeling add-ons. A very few of the top tier producers in the broader flavoring and tobacco industries have already made the bigger commitment to fully-automated, fully-integrated, closed systems. Their FDA reports will be generated automatically and their proprietary processes and recipes will be locked down. Their systems will be almost infinitely flexible including flavor combinations, nicotine strengths aka SKU’s and batch sizes. Blending repeatability and sequencing will be nearly flawless, statistical process control and born on date management will be simple. Employees will be safer and the likelihood of product contamination will be significantly lower. The few big players who have made these investments are about to flip the switch and open the valves on these plants. This is where the near-term industry disruption will come from, even more-so and sooner than from implementation of the FDA-DR. I know this because we at PS&D designed and implemented some of their systems, the first of their kind.
That doesn’t mean that everyone who doesn’t have access to millions in capital to invest is out of business. Similar systems with less capacity can be implemented for much less money in a smaller footprint. COO’s and CFO’s need to consider how they might “right-size” their systems to achieve operational efficiency based on their targeted market niche. That’s the good news for those who have vision and can create a business strategy and a financing stream that has defined and understands their market and how to reach it cost-efficiently. Given this backdrop, it would be hard to see how massive clean rooms with open systems, beaker based e-liquid blending and measuring processes could compete with closed-loop automation over time. In addition, open system processing exposes employees to poisonous nicotine and while OSHA doesn’t appear to have asserted itself in the industry just yet, it’s just a matter of time. Any open system also runs a greater risk of contamination, clean-room or not. The use and occupancy costs and labor and overhead costs of such operations including safety, maintainability and operating costs will be crippling in an environment where pricing pressure will increase going forward. Labor costs in the manual approach are about 10:1 and fall into the recurring cost bucket.
Until now, market growth has outpaced e-liquid production capacity so the pressure to be price-competitive at the retail level was not significant. It has been simple economics where demand exceeds supply in an ecosystem where manual processes have been sufficient to capture and retain market share but that won’t last much longer. All boats have risen with the tide thus far but the tide is clearly changing. What else could explain pricing of a 30ml bottle of e-liquid being in as wide a range as $5 to $30. The data I researched suggests that the cost of the base constituents in e-liquid is around $1 for a 30 ml bottle including packaging, that’s without adding eye of newt or gold of course. You have to add distribution costs, advertising, U&O, etc. to get to the final cost of goods (COGS) but there seems to be plenty of room to run in the 5 to 30 pricing range. Given the disparity in cost and price one must deduce that either the manufacturing processes are highly inefficient and costly, the profit margins are extraordinary or both. All evidence suggests some measure of both.
The big players in the tobacco and flavoring industries are well aware of this too and they see it as opportunity so they have been and continue to make large investments in operational infrastructure and wisely so. Going forward, their manufacturing efficiencies via closed-systems and automation and their economy of scale is likely to drive pricing lower within a year or so. Low enough to overtake significant market share in the blink of an eye once these highly efficient systems come on-line at full capacity. At first, this is likely to be disruptive to the market, representing a quantum shift lower in retail pricing. Brand loyalty might keep some e-liquid consumers paying higher prices for awhile. However, brand value is likely to be less influential over time, especially when (FDA) labeling requirements begin to crowd out branding symbolism especially on the smaller bottles for tank systems.
The smarter mid-level entities may have already predicted this and have a strategy to mitigate the impact of it. The key to success will be knowing what differentiates your product from the rest and right-sizing your e-liquid production system to address your market. I would suggest that a modular systems architecture both in hardware and software would allow small to mid-sized players to make incremental capital investments and expand their production systems over time. This would allow cash-flow to catch up with market growth thereby managing debt and return on net assets (RONA), a key metric CFO’s use to understand conversion of capital investment to cash flow. In this scenario, well-managed small to mid-sized producers will be able to equalize or nearly equalize their cost of goods (COGS) with the big tobacco and flavoring players if they act quickly and use it to serve the dual mandate, i.e reduce cost and meet FDA-DR. By being cost competitive, they would allow their product differentiators like flavors, quality and branding to create a unique competitive advantage for them as opposed to always competing and likely losing on price. All anyone can ask is to compete fairly in the market on price and quality. Quality can be subjective, but cost and price are just math.
Most of this paper has been around the middle 80%-90% of the e-liquid market and I would be not to mention the other segments of the industry industry as well. There will always be premium products and low cost products in the market as well. Premium products like organics may continue with hand blending, steeping and other non-automated processes which they believe distinguishes them in a more unique space. They will command premium prices from those who can see and taste the value. That’s okay, there will always be a space in any market for those who want to “pay-up” to enjoy a better product but if their throughput is high enough quasi-automation could help them too. The low-cost producers will cater to the dollar store crowd with cheap flavoring etc. and may not even meet the FDA-DR. Consumers will take their chances.
If you don’t have a strategy for the future of your company and an executable business plan to support it you should create one. Look at where the puck is going, not where it is and build your strategy around it. Ask your team “are we cost competitive”? “Beyond cost what are our differentiators”? You should also have a deep understanding of your existing cost structure, your supply chain and your opportunities to improve them. Efficiency and flexibility are difficult to achieve in the same system but quite possible and well worth the investment. It may be time to rethink your approach to adapt to the future that awaits your business.
Dave Cloud is a Villanova MBA with an MS in strategic leadership. He currently serves as VP of Business Management for Process, Systems and Design(PS&D) email@example.com PS&D are world class liquid and dry bulk handling systems engineers lead by President and Chief Engineer Paul Homburg. http://processsystemsdesign.com/ 410-861-6437 Westminster, MD.
May 23rd, 2016 — Current Issues
Comment from Connor Campbell, a senior market analyst at www.spreadex.com
With Philip Morris blasted by the International Permanent Court of Arbitration for attempting ‘an abuse of rights’ by trying to get graphic cigarette packing banned in Australia the company today stated they would not contest the verdict. This appeared to send its stock 1% lower this afternoon, though given the wider state of the market it is hard to ascertain how much impact the news has actually had.
May 2nd, 2016 — Current Issues, Electronic Cigarettes
April 29th, 2016 — Current Issues, Electronic Cigarettes
KUALA LUMPUR, April 28, 2016 – An extraordinary new report from the top doctors’ organisation in the UK calls e-cigarettes “beneficial to public health”.
The report, from the Royal College of Physicians (RCP*), says smokers should be “encouraged” to switch to e-cigarettes as an alternative to smoking because “the public can be reassured that e-cigarettes are much safer than smoking.”
Findings of the landmark 200-page report – the latest in a line of such positive views on vaping from major independent UK bodies – include:
• e-cigs do NOT ‘re-normalise’ smoking
• e-cigs are a gateway AWAY from smoking
• e-cigs constitute a benefit to public health (in the UK, where they have been made legal and an estimated 2.7 million adults use them – overwhelmingly as part of a process to stop smoking)
• e-cigarettes should be regulated, but in a ‘proportionate’ way. Laws “should not be allowed significantly to inhibit the development and use of harm-reduction products by smokers”
The RCP’s own summary of the report, “Nicotine without smoke: tobacco harm reduction“, says:
“e-cigarettes are likely to be beneficial to UK public health. Smokers can therefore be reassured and encouraged to use them, and the public can be reassured that e-cigarettes are much safer than smoking.
“Although smoking prevalence in the UK has reduced to 18 percent, 8.7 million people still smoke. Harm reduction provides an additional strategy to protect this group of smokers from disability and early death.
“Since e-cigarettes became available in the UK in 2007, their use has been surrounded by medical and public controversy. This new 200-page report examines the science, public policy, regulation and ethics surrounding e-cigarettes and other non-tobacco sources of nicotine, and addresses these controversies and misunderstandings with conclusions based on the latest available evidence:
“E-cigarettes are not a gateway to smoking – in the UK, use of e-cigarettes is limited almost entirely to those who are already using, or have used, tobacco
“E-cigarettes do not result in normalisation of smoking – there is no evidence that either nicotine replacement therapy (NRT) or e-cigarette use has resulted in re-normalisation of smoking. None of these products has to date attracted significant use among adult never-smokers, or demonstrated evidence of significant gateway progression into smoking among young people”E-cigarettes and quitting smoking – among smokers, e-cigarette use is likely to lead to quit attempts that would not otherwise have happened, and in a proportion of these to successful cessation. In this way, e-cigarettes can act as a gateway from smoking
“E-cigarettes and long-term harm – the possibility of some harm from long-term e-cigarette use cannot be dismissed due to inhalation of the ingredients other than nicotine, but is likely to be very small, and substantially smaller than that arising from tobacco smoking. With appropriate product standards to minimise exposure to the other ingredients, it should be possible to reduce risks of physical health still further. Although it is not possible to estimate the long-term health risks associated with e-cigarettes precisely, the available data suggest that they are unlikely to exceed 5% of those associated with smoked tobacco products, and may well be substantially lower than this figure.
“The report acknowledges the need for proportionate regulation, but suggests that regulation should not be allowed significantly to inhibit the development and use of harm-reduction products by smokers. A regulatory strategy should take a balanced approach in seeking to ensure product safety, enable and encourage smokers to use the product instead of tobacco, and detect and prevent effects that counter the overall goals of tobacco control policy.”
Professor John Britton, chair of the RCP’s Tobacco Advisory Group, said:
‘The growing use of electronic cigarettes as a substitute for tobacco smoking has been a topic of great controversy, with much speculation over their potential risks and benefits. This report lays to rest almost all of the concerns over these products, and concludes that, with sensible regulation, electronic cigarettes have the potential to make a major contribution towards preventing the premature death, disease and social inequalities in health that smoking currently causes in the UK. Smokers should be reassured that these products can help them quit all tobacco use forever.’
RCP president Professor Jane Dacre said:
‘Since the RCP’s first report on tobacco, Smoking and Health, in 1962, we have argued consistently for more and better policies and services to prevent people from taking up smoking, and help existing smokers to quit. This new report builds on that work and concludes that, for all the potential risks involved, harm reduction has huge potential to prevent death and disability from tobacco use, and to hasten our progress to a tobacco-free society. With careful management and proportionate regulation, harm reduction provides an opportunity to improve the lives of millions of people. It is an opportunity that, with care, we should take.’
*The Royal College of Physicians, founded in 1518, is the oldest medical college in England. It continues to play a pivotal role in raising standards and shaping public health today and is continuously active in improving the practice of medicine.
factasia.org is an independent, not-for-profit, consumer-oriented advocate for rational debate about – and sensible regulation of – the rights of adult citizens throughout Asia to choose to use tobacco or other nicotine related products. factasia does not promote smoking or the use of nicotine, opposes all under-age use of cigarettes or any other product containing nicotine, and does not engage in any manufacturing or distribution activities.
* The report will be free to download from the RCP website on Thursday 28 April at:
For more information, please contact:
Heneage Mitchell: +66 95 760 4122, +852 8198 2302
John Boley: +61 484 634 533, +852 6281 3586
April 27th, 2016 — Key International Business & Market Developments, Current Issues, Regulations: FDA etc., Electronic Cigarettes
|House Committee Votes to Save the Vaping Industry
House Appropriations Committee passes amendment to stop the FDA from banning 99%-plus of vapor products
|WASHINGTON, D.C. – In a big win for vapers, this afternoon the House Appropriations Committee voted in favor of an amendment to the FY 2017 Agriculture Appropriations bill that would modernize the predicate date for vapor products and stop the FDA from banning 99%-plus of vapor products on the market today. The bipartisan amendment by Rep. Tom Cole (R – OK) and Rep. Sanford Bishop (D – GA) passed by a 31-19 vote.
Yesterday, Gregory Conley, the President of the American Vaping Association (AVA), warned in an Op Ed published by The Hill that a failure to change the February 15, 2007 predicate date would mean the closure of thousands of small businesses across the country and allow Big Tobacco to take over the vapor product market.
“This is fantastic news for public health and small businesses,” said Conley. “The vapor industry and its consumers do not oppose sensible regulation, but the FDA’s proposal is anything but sensible.”
“Modernizing the predicate date will not interfere with the FDA’s ability to regulate vapor products. All this change does is force the agency to regulate the vapor products rather than just ban 99%-plus of products on the market today,” continued Conley.
In addition to changing the predicate date, the Cole-Bishop amendment directs the FDA to set product standards, dictate labeling requirements, require retailer registration to effectuate youth access compliance checks, and ban self-service displays and vending machines in stores that permit minors. Furthermore, the amendment restricts the advertising of vapor products.
Despite today’s favorable vote, the AVA remains cautious of the process that lies ahead.
“This is only the start of a long fight to keep this provision in the overall budget bill. The industry and its consumers need to put forth a massive effort to ensure that both Democrats and Republicans do not lose sight of the importance of this policy change.”
The 2017 spending and budget bills may not be voted by the full House and Senate until the end of the year, so uncertainty in the market will continue to linger.
“The fate of the U.S. vapor product industry is in the hands of Congress,” says Conley.
April 27th, 2016 — Current Issues, General
British American Tobacco have released their latest earnings. Here’s a comment from Joshua Raymond, Market Analyst at XTB.com.
“British American Tobacco announced a like for like growth in cigarette volume of 1.1% in an interim management update for its nine months to 31st March. The firm saw solid growth in volume sales across a number of important territories including Russia, Turkey and Indonesia which helped to offset lower volumes in Pakistan and Malaysia, which was impacted by higher excise led price increases.
The firm saw revenues grow by 7.5% at constant rates of exchange but once current exchange rates are shown, revenues drop to a mere growth of 1.5%, showing just how much the company has been effected by negative FX moves. The firm also warned that if FX moves continue as they have been, its profits would be impacted to the tune of 7% give how much it relies on such a broad geographical transactional flow.
All in all it seems a fairly solid report sales wise but given how competitive the industry is and its own fairly open ended disclaimer that profit margins would be hit by negative FX moves, there can also be an element of lingering concern here for the firms full year results.”