22nd Century Group Inc. said Monday it has reached an agreement to sell 10 million shares to an unidentified institutional investor for $4 a share.
The company also said it is expanding the reach of its hemp/cannabis development initiatives to include a presence in Canada.
22nd Century, which recently moved to Buffalo, has its cigarette-manufacturing operations in a 62,000-square-foot plant in Mocksville where it has 51 employees.
The company said the stock sale is expected to close Wednesday. The sale represents 6.5% of its 152.44 million shares outstanding.
The share price closed Monday up 60 cents to $5.23.
The share price has swung wildly over the past 12 months, dropping as low as 56 cents on Sept. 9 and climbing as high as $5.62 on April 28.
The main catalyst for the sharp upswing has been 22nd Century’s expansion in the hemp and cannabis marketplace, as well as a pending Food and Drug Administration decision since February 2020 on its reduced-risk application for its very-low-nicotine traditional cigarettes.
James Mish, 22nd Century’s chief executive, said the $40 million investment will allow the company “to accelerate on-going strategic objectives across all of our plant franchises.”
That includes research and development expenses, capital expenditures, procurement and development of additional intellectual property rights, commercialization of its product portfolio, working capital, and general corporate purposes.
“The raise makes sense given that the stock has risen from just 55 cents a year ago,” said Bowman Gray IV, a local independent stock broker. “Given their limited revenue and high cash burn, this is the only way to continue funding operations.
“As long as the market continues to believe there is opportunity, then it will support the stock price and the likelihood of an additional cash raise in the future.
“The legislative risks are real, though the current environment is certainly friendlier to cannabis and reduced harm cigarettes than under the previous administration,” Gray said.
Mish said having financial-services company Cowen & Co. participating in the public offering positions 22nd Century “squarely in the mainstream of the cannabis equity space.” Cowen has expertise in the fledgling cannabis institutional markets.
22nd Century had another public stock offering in October 2017 in which it sold 20.57 million shares — at $2.62 a share — that yielded gross proceeds of $54 million.
Separately, the company said it has reached partnerships with two plant breeders that provide year-round growing capabilities.
Those partnerships involve 22nd Century’s collaboration efforts with Aurora Cannabis.
22nd Century also announced of subsidiary 22nd Century Canada Inc. that “will serve as a base for the company’s expanded activities in tobacco, hemp/cannabis and its yet-to-be announced third franchise.
“As cannabis regulation evolves, we believe that companies able to control the traits and consistency of the plants will command a premium price and margin in the marketplace,” Mish said.
“22nd Century is well-positioned to capitalize on the tremendous potential in the global legal cannabis space by creating hemp/cannabis plants that have stable, specific cannabinoid levels at commercial scale for various end-use markets.”
22nd Century reported a larger loss in the first quarter of fiscal 2021 at $5.03 million, compared with $4.03 million a year ago.
22nd Century reported sales of $6.8 million in the first quarter, down from $71 million a year ago. The company drives most of its revenue from producing traditional cigarettes for third-party customers.