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Item 1. Business

2021-03-11 compared with 2020-03-11 · 281 added, 822 removed, 20 unchanged (98% of the section changed)

22nd Century Group, Inc.

was incorporated

under the laws of the State of Nevada on September 12, 2005 under the name Touchstone Mining Limited.

On January 25, 2011, we

entered into a reverse merger transaction with 22nd Century Limited, LLC, which we refer to herein as the “merger.”

Upon the closing of the merger, 22nd Century Limited, LLC became our wholly-owned subsidiary.

After the merger, we succeeded to

the business of 22nd Century Limited, LLC as our sole line of business.

22nd Century Limited, LLC was originally

formed as a New York limited liability company on February 20, 1998 as 21st Century Limited, LLC and subsequently merged with

a newly-formed Delaware limited liability company, 22nd Century Limited, LLC, on November 29, 1999.

Since inception, 22nd Century

Limited, LLC has sponsored research and subsequently used biotechnology to regulate the nicotine content in tobacco plants.

We are a plant biotechnology company focused

on technology that allows us to alter the level of nicotine and other nicotinic alkaloids in tobacco plants and the levels of cannabinoids

in hemp/cannabis plants through genetic engineering and modern plant breeding.

Our mission in tobacco is to reduce the harm caused

by smoking by introducing adult smokers to our proprietary, Very Low Nicotine Content (“VLNC”) tobacco and cigarettes.

Our mission in hemp/cannabis is to develop proprietary varieties of hemp with valuable cannabinoid profiles and other superior

agronomic traits.

We have a significant intellectual property portfolio of issued patents and patent applications relating to the

tobacco and hemp/cannabis plants.

In tobacco, we have developed unique and

proprietary bright and burley VLNC tobaccos that grow with at least 95% less nicotine than tobacco used in conventional cigarettes.

In the year 2011, we developed our SPECTRUM ®

research cigarettes in collaboration with independent researchers and

officials from the FDA, the National Institute on Drug Abuse (“NIDA”), which is part of the National Institutes of

Health (“NIH”), the National Cancer Institute (“NCI”), and the Centers for Disease Control and Prevention

(“CDC”).

Since 2011, we have provided more than 28 million research cigarettes containing our VLNC proprietary tobaccos

for use in numerous independent clinical studies at many well-known study locations, with agencies of the United States federal

government investing more than $125 million in such independent clinical studies.

The results of these independent clinical studies

have been published in peer-reviewed publications (including but not limited to the New England Journal of Medicine , the

Journal of the American Medical Association , and many others) and demonstrate that our VLNC tobaccos have been associated

with reductions in smoking, nicotine exposure, and nicotine dependence, with minimal evidence of nicotine withdrawal, compensatory

smoking, or serious adverse events.

A list of completed and published clinical studies using cigarettes made with our VLNC tobaccos

is shown on our website at http://www.xxiicentury.com/published-clinical-studies/ .

A list of on-going clinical studies using

our SPECTRUM ®

research cigarettes is shown on our website at http://www.xxiicentury.com/on-going-clinical-studies/ .

We do not incorporate the information on our website into this Annual Report on Form 10-K.

The results of such numerous completed

and on-going clinical studies provide the independent scientific foundation for the public announcement on July 28, 2017 by the

FDA that the FDA plans to enact a new rule to require that all combustible cigarettes sold in the United States contain only minimally

or non-addictive levels of nicotine.

On March 19, 2018, the FDA publicly announced its Advance Notice of Proposed Rulemaking (“ANPRM”)

to solicit public comments on the FDA’s plan to enact a new nicotine reduction rule.

On July 16, 2018, we publicly submitted

to the FDA our formal written response to the ANPRM in which we described how (i) the FDA’s proposed new rule is supported

by rigorous independent, published science, (ii) the FDA’s stated goal to render cigarettes minimally or non-addictive is

immediately feasible as evidenced by our production and delivery of more than 28 million VLNC research cigarettes since the year

2011, and (iii) the FDA’s proposed new rule is exceedingly practical and urgently needed in the interests of public health.

After we obtain all necessary regulatory approvals, we plan to offer our proprietary VLNC cigarettes for domestic sale, for international

sale, and for licensing by third parties.

Since our proprietary VLNC tobaccos have

been the subject of numerous completed and on-going, independent clinical studies paid for by agencies of the U.S.

federal government,

we are investigating the use of our VLNC tobaccos in our own products that will be intended to comply with the new proposed FDA

On December 5, 2018, we submitted to the FDA a new Pre-Market Tobacco product application (“PMTA”) and

on December 27, 2018, we submitted to the FDA new Modified Risk Tobacco Product application (“MRTPA”), in each case

for our VLNC tobacco cigarettes for which we are requesting a reduced exposure marketing authorization from the FDA to market our

VLNC tobacco cigarettes as a Modified Risk Tobacco Product with product labeling that includes the proposed brand name of VLN ®

and states that the VLN ®

product has 95% less nicotine than conventional cigarettes.

On December 17, 2019, the FDA publicly announced

that it had authorized us to market in the U.S.

our VLNC tobacco cigarettes under the product names of Moonlight ®

Moonlight Menthol ®

that were the subject of our PMTA.

Our Moonlight ®

and Moonlight Menthol ®

cigarettes are made with our proprietary VLNC tobacco and, as a result, contain very low levels of nicotine.

Our Moonlight ®

and Moonlight Menthol ®

cigarettes were modeled after our VLNC SPECTRUM ®

research cigarettes.

PMTA reference more than 50 independent studies conducted using our proprietary SPECTRUM ®

research cigarettes.

its public announcement relating to our PMTA, the FDA stated that following a rigorous science-based review of our PMTA, the FDA

had determined that authorizing these reduced nicotine products for sale in the U.S.

is appropriate for the protection of the public

health because of, among several key considerations, the potential to reduce nicotine dependence in addicted adult smokers, who

may also benefit from decreasing nicotine exposure and cigarette consumption.

The FDA further stated that the FDA had determined

that non-smokers, including youth, are also unlikely to start using these products, and those who experiment are less likely to

become addicted than people who experiment with conventional cigarettes.

On February 14, 2020, the FDA’s

Tobacco Products Scientific Advisory Committee ("TPSAC") conducted its public hearing regarding our MRTPA for our

VLNC cigarettes.

This meeting was the first time that TPSAC considered an MRTP application for a modified exposure claim and

also TPSAC’s first discussion of an application for a combustible tobacco product.

We presented data in support of our

product applications and FDA also presented perspectives on the applications and posed questions for the committee members to

Recordings of the proceedings meeting materials, including briefing materials for the committee provided by the

Company and FDA, and presentation given by the different stakeholders are publicly available for review via FDA’s

The public comment period on the applications remains open at this time.

The FDA continues to conduct a

comprehensive evaluation of our applications.

We are also investigating licensing the use of our VLNC tobaccos by third parties as well as opportunities relating to our

VLNC tobaccos outside of the United States.

In hemp, we are developing proprietary hemp

strains for potential important new medicines and agricultural crops.

Our current activities in the United States involve only

work with legal hemp in compliance with U.S.

federal and state laws.

The hemp plant and the marijuana plant are both part of the

same cannabis genus of plant, except that hemp has not more than 0.3% dry weight content of delta-9-tetrahydrocannabinol

(“THC”).

The federal Agricultural Improvement Act of 2018 (the “2018 Farm Bill”) legalized hemp and cannabinoids

extracted from hemp in the U.S., but such extracts remain subject to state laws and the regulation by other U.S.

federal agencies,

such as the FDA and the U.S.

Department of Agriculture (“USDA”).

The same plant, with a higher THC content, is marijuana,

which is legal under certain state laws, but which is currently not legal under U.S.

The similarities between these

plants can cause confusion.

To reflect this difference in law, sometimes we refer to legal hemp and the legal hemp industry as

hemp/cannabis to distinguish this as being separate and apart from marijuana/cannabis currently not legal under U.S.

Our activities with legal hemp have sometimes been incorrectly perceived as us being involved in federally illegal marijuana.

is not the case.

In the United States, we work only with legal hemp in compliance with federal and state laws.

We have a license in the State of New York to research and grow

hemp in response to the numerous public announcements by New York Governor Andrew Cuomo that New York State intends to become a

leading grower and producer of hemp and hemp-derived products.

Elsewhere in the United States, we have previously worked with the

University of Virginia (“UVA”) to (i) create unique industrial hemp plants with guaranteed levels of THC below the

legal limits that define hemp for optimal growth in Virginia, (ii) optimize other desirable hemp plant characteristics to improve

the plant’s suitability for growing in Virginia and in similar legacy tobacco regions of the United States, and (iii) utilize

high-value medical cannabinoid hemp varieties and specialized cannabinoid extraction processes for use in human therapeutics.

Canada, we have previously conducted sponsored research on the hemp plant with Anandia Laboratories (“Anandia”) in

Vancouver, British Columbia, in compliance with Canadian regulations.

In Europe and the United States, we are working with KeyGene

NV (“Keygene”), global leader in plant research involving high-value genetic traits and increased crop yields, in an

exclusive, worldwide collaboration that will focus on developing hemp/cannabis plants with exceptional cannabinoid profiles, including

zero-THC content and other superior agronomic traits for medical, therapeutic and agricultural uses, among many other applications.

December 3, 2019, we conducted an initial closing of an investment in Panacea Life Sciences, Inc.

(“Panacea”), a vertically-integrated

developer, producer and seller of legal, hemp-derived, CBD products, with extraction, distillation, testing and manufacturing

operations located in a 51,000 square foot facility in Golden, Colorado.

Our investments in Panacea from such initial closing

through the ensuing twelve to eighteen month period are expected to be approximately $24 million, in a combination of cash and

shares of our common stock in exchange for Panacea-issued debt

and Panacea preferred stock.

We also received a warrant from Panacea to purchase additional shares of preferred stock of Panacea,

which upon full exercise will provide us with a controlling equity position in Panacea.

We currently are primarily

involved in the following activities:

Continuing to work with the FDA on our MRTPA that we have submitted

to the FDA to obtain a reduced exposure marketing authorization for our VLNC cigarettes to be marketed in the United States under

the proposed brand name of VLN ®

as containing 95% less nicotine than conventional tobacco cigarettes, and other

related claims as may be approved by the FDA;

Facilitating the implementation of the plan by the FDA to require

that all combustible cigarettes in the United States contain only minimally or non-addictive levels of nicotine.

Seeking licensing agreements and strategic partnerships to commercialize our VLNC tobacco technology and/or our proprietary

VLNC tobaccos in the U.S.

and internationally;

Continuing to produce SPECTRUM ®

cigarettes for the National Institute on Drug Abuse (“NIDA”), which is part of the National Institutes of Health (“NIH”),

for use in independent clinical studies;

Continuing to expand

our legal hemp activities and development of unique plant varieties of hemp, including (i) hemp plants with other desirable

agronomic traits in addition to low to no amounts of THC for the legal hemp industry, and (ii) hemp plants with high levels

of CBD and other non-THC cannabinoids for the legal medical cannabinoid markets;

Continuing to explore

opportunities to create shareholder value through partnerships, investments and other strategic relationships across the entire

legal hemp/cannabis value chain, including branded consumer products;

Continuing to seek additional

customers to increase our contract manufacturing business for third-party branded tobacco products.

Our future prospects depend on our ability

to generate and sustain revenues from (i) licensing and/or sale of our proprietary tobacco, technology and/or products;

(ii) regulatory

approval by the FDA of our MRTPA for our Very Low Nicotine Content cigarettes with product labeling that includes the proposed

brand name of VLN ®

and states that the VLN ®

product has 95% less nicotine than conventional cigarettes;

(iii) the manufacture of filtered cigar and cigarette brands of third-parties at our manufacturing facility in North Carolina;

and (iv) our expanding activities in the legal hemp industry.

Our ability to generate meaningful revenue from our proprietary tobacco,

technology, and products in the United States depends on:

(i) the implementation by the FDA of regulations that require all combustible

cigarettes sold in the United States to contain only minimally or non-addictive levels of nicotine;

(ii) obtaining FDA authorization

to market our potential Modified Risk Tobacco Product, VLN ®

, in the United States as a modified risk or reduced

exposure product;

and (iii) our ability to license our technology and/or to sell our proprietary tobacco and products in international

Even after we receive regulatory approvals necessary to market our products in the United States or internationally, we

must still meet the challenges of successful marketing, distribution, and consumer acceptance.

Very Low Nicotine Content Tobacco

Our mission in tobacco is to reduce the

harm caused by smoking by introducing adult smokers to our proprietary, VLNC tobacco and cigarettes.

The FDA publicly announced

on July 28, 2017, that tobacco use remains the leading cause of preventable disease and death in the United States.

Centers for Disease Control and Prevention (“CDC”) states that tobacco use causes more than 480,000 deaths

per year and with direct health care and lost productivity costs totaling nearly $300 billion each year in the United States.

CDC website also states that in 2015, nearly 7 in 10 (68.0%) adult cigarette smokers wanted to stop smoking and more than 5 in

10 (55.4%) adult cigarette smokers had made a quit attempt in the prior year.

Our proprietary VLNC tobaccos, which grow

with at least 95% less nicotine than tobacco used in conventional cigarettes, have been shown in numerous published, independent

clinical studies as being associated with reductions in smoking, nicotine exposure, and nicotine dependence, with minimal evidence

of nicotine withdrawal, compensatory smoking, or serious adverse events.

These clinical studies, which were conducted by independent

researchers and paid for by United States federal government agencies, provide a foundation of independent scientific support

for recently proposed changes by the FDA in the regulatory approach in the United States to address the harm caused by smoking

combustible tobacco cigarettes.

We believe these changes will significantly benefit us in the future as discussed in greater detail

Very Low Nicotine Content Cigarettes

The proprietary tobacco in our VLNC cigarettes

contains at least 95% less nicotine than conventional cigarette brands.

The strategy behind our VLNC tobacco cigarettes is to

reduce smokers’

exposure to nicotine, which is the primary addictive component of cigarettes.

The Tobacco Control Act establishes procedures

for the FDA to regulate the labeling and marketing of Modified Risk Tobacco Products, which includes cigarettes marketed to (i)

reduce harm or the risk of tobacco-related disease or (ii) reduce or eliminate exposure to a substance (“Modified Risk Cigarettes”).

The Tobacco Control Act required the FDA to issue specific regulations and/or guidance regarding applications submitted to the

FDA for the authorization to label and market Modified Risk Tobacco Products.

On March 30, 2012, the FDA issued Modified Risk

Tobacco Product Applications Draft Guidance .

We believe that our VLNC tobacco cigarettes will qualify as Modified Risk Cigarettes.

On December 5, 2018, we submitted to the

FDA a new PMTA and on December 27, 2018, we submitted to the FDA a new MRTPA, in each case for our VLNC tobacco cigarettes for

which we requested a reduced exposure marketing authorization from the FDA to market these products as Modified Risk Cigarettes

with product labeling that includes the proposed brand name of VLN ®

and states that VLN ®

less nicotine than conventional cigarettes.

On December 17, 2019, the FDA publicly announced

that the FDA had authorized us to market in the U.S.

our VLNC tobacco cigarettes under the product names of Moonlight ®

and Moonlight Menthol ®

that were the subject of our PMTA.

Our Moonlight ®

and Moonlight Menthol ®

are made with our proprietary VLNC tobacco and, as a result, contain very low levels of nicotine.

Our Moonlight ®

and Moonlight Menthol ®

cigarettes were modeled after our VLNC SPECTRUM ®

research cigarettes.

PMTA reference more than 50 independent studies conducted using our proprietary SPECTRUM ®

research cigarettes.

its public announcement relating to our PMTA, the FDA stated that following a rigorous science-based review of our PMTA, the FDA

had determined that authorizing these reduced nicotine products for sale in the U.S.

is appropriate for the protection of the public

health because of, among several key considerations, the potential to reduce nicotine dependence in addicted adult smokers, who

may also benefit from decreasing nicotine exposure and cigarette consumption.

The FDA further stated that the FDA had determined

that non-smokers, including youth, are also unlikely to start using these products, and those who experiment are less likely to

become addicted than people who experiment with conventional cigarettes.

The FDA’s Tobacco Products Scientific

Advisory Committee (“TPSAC”) conducted a public hearing on February 14, 2020, regarding our MRTPA for our

VLNC tobacco cigarettes for which we are requesting a reduced exposure marketing authorization from the FDA to market our VLNC

tobacco cigarettes in the U.S.

as a Modified Risk Tobacco Product with product labeling that includes the proposed brand name of

and states that the VLN ®

product has 95% less nicotine than conventional cigarettes.

This meeting was the first time that TPSAC

considered an MRTP application for a modified exposure claim and also TPSAC’s first discussion of an application for a combustible

tobacco product.

We presented data in support of our product applications and FDA also presented perspectives on the applications

and posed questions for the committee members to discuss.

Recordings of the proceedings meeting materials, including briefing materials

for the committee provided by the Company and FDA, and presentation given by the different stakeholders are publicly available

for review via FDA’s website.

The public comment period on the applications remains open at this time.

FDA continues to conduct

a comprehensive evaluation of our applications.

SPECTRUM ®

Research Cigarettes

NIDA, which is a part of NIH, provides the

scientific community with controlled and uncontrolled research chemicals and drug compounds through its Drug Supply Program.

2010, NIDA included an option to develop and produce research cigarettes with various levels of nicotine (from very low to high)

in its request for proposals for a five-year contract for Preparation and Distribution of Research and Drug Products.

as a subcontractor to RTI International (“RTI”), to supply cigarettes with different nicotine contents (from very low

to high) to NIDA.

In August 2010, we met with officials from NIDA, FDA, RTI, CDC and the National Cancer Institute (“NCI”)

to finalize certain aspects of the design of these research cigarettes.

These government research cigarettes produced by us under

the mark SPECTRUM ®

have been, and continue to be, distributed by RTI for NIDA to independent researchers

for scientific clinical studies.

The SPECTRUM ®

research cigarette contract was renewed in 2019 for an additional

Since 2011, the FDA, NIDA and other federal

government agencies have invested more than $125 million in independent clinical studies utilizing our proprietary tobaccos, with

such studies being conducted at many well-known locations, including the Mayo Clinic, the MD Anderson Cancer Center at the University

of Texas, the Johns Hopkins University, Duke University, the University of Pittsburgh, the University of Minnesota, the University

of Vermont, the University of California, and others.

Since 2011, we have provided more than 28 million SPECTRUM ®

research cigarettes for use in these independent clinical studies.

The SPECTRUM ®

product line consists

of a series of 24 cigarette styles (11 regular and 13 menthol versions) that have 8 different levels of nicotine –

A list of the completed, independent clinical studies on our proprietary tobaccos can be found on our website at http://www.xxiicentury.com/published-clinical-studies/ .

A list of the on-going, independent clinical studies on our proprietary VLNC tobacco can be found on our website at http://www.xxiicentury.com/on-going-clinical-studies/ .

We do not incorporate the information on our website into this Annual Report on Form 10-K.

FDA’s Proposed Mandate to Require

Minimally or Non-Addictive Levels of Nicotine in all Cigarettes in the United States

The Family Smoking Prevention and Tobacco Control Act of 2009

(“Tobacco Control Act”) granted the FDA authority over the regulation of all tobacco products in the United States.

While the Tobacco Control Act prohibits the FDA from banning cigarettes outright, it allows the FDA to require the reduction of

nicotine or any other compound in tobacco and cigarette smoke.

was incorporated under the laws of the State of Nevada on September 12, 2005 under the name Touchstone Mining Limited.

On January 25, 2011, we entered into a reverse merger transaction with 22nd Century Limited, LLC, which we refer to herein as the “merger.” Upon the closing of the merger, 22nd Century Limited, LLC became our wholly-owned subsidiary.

After the merger, we succeeded to the business of 22nd Century Limited, LLC as our sole line of business.

22nd Century Limited, LLC was originally formed as a New York limited liability company on February 20, 1998 as 21st Century Limited, LLC and subsequently merged with a newly-formed Delaware limited liability company, 22nd Century Limited, LLC, on November 29, 1999.

Since inception, 22nd Century Limited, LLC has sponsored research and subsequently used biotechnology to regulate the nicotine content in tobacco plants.

22nd Century Group, Inc.

is a biotechnology company developing disruptive, plant-based solutions for the life science, consumer product, and pharmaceutical markets.

We are a focused on technology that allows us to modulate the level of nicotine and other nicotinic alkaloids in tobacco plants and the levels of cannabinoids and terpenes in hemp/cannabis plants through genetic engineering and modern plant breeding techniques.

Our mission in tobacco is to reduce the harm caused by smoking by introducing adult smokers to our proprietary, Very Low Nicotine Content (“VLNC”) tobacco and cigarette products.

Our mission in hemp/cannabis is to develop proprietary varieties of hemp with valuable cannabinoid and terpene profiles and other superior agronomic traits, with potential applications in life sciences and consumer products.

We have a significant intellectual property portfolio of issued patents and patent applications relating to both tobacco and hemp/cannabis plants.

Our mission in tobacco is to reduce the harm caused by smoking by introducing adult smokers to our proprietary, VLNC tobacco and cigarettes, which contains 95% less nicotine than conventional tobacco and cigarettes.

The Food and Drug Administration (“FDA “) publicly announced on July 28, 2017, that tobacco use remains the leading cause of preventable disease and death in the United States.

The website for the U.S.

Centers for Disease Control and Prevention (“CDC”) states that tobacco use causes more than 480,000 deaths per year and costs the United States economy nearly $300 billion annually in lost productivity and direct heath care costs.

The CDC website also states that in 2015, nearly 7 in 10 (68.0%) adult cigarette smokers wanted to stop smoking and more than 5 in 10 (55.4%) adult cigarette smokers had made a quit attempt in the prior year.

We have developed unique and proprietary bright and burley VLNC tobaccos that grow with at least 95% less nicotine than tobacco used in conventional cigarettes.

In the year 2011, we developed our SPECTRUM ® research cigarettes in collaboration with independent researchers, officials from the FDA, the National Institute on Drug Abuse (“NIDA”), which is part of the National Institutes of Health (“NIH”), the National Cancer Institute (“NCI”), and the Centers for Disease Control and Prevention (“CDC”).

Since 2011, we have provided more than 31.6 million variable nicotine research cigarettes for use in numerous independent clinical studies with agencies of the United States federal government.

These independent clinical studies are estimated to have been performed at a cost of more than $125 million.

The results of these independent clinical studies have been published in peer-reviewed publications (including the New England Journal of Medicine , the Journal of the American Medical Association , and many others).

The results of these studies indicate that our VLNC tobaccos have been associated with reductions in smoking, nicotine exposure and nicotine dependence with little to no evidence of compensatory smoking and without serious adverse events.

A list of completed and published clinical studies using cigarettes made with our VLNC tobaccos is shown on our website at https://www.xxiicentury.com/vln-clinical-studies/published-clinical-studies-on-very-low-nicotine-content-vlnc-cigarettes .

A list of on-going clinical studies using our SPECTRUM ® research cigarettes is shown on our website at

https://www.xxiicentury.com/vln-clinical-studies/on-going-clinical-studies-on-very-low-nicotine-content-vlnc-cigarettes .

We do not incorporate third party studies or the information on our website into this Annual Report on Form 10-K.

The results of these numerous completed studies provide the independent scientific foundation for the public announcement on July 28, 2017 by the FDA that the FDA plans to enact a new rule to require that all combustible cigarettes sold in the United States contain only minimally or non-addictive levels of nicotine.

On March 19, 2018, the FDA publicly announced its Advance Notice of Proposed Rulemaking (“ANPRM”) to solicit public comments on the FDA’s plan to enact a new nicotine reduction rule.

On July 16, 2018, we publicly submitted to the FDA our formal written response to the ANPRM in which we described how (i) the FDA’s proposed new rule is supported by rigorous independent, published science, (ii) the FDA’s stated goal to render all cigarettes minimally or non-addictive is immediately feasible as evidenced by our production and delivery of millions of VLNC research cigarettes since the year 2011, and (iii) the FDA’s proposed new rule is exceedingly practical and urgently needed in the interests of public health.

After we obtain all necessary regulatory approvals, which includes obtaining a Modified Risk designation, we plan to offer our proprietary VLNC cigarettes for domestic sale under the brand name of VLN ® .

Following approval, we also plan to offer VLN ® for international sale and for licensing by third parties.

Additional information regarding our regulatory activities with the FDA is described below.

FDAs proposed Mandate to Require Minimally or Non-Addictive Levels of Nicotine in all Cigarettes in the United States.

The Family Smoking Prevention and Tobacco Control Act of 2009 (“Tobacco Control Act”) granted the FDA authority over the regulation of all tobacco products in the United States.

While the Tobacco Control Act prohibits the FDA from banning cigarettes outright, it allows the FDA to require the reduction of nicotine in tobacco and cigarette smoke.

The Tobacco Control Act establishes procedures for the FDA to regulate the labeling and marketing of Modified Risk Tobacco Products, which includes cigarettes marketed to (i) reduce harm or the risk of tobacco-related disease or (ii) reduce or eliminate exposure to a substance (“Modified Risk Cigarettes”).

The Tobacco Control Act required the FDA to issue specific regulations and/or guidance regarding applications submitted to the FDA for the authorization to label and market Modified Risk Tobacco Products.

On March 30, 2012, the FDA issued Modified Risk Tobacco Product Applications Draft Guidance .

We believe that our VLNC tobacco cigarettes will qualify as Modified Risk Cigarettes and have applied for an MRTP designation.

The status of this application is discussed below.

In a June 16, 2010 press release, Dr.

Kessler, the former FDA Commissioner, recommended that “the FDA should quickly move to reduce nicotine levels in cigarettes

to non-addictive levels.

David Kessler, a former FDA Commissioner, recommended that “the FDA should quickly move to reduce nicotine levels in cigarettes to non-addictive levels.

If we reduce the level of the stimulus, we reduce the craving.

It is the ultimate harm reduction strategy.”

Shortly thereafter in a Washington Post newspaper article, Dr.

Kessler said that the amount of nicotine in a cigarette

should drop from about 10 milligrams to less than 1 milligram.

In 2015, the World Health Organization (“WHO”)

Study Group on Tobacco Product Regulation published an advisory note on a global nicotine reduction strategy of limiting the sale

of cigarettes to brands with a nicotine content that is not sufficient to lead to the development and/or maintenance of addiction.

It is the ultimate harm reduction strategy.” Shortly thereafter in a Washington Post newspaper article, Dr.

Kessler said that the amount of nicotine in a cigarette should drop from about 10 milligrams to less than 1 milligram.

In 2015, the World Health Organization (“WHO”) Study Group on Tobacco Product Regulation published an advisory note on a global nicotine reduction strategy of limiting the sale of cigarettes to brands with a nicotine content that is not sufficient to lead to the development and/or maintenance of addiction.

The WHO study stated that no specific amount of nicotine has yet been identified by the WHO as the absolute threshold for addiction;

however, the WHO report stated that it is likely to be equal to or possibly less than 0.4 mg/g of dry cigarette tobacco filler.The

WHO report cites 22nd Century’s proprietary SPECTRUM ®

research cigarettes as meeting such a low level

of nicotine of 0.4 mg/g of cigarette tobacco filler.

The WHO report concluded that the evidence indicates that setting a maximum

allowable nicotine content for all cigarettes could (i) reduce the acquisition of smoking and progression to addiction, (ii) reduce

the prevalence of smoking in a proportion of addicted smokers as a result of behavioral extinction, (iii) increase the rate of

quitting and reduce the number of smokers who relapse, and (iv) increase the development, availability, and use of alternative

forms of nicotine, e.g .

smokeless tobacco products, nicotine aerosol products, and medicinal nicotine, which have potential

adverse health effects, including maintenance of addiction, but less than those of combusted products or conventional cigarettes.

The WHO report stated that population benefits will result from decreased use of combusted tobacco by current cigarette smokers

and from the prevention of addiction of non-smokers to cigarettes, especially among young people.

On July 28, 2017, FDA Commissioner Scott

Gottlieb, M.D., announced the FDA’s plan to exercise its authority under the Tobacco Control Act to require that all combustible

cigarettes sold in the United States must contain only minimally or non-addictive levels of nicotine.

In that public announcement,

FDA Commissioner Gottlieb stated that (i) the overwhelming amount of death and disease attributable to tobacco is caused by addiction

to cigarettes –

the only legal consumer product that, when used as intended, will kill half of all long-term users, (ii)

unless this course is changed, 5.6 million young people alive today will die prematurely later in life from tobacco use, (iii)

envisioning a world where cigarettes would no longer create or sustain addiction, and where adults who still need or want nicotine

could get it from alternative and less harmful sources, needs to be the cornerstone of the FDA’s efforts, and (iv) tobacco

use remains the leading cause of preventable disease and death in the United States, causing more than 480,000 deaths per year

and direct health care and lost productivity costs totaling nearly $300 billion each year.

On August 16, 2017, The New England Journal

of Medicine published an article by FDA Commissioner Scott Gottlieb, M.D.

and Mitchell Zeller, J.D., the Director of the FDA/CTP,

entitled “A Nicotine-Focused Framework of Public Health.”

In this article, FDA Commissioner Gottlieb and FDA/CTP Director

Zeller stated that the Tobacco Control Act gives the FDA a regulatory tool called a tobacco “product standard”

can be used to alter the addictiveness of combustible cigarettes, and that such standards may set requirements related to an ingredient

or constituent in a tobacco product, or related to any other aspect of product composition, construction, or other property, and

that the establishment of the right product standard could alter the addictiveness of combustible cigarettes by setting maximum

nicotine levels in such products.

The article further stated that Section 907 of the Food, Drug, and Cosmetic Act authorizes the

FDA to establish tobacco product standards that the FDA has determined to be appropriate for the protection of the public health,

with the statute specifically noting that such a standard may address nicotine yields, among other characteristics.

statute prohibits the FDA from requiring the reduction of nicotine yields of a tobacco product to zero, the FDA stated in this

article that the FDA has clear authority to otherwise reduce nicotine levels.

The FDA concluded in this article that a nicotine-limiting

standard could make cigarettes minimally addictive or non-addictive, helping current users of combustible cigarettes to quit and

allowing most future users to avoid becoming addicted and proceeding to regular use, and that disrupting that progression –

from experimentation to regular use to tobacco-related disease and even death –

could save millions of American lives.

this article, the FDA also stated that the FDA will consider peer-reviewed, scientific studies in proposing a maximum nicotine

level, but that rigorous studies of Very Low Nicotine Content cigarettes have evaluated the potential effects of various nicotine

levels on smoking behaviors and biomarkers, and findings from such studies could inform decision-making on a possible maximum nicotine

level in tobacco filler.

The FDA stated that, as in all matters of public health policy, the FDA will be led by the science in

this important area.

In summary, since 2011, the FDA, NIDA and

other federal government agencies have invested an estimated $125 million in independent clinical studies utilizing 22nd Century’s

proprietary tobaccos, with such studies being conducted by scientists at many different and well-known clinical study centers.

During that same time, we have provided more than 28 million proprietary SPECTRUM ®

research cigarettes for

use in such independent clinical studies.

The results of these studies have been published in peer-reviewed articles and reflect

the independent scientific support for the planned mandate by the FDA that all combustible cigarettes sold in the United States

contain only minimally or non-addictive levels of nicotine.

We believe that our VLNC tobacco technology and our production and

delivery of more than 28 million proprietary research cigarettes since 2011 reflects that the FDA’s plan to dramatically

reduce nicotine in cigarettes is technically achievable.

Since our proprietary VLNC tobacco has been the subject of numerous completed

and on-going independent clinical studies, we are investigating the potential use of our VLNC tobacco in our own products that

will be intended to comply with the new FDA regulations, as well as investigating the potential license of the use of our VLNC

tobacco by third-parties.

In the United States, we are focused on working with the FDA on its nicotine reduction mandate and on

our Modified Risk Tobacco Product application (“MRTPA”) that we submitted to the FDA in December 2018 for our Very

Low Nicotine Content cigarettes with product labeling that includes the proposed brand name of VLN ®

and states that

the VLN ®

product has 95% less nicotine than conventional cigarettes.

Outside the United States, we will focus on

working with WHO-member countries that desire to utilize our proprietary VLNC tobacco to implement the WHO recommendation of limiting

the sale of cigarettes to brands with a nicotine content that is not sufficient to lead to development and/or maintenance of addiction.

A list of the completed, independent clinical

studies that used our proprietary VLNC tobacco can be found on our website at http://www.xxiicentury.com/published-clinical-studies/ .

A list of the on-going, independent clinical studies on our SPECTRUM ®

research cigarettes can be found on our website

at http://www.xxiicentury.com/on-going-clinical-studies/ .

Information on our website (including links to third party websites)

is not incorporated into this Annual Report on Form 10-K.

however, the WHO report stated that it is likely to be equal to or possibly less than 0.4 mg/g of dry cigarette tobacco filler.

The WHO report cites 22nd Century’s proprietary SPECTRUM ® research cigarettes as meeting such a low level of nicotine of 0.4 mg/g of cigarette tobacco filler.

The WHO report concluded that the evidence indicates that setting a maximum allowable nicotine content for all cigarettes could (i) reduce the acquisition of smoking and progression to addiction, (ii) reduce the prevalence of smoking in a proportion of addicted smokers as a result of behavioral extinction, (iii) increase the rate of quitting and reduce the number of smokers who relapse, and (iv) increase the development, availability, and use of alternative forms of nicotine, e.g .

smokeless tobacco products, nicotine aerosol products, and medicinal nicotine, which have potential adverse health effects, including maintenance of addiction, but less than those of combusted products or conventional cigarettes.

The WHO report stated that population benefits will result from decreased use of combusted tobacco by current cigarette smokers and from the prevention of addiction of non-smokers to cigarettes, especially among young people.

On July 28, 2017, then FDA Commissioner Scott Gottlieb, M.D., announced the FDA’s plan to exercise its authority under the Tobacco Control Act to require that all combustible cigarettes sold in the United States contain only

minimally or non-addictive levels of nicotine.

In that public announcement, FDA Commissioner Gottlieb stated that (i) the overwhelming amount of death and disease attributable to tobacco is caused by addiction to cigarettes – the only legal consumer product that, when used as intended, will kill half of all long-term users, (ii) unless this course is changed, 5.6 million young people alive today will die prematurely later in life from tobacco use, (iii) envisioning a world where cigarettes would no longer create or sustain addiction, and where adults who still need or want nicotine could get it from alternative and less harmful sources, needs to be the cornerstone of the FDA’s efforts, and (iv) tobacco use remains the leading cause of preventable disease and death in the United States, causing more than 480,000 deaths per year and direct health care and lost productivity costs totaling nearly $300 billion each year.

On August 16, 2017, The New England Journal of Medicine published an article by FDA Commissioner Scott Gottlieb, M.D.

and Mitchell Zeller, J.D., the Director of the FDA’s Center for Tobacco Products (“FDA/CTP”), entitled “A Nicotine-Focused Framework of Public Health.” In this article, FDA Commissioner Gottlieb and FDA/CTP Director Zeller stated that the Tobacco Control Act gives the FDA a regulatory tool called a tobacco “product standard” that can be used to alter the addictiveness of combustible cigarettes, and that such standards may set requirements related to an ingredient or constituent in a tobacco product, or related to any other aspect of product composition, construction, or other property, and that the establishment of the right product standard could alter the addictiveness of combustible cigarettes by setting maximum nicotine levels in such products.

The article further stated that Section 907 of the Food, Drug, and Cosmetic Act authorizes the FDA to establish tobacco product standards that the FDA has determined to be appropriate for the protection of the public health, with the statute specifically noting that such a standard may address nicotine yields, among other characteristics.

Although the statute prohibits the FDA from requiring the reduction of nicotine yields of a tobacco product to zero, the FDA stated in this article that the FDA has clear authority to otherwise reduce nicotine levels.

The FDA concluded in this article that a nicotine-limiting standard could make cigarettes minimally addictive or non-addictive, helping current users of combustible cigarettes to quit and allowing most future users to avoid becoming addicted and proceeding to regular use, and that disrupting that progression – from experimentation to regular use to tobacco-related disease and even death – could save millions of American lives.

In this article, the FDA also stated that the FDA will consider peer-reviewed, scientific studies in proposing a maximum nicotine level, but that rigorous studies of Very Low Nicotine Content cigarettes have evaluated the potential effects of various nicotine levels on smoking behaviors and biomarkers, and findings from such studies could inform decision-making on a possible maximum nicotine level in tobacco filler.

The FDA stated that, as in all matters of public health policy, the FDA will be led by the science in this important area.

On December 5, 2018, the Company submitted to the FDA a new Premarket Tobacco Application (“PMTA”) and on December 27, 2018 we submitted to the FDA a new Modified Risk Tobacco Product application (“MRTPA”), in each case for our VLNC tobacco cigarettes.

Through our applications, we requested a reduced exposure marketing authorization from the FDA to market these products as Modified Risk Cigarettes with product labeling that includes the proposed brand name of VLN ® and states that VLN ® has 95% less nicotine than conventional cigarettes.

On December 17, 2019, the FDA publicly announced that the FDA had authorized the Company to market in the U.S.

our VLNC tobacco cigarettes under the product names of Moonlight ® and Moonlight Menthol ® that were the subject of our PMTA.

Our related MRTPA remains pending with the FDA.

Our Moonlight ® and Moonlight Menthol ® cigarettes are made with our proprietary VLNC tobacco and, as a result, contain very low levels of nicotine.

Our Moonlight ® and VLN ® cigarettes are identical products except in name and were closely modeled after our VLNC SPECTRUM ® research cigarettes.

Our PMTA references more than 50 independent studies conducted using our proprietary SPECTRUM ® research cigarettes.

In its public announcement relating to our PMTA, the FDA stated that following a rigorous science-based review of our PMTA, the FDA had determined that authorizing these reduced nicotine products for sale in the U.S.

is appropriate for the protection of the public health because of, among several key considerations, the potential to reduce nicotine dependence in addicted adult smokers, who may also benefit from decreasing nicotine exposure and cigarette consumption.

The FDA further stated that the FDA had determined that non-smokers, including youth, are also unlikely to start using these products, and those who experiment are less likely to become addicted than people who experiment with conventional cigarettes.

On February 14, 2020, the FDA’s Tobacco Products Scientific Advisory Committee ("TPSAC") conducted its public hearing regarding our MRTPA for our VLNC cigarettes.

This meeting was the first time that TPSAC considered an MRTP application for a modified exposure claim and also TPSAC’s first discussion of an application for a combustible tobacco product.

We presented data in support of our product applications and the FDA also presented

perspectives on the applications and posed questions for the committee members to discuss.

Recordings of the proceedings meeting materials, including briefing materials for the committee provided by the Company and FDA, and presentation given by the different stakeholders are publicly available for review via FDA’s website.

The public comment period on the applications closed on May 18, 2020.

The FDA continues to conduct a comprehensive evaluation of our applications;

it is management’s belief, based on the process that FDA follows for MRTPAs, that we are in the final stages of the review and decision making process.

In summary, since 2011, the FDA, NIDA and other federal government agencies have invested an estimated $125 million in independent clinical studies utilizing 22nd Century’s proprietary tobaccos, with such studies being conducted by scientists at many different and well-known clinical study centers.

During that same time, we have provided more than 31.6 million proprietary SPECTRUM ® research cigarettes for use in such independent clinical studies.

The results of these studies have been published in peer-reviewed articles and reflect the independent scientific support for the planned mandate by the FDA that all combustible cigarettes sold in the United States contain only minimally or non-addictive levels of nicotine.

We believe that our VLNC tobacco technology and our production and delivery of more than 31.6 million proprietary research cigarettes since 2011 reflects that the FDA’s plan to dramatically reduce nicotine in cigarettes is technically achievable.

Cigarettes made with our proprietary VLNC tobacco have been the subject of numerous completed and on-going independent clinical studies.

Accordingly, we are investigating the potential use of our VLNC tobacco in our own products that will be intended to comply with the new FDA regulations, as well as investigating the potential license of the use of our VLNC tobacco by third-parties.

In the United States, we are focused on working with the FDA on its nicotine reduction mandate and on our Modified Risk Tobacco Product application (“MRTPA”).

Outside the United States, we will focus on working with WHO-member countries that desire to utilize our proprietary VLNC tobacco to implement the WHO recommendation of limiting the sale of cigarettes to brands with a nicotine content that is not sufficient to lead to development and/or maintenance of addiction.

Starting within 90-days of authorization of our MRTPA by the FDA, we are prepared to launch VLN ® cigarettes in select markets.

Our discussions with key distributors and retail chains have yielded multiple opportunities for initial sales and expansion.

Our sales and marketing plans are well-developed and ready for implementation.

Given that 60% of participants in our perception studies have indicated an intent to use VLN ® cigarettes, we anticipate that there will be a robust market for VLN ® cigarettes.

We also believe that obtaining FDA designation of our VLN ® cigarettes as Modified Risk Cigarettes will create opportunities for us to license our proprietary technology and/or our tobaccos to larger competitors.

SPECTRUM ® Cigarettes and Government Research

NIDA, which is a part of NIH, provides the scientific community with controlled and uncontrolled research chemicals and drug compounds through its Drug Supply Program.

In 2010, NIDA included an option to develop and produce research cigarettes with various levels of nicotine (from very low to conventional) in its request for proposals for a five-year contract for Preparation and Distribution of Research and Drug Products.

We agreed, as a subcontractor to RTI International (“RTI”), to supply cigarettes with different nicotine contents (from very low to conventional) to NIDA.

In August 2010, we met with officials from NIDA, FDA, RTI, CDC and the National Cancer Institute (“NCI”) to finalize certain aspects of the design of these research cigarettes.

These cigarettes for government research produced by us under the mark SPECTRUM ® have been, and continue to be, distributed by RTI for NIDA to independent researchers for scientific clinical studies.

The SPECTRUM ® research cigarette contract was renewed in 2019 for an additional five years.

Since 2011, the FDA, NIDA and other federal government agencies are estimated to have invested more than $125 million in independent clinical studies utilizing our proprietary tobaccos, with such studies being conducted at many well-known locations, including the Mayo Clinic, the MD Anderson Cancer Center at the University of Texas, the Johns Hopkins University, Duke University, the University of Pittsburgh, the University of Minnesota, the University of Vermont, the University of California, and others.

Since 2011, we have provided more than 31.6 million SPECTRUM ® research cigarettes for use in these independent clinical studies.

The SPECTRUM ® product line consists of a series of 24 cigarette styles (11 regular and 13 menthol versions) that have 8 different levels of nicotine – from very low to conventional.

A list of the completed, independent clinical studies on our proprietary tobaccos can be found on our website as discussed above.

We expect that information from such government agency sponsored research studies will assist us, along with our own funded studies, in obtaining the necessary FDA authorizations to market our VLNC tobacco cigarettes under our proposed product name of VLN ® as a Modified Risk Cigarette.

Hemp/Cannabis

Our mission in hemp/cannabis is to develop

proprietary varieties of hemp with valuable cannabinoid profiles and other superior agronomic traits.

Our current activities in

the United States involve work with only legal hemp in compliance with U.S.

On December 20, 2018, the Agricultural Improvement Act of 2018, which is also known as the “2018 Farm Bill,” was enacted and, among other things, further legalized hemp under U.S.

federal law, but with compliance still being required with all applicable state hemp laws.

The 2018 Farm Bill includes certain benefits for the hemp industry in the United States, including:

(i) the extension of the protections for hemp research and researchers and the conditions in which hemp research can be done, (ii) the protection of hemp farmers and hemp production under federal crop insurance programs, (iii) the permitting of the cultivation, interstate transportation and sale of hemp and hemp products in the U.S.

in compliance with all other applicable federal and state laws, and (iv) the removal of hemp and hemp derived products from Schedule 1 of the Controlled Substances Act (“CSA”).

As of January 1, 2021, (i) federal law and the laws of 47 states in the United States and the District of Columbia have legalized hemp, (ii) 36 states in the United States, the District of Columbia, Guam, Puerto Rico, and the U.S.

Virgin Islands have enacted laws and/or regulations that recognize, in one form or another, legitimate medical uses for cannabis/marijuana and consumer use of cannabis/marijuana in connection with medical treatment, and (iii) 15 states in the United States, the District of Columbia, Guam, and the Northern Mariana Islands have legalized cannabis/marijuana for adult recreational use.

Many other states are considering similar legislation.

Conversely, under the federal CSA, the policies and regulations of the federal government and its agencies are that cannabis/marijuana has no medical benefit and a range of activities are prohibited, including cultivation, possession, personal use and interstate distribution of cannabis/marijuana.

In hemp, we are developing proprietary hemp varieties with increased levels of certain cannabinoids and other desirable agronomic traits with the goal of generating new and valuable intellectual property and plant lines.

Our activities in the United States involve only work with legal hemp in full compliance with U.S.

federal and state laws.

The hemp plant and the marijuana

plant are both part of the same cannabis genus of plant, except that hemp has not more than 0.3% dry weight content of

delta-9-tetrahydrocannabinol (“THC”).

The federal Agricultural Improvement Act of 2018 (the “2018 Farm Bill”)

legalized hemp and cannabinoids extracted from hemp in the U.S., but such extracts remain subject to state laws and the regulation

by other U.S.

federal agencies, such as the FDA and the U.S.

Department of Agriculture (“USDA”).

The same plant with

a higher THC content is defined as marijuana, which is legal under certain state laws, but which is not legal under U.S.

The hemp and the marijuana plants are both part of the same cannabis genus, except that hemp does not have more than 0.3% dry weight content of delta-9-tetrahydrocannabinol (“THC”).

While 2018 Farm Bill legalized hemp and cannabinoids extracted from hemp in the U.S., such extracts remain subject to state laws and regulation by other U.S.

federal agencies such as the FDA, U.S.

Drug Enforcement Administration (“DEA”), and the U.S.

Department of Agriculture (“USDA”).

The same plant, with a higher THC content is marijuana, which is legal under certain state laws, but which is currently not legal under U.S.

The similarities between these plants can cause confusion.

To reflect this difference in law, sometimes we refer to legal

hemp and the legal hemp industry as hemp/cannabis to distinguish this as being separate and apart from marijuana/cannabis currently

not legal under U.S.

Our activities with fully legal hemp have sometimes been incorrectly perceived as us being involved

in federally illegal marijuana.

To reflect this difference in law, sometimes we refer to legal hemp and the legal hemp industry as hemp/cannabis to distinguish this as being separate and apart from marijuana/cannabis which is not legal under U.S.

Our activities with legal hemp have sometimes been incorrectly perceived as us being involved in federally illegal marijuana/cannabis.

This is not the case.

In the United States, we work only with legal hemp in compliance with U.S.

federal and state laws.

We have developed various types of hemp

plants with agronomically desirable traits for commercial uses and/or unique cannabinoid levels for possible extraction purposes.

We believe that we have many types of superior and unique hemp plant varieties, including (i) hemp plants with low to no amounts

of THC and other desirable agronomic traits for the legal hemp industry and (ii) hemp plants with high levels of cannabidiol (“CBD”)

and other non-THC cannabinoids for the legal medical cannabinoid markets.

In the United States, we have worked with the University

of Virginia (“UVA”) to (i) create unique industrial hemp plants with levels of THC below 0.3%, which is the legal limit

that defines hemp for optimal growth in Virginia, (ii) optimize other desirable hemp plant characteristics to improve the plant’s

suitability for growing in Virginia and in similar legacy tobacco regions of the United States, and (iii) utilize high-value medical

cannabinoid hemp varieties for use in human therapeutics.

We also have a license in the State of New York to research and grow

hemp in that state.

In Canada, we previously conducted sponsored research on the hemp plant with Anandia in Vancouver,

British Columbia, in full compliance with Canadian regulations.

In Europe and the United States, we are currently working with

KeyGene NV, a global leader in plant research involving high-value genetic traits and increased crop yields, in an exclusive, worldwide

collaboration that is focused on developing hemp/cannabis plants with exceptional cannabinoid profiles and other superior agronomic

traits for medical, therapeutic and agricultural uses, among many other applications.

Through our partnership with KeyGene, we

completed a deep analysis of several hemp/cannabis lines, established and expanded a proprietary cannabis genomic database, began

the sequencing and development of high-quality de novo assemblies of several hemp/cannabis plant lines, and developed novel laboratory

analysis techniques.

These activities will facilitate our on-going hemp/cannabis research efforts focused on developing hemp/cannabis

plants with exceptional cannabinoid profiles and other superior agronomic traits for medical, therapeutic and agricultural uses.

On December 3, 2019, we conducted a closing

of an initial investment in Panacea, a vertically-integrated developer, producer and seller of legal, hemp-derived, CBD products,

with extraction, distillation, testing and manufacturing operations located in a 51,000 square foot facility in Golden, Colorado.

Our investments in Panacea from such initial closing through the ensuing twelve to eighteen month period are expected to be approximately

$24 million, in a combination of cash and shares of our common stock in exchange for Panacea-issued debt and Panacea preferred

We also received a warrant from Panacea to purchase additional shares of preferred stock of Panacea, which upon full exercise

will provide us with a controlling equity position in Panacea.

We continue to review other potential

candidate companies in the hemp/cannabis field for strategic collaborations, affiliations, joint ventures, investments and/or

acquisitions.

Intellectual Property

Our intellectual property enables us

to alter the level of nicotine and other nicotinic alkaloids in tobacco plants and the levels of cannabinoids in

hemp/cannabis plants through genetic engineering and modern plant breeding.

The basic techniques include, but are not limited

to, those that are used in the production of genetically modified (“GM”) and gene-edited varieties of other

crops, which are also known as “biotech crops.”

We have extensive patent protection and

exclusive rights covering tobacco plants with altered nicotine content produced from modifying expression of certain genes in the

tobacco plant, including NBB, QPT, A622, MPO and several transcription factor genes, and tobacco products produced from these plants.

A portion of the QPT patent family expired in 2018, and the remainder of the QPT patent family is expected to expire in 2020, although

a Brazilian application of the family, now under appeal, could expire later if granted.

The majority of our other patent families

related to nicotine biosynthesis are expected to expire between 2021 and 2036, with certain extensions of terms in the U.S.

resulting from patent term adjustments at the U.S.

In the United States, we work only with legal hemp in full compliance with federal and state laws.

We have a license in the State of New York to research and grow hemp in response to the numerous public announcements by New York Governor Andrew Cuomo that New York State intends to become a leading grower and producer of hemp and hemp-derived products.

In Canada, we previously conducted sponsored research on the hemp plant with Anandia in Vancouver, British Columbia, in full compliance with Canadian regulations.

In Europe and the United States, we are currently working with KeyGene NV (“Keygene”), a global leader in plant research involving high-value genetic traits and increased crop yields.

In our exclusive, worldwide collaboration with Keygene, we are focused on developing hemp/cannabis plants with exceptional cannabinoid profiles and other superior agronomic traits for medical, therapeutic and agricultural uses, among many other applications.

We also have an investment in Panacea Life Sciences (“Panacea” or “PLS”) described below.

We continue to review potential candidate companies in the hemp/cannabis field for strategic collaborations, affiliations, joint ventures, investments, and/or acquisitions.

Investment in Panacea Life Sciences

On December 3, 2019, we closed on an investment in Panacea for $13.2 million for a 15.8% ownership interest.

Panacea is a vertically integrated developer, producer and seller of legal, hemp-derived, CBD products, with extraction, distillation, testing and manufacturing operations located in a 51,000 square foot facility in Golden, Colorado.

Our investment consists of a $7 million convertible note receivable, 3,733,334 shares of Series B preferred stock, and a warrant to purchase additional shares of Series B preferred stock, which upon full exercise will provide us with a controlling equity position in Panacea.

This investment was made at that time as the company was seeking to diversify its product line to augment its current and future sales of tobacco products with sales of branded consumer CBD products—produced and sold by Panacea.

We recently entered into a non-binding agreement with Panacea to potentially restructure our investment and business relationship.

The non-binding agreement with Panacea generally provides for (i) the transfer of $7.2 million in operational assets, including an agricultural facility and various extraction and distillation equipment, from Panacea to us in exchange for the cancellation of the $7 million convertible note receivable plus accrued interest;

(ii) an amendment of transaction documents to remove any future investment rights and obligations of the Company in Panacea, (iii) cancellation of the warrant to purchase additional Series B preferred stock;

and (iv) various other amendments to Panacea’s charter to amend various investors rights therein.

We believe this non-binding agreement to restructure our investment with Panacea will allow Panacea to optimize its focus on creating high-quality CBD and other hemp-based cannabinoid consumer products and provide us with an agricultural asset that will allow us to conduct further commercial research and development on various lines of hemp/cannabis genetics in our intellectual property portfolio.

However, the agreement to restructure our investment with Panacea is preliminary, non-binding, subject to change and may not occur.

Research & Development (R&D) & Intellectual Property (IP)

Since our inception, the majority of our research and development (“R&D”) efforts have been outsourced to highly qualified groups in their respective fields.

Since 1998, we have had multiple R&D agreements with North Carolina State University (“NCSU”) and others resulting in exclusive worldwide licenses to various patented technologies.

We have utilized the same model employed by many public-sector research organizations, which entails obtaining an exclusive option or license agreement to any invention arising out of funded research.

In all cases, we fund and control all patent filings as the exclusive licensee.

This model of contracting with public-sector researchers has enabled us to control R&D costs while achieving our desired results, including obtaining exclusive intellectual property rights relating to our outsourced R&D.

In August 2016, we opened our own laboratory on the Buffalo Niagara Medical Campus in Buffalo, New York where we are conducting our own proprietary research and development activities in tobacco and hemp.

On October 30, 2017, we obtained a New York State hemp research and grower license to support our expanding hemp activities in New York.

On June 22, 2018, the Company entered into an amendment to its existing license agreement with NCSU under which the Company exclusively licensed several bright and burley tobacco plant lines with Very Low Nicotine Content that are not genetically modified (non-GMO) plants.

The amendment provides for the Company to pay NCSU a total exclusive license fee of $1.2 million—refer to Note 8 to our consolidated financial statements for additional information.

The Company will also pay running royalties to NCSU based on a portion of the net sales revenue received by the Company from sales of products that contain any portions of the plant materials that have been received by the Company from NCSU.

On October 22, 2018, the Company entered into a license agreement with the University of Kentucky (“UK”) to license on a non-exclusive basis a next-generation very low nicotine content burley tobacco plant lines that are not genetically modified (non-GMO) plants.

The UK license agreement provides for the Company to pay UK a total license fee of $1.2 million—refer to Note 8 to our consolidated financial statements for additional information.

will also pay running royalties to UK based on a portion of the net sales revenue received by the Company from sales of products that contain any portions of the plant materials that have been received by the Company from UK.

After several field trial evaluations throughout the United States, the Company has produced new non-GMO burley and bright tobacco varieties with 95% reduced nicotine and enhanced flavor notes.

These new varieties include technology previously licensed from NCSU, which is protected with a patent portfolio.

Our research also showed a successful introduction of the non-GMO VLNC technology on several oriental lines and we expect to have 95% reduced nicotine oriental tobacco in the future.

We are currently developing new versions of our VLNC cigarettes utilizing these non-GMO tobacco lines for future commercialization in the U.S.

and globally.

Our intellectual property enables us to alter the level of nicotine and other nicotinic alkaloids in tobacco plants through genetic engineering and modern plant breeding.

We have extensive patent protection and exclusive rights covering tobacco plants with altered nicotine content produced from modifying expression of certain genes in the tobacco plant.

Our patent families related to nicotine biosynthesis are expected to expire between 2021 and 2036, with certain extensions of terms in the U.S.

applications resulting from patent term adjustments at the U.S.

Patent and Trademark Office.

(A “patent family” is a set of patent

applications and patents, filed in various countries, that relate back to at least one common earlier application.).

21-41 VLNC tobacco plants with the QPT modification are also protected by plant variety protection (“PVP”) through

2023, which further restricts third-parties from using such plants.

The creation and production of unique

tobacco plants with agronomic traits of VLNC levels, with sufficiently high germination rates and sufficiently large plant

yields at harvest, among many other desirable qualities, are necessary for the plants to be sufficiently reliable to be

planted at commercial scale.

The expiration of a portion of the QPT patent family in 2018 provides third parties with the

freedom to target the QPT gene in the tobacco plant, but such targeting of the QPT gene alone does not mean that a third

party will be successful in creating a tobacco plant with altered levels of nicotine.

The freedom to target the QPT gene

means that a third party may conduct scientific experiments to try to discover how to alter or affect the QPT gene in ways

that may or may not result in a change in nicotine levels in the tobacco plant.

If a third party is able subsequently to

learn, over time, how to utilize the QPT gene to alter nicotine levels in the tobacco plant, then such third party would

still need to develop and create a unique tobacco plant with very low levels of nicotine (not just a “low

nicotine”

or “reduced nicotine” plant), which would involve, among many other things, multiple plantings

over multiple generations of the plants to try to create stable and reliable VLNC plants, with no assurance that any third

party could be successful in such efforts.

We believe that targeting of the QPT gene alone will not result in a VLNC tobacco

plant and, hence, that other genes will have to be targeted in the tobacco plant, possibly (and we believe likely) including

genes and other intellectual property for which we have continuing patent protection that would need to be used, in

combination with QPT to result in VLNC tobacco.

However, if a third party is able, over time, to develop a tobacco plant with

very low levels of nicotine, then the third party still would need to develop a VLNC plant with sufficiently high germination

rates and sufficiently large plant yields at harvest for the plant to be sufficiently reliable to be planted in large

quantities to support its use at commercial scale, which again would involve, among many other things, multiple plantings

over multiple generations of the plants to determine the reliability and stability of the germination rates and plant yields

We also have exclusive plant variety rights

in the United States (plant variety protection certificates are issued in the United States by the U.S.

Department of Agriculture

(“PVP”)) and Canada.

A PVP certificate prevents anyone other than the owner/licensee from planting, propagating, selling,

importing or exporting a plant variety for twenty (20) years in the U.S.

and, generally, for twenty (20) years in other member

countries of the International Union for the Protection of New Varieties of Plants, known as UPOV, an international treaty concerning

plant breeders’ rights.

(A “patent family” is a set of patent applications and patents, filed in various countries, that relate back to at least one common earlier application.).

Our Vector 21-41 VLNC tobacco plants with the QPT modification are also protected by plant variety protection (“PVP”) through 2023, which further restricts third-parties from using such plants.

The creation and production of unique tobacco plants with VLNC levels, with sufficiently high germination rates and sufficiently large plant yields at harvest, among many other desirable qualities, are necessary for the plants to be sufficiently reliable to be planted at commercial scale.

The expiration of a portion of the QPT patent family in 2018 provides third parties with the freedom to target the QPT gene in the tobacco plant, but such targeting of the QPT gene alone does not mean that a third party will be successful in creating a tobacco plant with altered levels of nicotine.

The freedom to target the QPT gene means that a third party may conduct scientific experiments to try to discover how to alter or affect the QPT gene in ways that may or may not result in a change in nicotine levels in the tobacco plant.

If a third party is able subsequently to learn, over time, how to utilize the QPT gene to alter nicotine levels in the tobacco plant, then such third party would still need to develop and create a unique tobacco plant with very low levels of nicotine (not just a “low nicotine” or “reduced nicotine” plant), which would involve, among many other things, multiple plantings over multiple generations of the plants to try to create stable and reliable VLNC plants, with no assurance that any third party could be successful in such efforts.

We believe that targeting of the QPT gene alone will not result in a VLNC tobacco plant and, hence, that other genes will have to be targeted in the tobacco plant, likely including genes and other intellectual property for which we have continuing patent protection that would need to be used.

We also have exclusive plant variety rights in the United States and may other countries.

Plant variety protection certificates are issued in the United States by the U.S.

Department of Agriculture (“PVP”).

A PVP certificate prevents anyone other than the owner/licensee from planting, propagating, selling, importing or exporting a plant variety for twenty (20) years in the U.S.

and, generally, for twenty (20) years in other member countries of the International Union for the Protection of New Varieties of Plants, known as UPOV, an international treaty concerning plant breeders’ rights.

There are currently more than 70 countries that are members of UPOV.

Our current VLNC tobaccos are

protected by our patent portfolio and our Vector 21-41 VLNC tobacco is additionally protected by PVP.

In September 2014, we entered into a Sublicense

Agreement with Anandia (the “Anandia Sublicense”).

Under the terms of the Anandia Sublicense, we were granted an exclusive

sublicense in the United States and a co-exclusive sublicense in the remainder of the world, excluding Canada, to four U.S.

and 26 patent applications relating to genes in the hemp/cannabis plant that are required for the production of cannabinoids, the

“active ingredients”

in the hemp/cannabis plant.

The Anandia Sublicense continues through the life of the last-to-expire

patent, which is expected to be in 2035

In addition to our patents,

patent applications, and PVP certificates, we own various registered trademarks in the United States and around the world.

During the year ended December 31, 2019,

we decided on a going-forward basis that we will be concentrating our business and scientific resources, personnel and efforts

on the portion of our intellectual property portfolio (patents, patent applications and trademarks) that relate to very low nicotine

tobacco plants and potential products, as well as unique hemp/cannabis plants and potential products, in order to more strategically

pursue our objectives.

Accordingly, we decided to no longer support and maintain the portions of our intellectual property portfolio

that are no longer areas of our focus on a going-forward basis, such as the portion of our intellectual property portfolio relating

to increased nicotine in tobacco;

potentially reduced exposure products involving higher nicotine products;

older scientific methods

of working with genes in tobacco plants;

methods of utilizing the biomass of tobacco plants;

and trademarks that do not fit within

the types of products that we desire to commercialize in the future.

We further decided on a going-forward basis to narrow the

countries in which we will support our intellectual property filings to more strategically focus on protecting our intellectual

property in countries that are scientifically or commercially of highest importance rather than a broader focus.

We intend to continue

to review and refine our business and scientific focus, resources and efforts in the future in order to continue to strategically

pursue our objectives in cost-effective ways.

We also believe that certain portions of our intellectual property portfolio that

we will not be utilizing in the future nevertheless still have value, so we will be investigating potential opportunities to out-license

to third-parties those portions of our intellectual property portfolio that we will not be utilizing in the future, but which may

be desirable by third-parties.

Research and Development

Since our inception, the majority of our

research and development (“R&D”) efforts have been outsourced to highly qualified groups in their respective fields.

Since 1998, we have had multiple R&D agreements with North Carolina State University (“NCSU”) and others resulting

in exclusive worldwide licenses to various patented technologies.

We have utilized the same model employed by many public-sector

research organizations, which entails obtaining an exclusive option or license agreement to any invention arising out of funded

In all cases, we fund and control all patent filings as the exclusive licensee.

This model of contracting with public-sector

researchers has enabled us to control R&D costs while achieving our desired results, including obtaining exclusive intellectual

property rights relating to our outsourced R&D.

In August 2016, we opened our own laboratory

on the Buffalo Niagara Medical Campus in Buffalo, New York where we are conducting our own proprietary research and development

activities in tobacco and hemp.

On October 30, 2017, we obtained a New York State hemp research and grower license to support our

expanding hemp activities in New York.

In December 2016, we entered into a sponsored

research agreement with the University of Virginia (“UVA”) and an exclusive license agreement with the University of

Virginia Patent Foundation d/b/a University of Virginia Licensing & Ventures Group (“UVA LVG”) pursuant to which

we invested approximately $1,000,000 over a three-year period with UVA to work on the creation of unique industrial hemp plants

with guaranteed levels of THC below the legal limits and to optimize other desirable hemp plant characteristics to improve the

plant’s suitability for growing in Virginia and other legacy tobacco regions in the United States.

On October 19, 2017, we announced that

UVA had completed its first successful harvest of our hemp plants and identified several promising hemp varieties that could form

the foundation for commercial hemp production throughout the legacy tobacco regions of the United States.

The 22nd Century-UVA

hemp field trials used multiple oil and fiber varieties of hemp.

Our hemp harvest with UVA identified proprietary varieties of

hemp that have excellent agronomic properties for growth in Virginia.

In 2018 and 2019, we continued to use our proprietary hemp

plants for plantings with UVA in Virginia.

We incurred $287,535 of expenses for the R&D agreement at UVA for the year ended

December 31, 2019.

UVA and 22nd Century conducted all activities in this scientific collaboration within the parameters of state

and federal licenses and permits held by UVA for such work.

The agreements with UVA and UVA LVG grant us exclusive rights to commercialize

all results of the collaboration in consideration of royalty payments by our Company to UVA LVG.

On June 22, 2018, the Company entered into

an amendment to its existing license agreement with NCSU under which the Company exclusively licensed several bright and burley

tobacco plant lines with Very Low Nicotine Content that are not genetically modified (non-GM) plants.

The amendment provides

for the Company to pay NCSU a total exclusive license fee of $1,200,000, of which $500,000 was paid by the Company to NCSU within

five business days after the execution of the amendment, $400,000 was paid on the one-year anniversary of the execution of the

amendment, and $300,000 will be paid on the two-year anniversary of the execution of the amendment.

The Company will also

pay running royalties to NCSU based on a portion of the net sales revenue received by the Company from sales of products that contain

any portions of the plant materials that have been received by the Company from NCSU.

On October 22, 2018, the Company

entered into a license with the University of Kentucky (“UK”) to license on a non-exclusive basis a

next-generation very low nicotine burley tobacco plant line.

The UK license agreement provides for the Company to pay

UK a total exclusive license fee of $1,200,000, of which $300,000 was paid by the Company to UK after the delivery by UK to

the Company of certain very low nicotine burley tobacco seeds, $300,000 was paid on the one-year anniversary of the license

agreement, $300,000 will be paid on the later of the two-year anniversary of the license or the delivery by UK to the Company

of certain other very low nicotine burley tobacco seeds, and the final installment payment of $300,000 will be paid on the

later of the three-year anniversary of the license agreement or the delivery by UK to the Company of seeds of male sterile

versions of each of the very low nicotine plants grown by UK for the Company from the seeds provided by UK to the

The Company will also pay running royalties to UK based on a portion of the net sales revenue received by the

Company from sales of products that contain any portions of the plant materials that have been received by the Company from

During the years ended December 31, 2019,

2018, and 2017, we incurred total R&D expenses of $8,057,147, $14,989,746, and $3,366,468, respectively.

The R&D expenses

for the year ended December 31, 2019 include approximately $1,675,000 in expenses relating to our PMTA and MRTPA.

MSA Membership

In September 2013, we entered into a Membership

Interest Purchase Agreement (the “NASCO Acquisition”) to purchase all of the issued and outstanding membership interests

of NASCO, a federally licensed tobacco product manufacturer and subsequent participating manufacturer under the Master Settlement

Agreement (“MSA”).

The MSA is an accord reached in November 1998 between the State Attorneys General of 46 states,

territories, the District of Columbia and the five largest tobacco companies in the United States concerning the advertising,

marketing and promotion of tobacco products.

The MSA also set standards for, and imposes restrictions on, the sale and marketing

of cigarettes by participating cigarette manufacturers.

On August 29, 2014, we entered into an Amended Adherence Agreement with

the 46 Settling States under the MSA pursuant to which the Company was approved to acquire NASCO and become a subsequent participating

manufacturer under the MSA.

On that same date, we closed the NASCO Acquisition and became a subsequent participating manufacturer

under the MSA.

NASCO has since been a wholly-owned subsidiary of our Company.

Our current VLNC tobaccos are protected by our patent portfolio and our Vector 21-41 VLNC tobacco is additionally protected by PVP.

In addition to our patents, patent applications, and PVP certificates, we own various registered trademarks in the United States and around the world.

Hemp/Cannabis R&D and IP

Our intellectual property enables us to alter the level the levels of cannabinoids in cannabis plants through genetic engineering and modern plant breeding.

The basic techniques include, but are not limited to, those that are used in the production of genetically modified (“GM”) and gene-edited varieties of other crops, which are also known as “biotech crops.” We have developed various types of cannabis plants with agronomically desirable traits for commercial uses and/or unique cannabinoid/terpenoid levels.

We believe that we have many types of superior and unique cannabis plant varieties in development, including (i) plants with low to no amounts of THC and other desirable agronomic traits for the legal hemp industry and (ii) plants with high levels of cannabinoids (including THC, CBD and many minor cannabinoids) for use in legal cannabinoid markets.

In September 2014, we entered into a Sublicense Agreement with Anandia (the “Anandia Sublicense”).

Under the terms of the Anandia Sublicense, we were granted an exclusive sublicense in the United States and a co-exclusive sublicense in the remainder of the world, excluding Canada, to four U.S.

patents and 26 patent applications relating to genes in the cannabis plant that are required for the production of cannabinoids in the cannabis plant or any microorganism, including yeast or bacteria.

Three of these patents are essential for all the cannabinoids’ core biosynthesis and one is specific for CBC and derivatives.

The Anandia Sublicense continues through the life of the last-to-expire patent, which is expected to be in 2035.

In December 2016, we entered into a sponsored research agreement with the University of Virginia (“UVA”) and an exclusive license agreement with the University of Virginia Patent Foundation d/b/a University of Virginia Licensing & Ventures Group (“UVA LVG”) pursuant to which we invested approximately $1 million over a three-year period with UVA to work on the creation of unique industrial hemp plants with guaranteed levels of THC below the legal limits and to optimize other desirable hemp plant characteristics to improve the plant’s suitability for growing in Virginia and other legacy tobacco regions in the United States.

On October 19, 2017, we announced that UVA had completed its first harvest of our hemp plants and identified several promising hemp varieties that could form the foundation for commercial hemp production throughout the legacy tobacco regions of the United States.

The 22nd Century-UVA hemp field trials used multiple varieties of hemp.

In 2018 and 2019, we continued to use our proprietary hemp plants for plantings with UVA in Virginia.

UVA and 22nd Century conducted all activities in this scientific collaboration within the parameters of state and federal licenses and permits held by UVA for such work.

The agreements with UVA and UVA LVG grant us exclusive rights to commercialize all results of the collaboration in consideration of royalty payments by our Company to UVA LVG.

This project with UVA completed in December 2019 and all seeds and plants were transferred to Keygene for further research and development.

Through our partnership with KeyGene, we have completed a deep analysis of several hemp/cannabis lines, established and expanded a proprietary cannabis genomic database, began the sequencing and development of high-quality de novo assemblies of several hemp/cannabis plant lines, and developed novel laboratory analysis techniques.

These activities will facilitate our on-going hemp/cannabis research efforts focused on developing hemp/cannabis plants with exceptional cannabinoid profiles and other superior agronomic traits for medical, therapeutic and agricultural uses.

Towards this end, we have identified several lines with superior cannabinoids and terpenoids profiles using standard genomics and molecular breeding technologies.

Also, we have developed metabolomics methods, male-female flower induction, and rapid cycle breeding.

On February 10, 2021, we announced that we have developed and launched a new, cutting-edge technology platform that will enable us and our strategic partners to quickly identify and incorporate commercially valuable traits of hemp/cannabis plants to create new, stable hemp/cannabis lines.

The platform incorporates a suite of proprietary molecular tools and a large library of genomic markers and gene-trait correlations.

The platform was developed in collaboration with researchers at KeyGene, a global leader in plant research involving high-value genetic traits and increased crop yields.

Using this new breeding technology, we have already characterized millions of high-value single nucleotide polymorphisms (SNPs).

SNPs are molecular markers or guideposts within a plant’s genome that indicate important variations in Deoxyribonucleic acid (DNA) sequences.

Targeting these newly identified SNPs, we were able to locate and isolate specific sections of genetic code from genome assemblies present in our state-of-the-art hemp/cannabis bioinformatics database.

Our bioinformatics database continues to grow and already contains hundreds of hemp/cannabis genomes and thousands expression datapoints across a wide array of hemp/cannabis varieties and phenotypes.

The ability to identify specific genetic variations allows researchers to isolate high-value traits, like increased CBD or tetrahydrocannabinol (THC) production, and then introduce those traits in new plant lines using modern plant breeding techniques, including trait tracking using molecular marker profiles and proprietary accelerated breeding.

Tobacco Master Settlement Agreement

In September 2013, we entered into a Membership Interest Purchase Agreement (the “NASCO Acquisition”) to purchase all of the issued and outstanding membership interests of NASCO, a federally licensed tobacco product manufacturer and subsequent participating manufacturer under the Master Settlement Agreement (“MSA”).

The MSA is an accord reached in November 1998 between the State Attorneys General of 46 states, five U.S.

territories, the District of Columbia and the five largest tobacco companies in the United States concerning the advertising, marketing and promotion of tobacco products.

The MSA also set standards for, and imposes restrictions on, the sale and marketing of cigarettes by participating cigarette manufacturers.

On August 29, 2014, we entered into an Amended Adherence Agreement with the 46 Settling States under the MSA pursuant to which the Company was approved to acquire NASCO and become a subsequent participating manufacturer under the MSA.

On that same date, we closed the NASCO Acquisition and became a subsequent participating manufacturer under the MSA.

NASCO has since been our wholly-owned subsidiary.

Manufacturing

We lease a cigarette manufacturing facility

and warehouse located in Mocksville, North Carolina.

In 2013, we purchased certain (i) cigarette manufacturing equipment, and (ii)

equipment parts, factory items, office furniture and fixtures, vehicles and computers from the bankruptcy estate of PTM Technologies,

We lease a cigarette manufacturing facility and warehouse located in Mocksville, North Carolina.

In 2013, we purchased certain (i) cigarette manufacturing equipment, and (ii) equipment parts, factory items, office furniture and fixtures, vehicles and computers from the bankruptcy estate of PTM Technologies, Inc.

for approximately $3.2 million.

The facility was primarily in a pre-manufacturing

stage during 2014 as we sought approval during that time for us to become a subsequent participating manufacturer under the MSA.

The facility was primarily in a pre-manufacturing stage during 2014 as we sought approval during that time for us to become a subsequent participating manufacturer under the MSA.

Since August 29, 2014, the Company has been a subsequent participating manufacture under the MSA.

Since 2015, we have manufactured

and sold our SPECTRUM ®

government research cigarettes, together with a third-party MSA cigarette brand and

several third-party filtered cigar brands, at our factory in North Carolina.

Our strategic acquisition of our

factory has allowed us to become vertically integrated so that we can control production priorities/timing and maintain the

required high quality of our products, including our SPECTRUM ®

research cigarettes.

In the future, our

factory will also allow us to produce our own VLNC cigarette brands in the event they comply with the FDA mandate for reduced

nicotine in cigarettes, as well as our VLNC cigarettes under the Moonlight ®

brand under our PMTA as

authorized by the FDA on December 17, 2019 and if/when the FDA authorizes our MRTPA submissions under our proposed product

name of VLN ®

Since 2015, we have manufactured and sold our SPECTRUM ® government research cigarettes, as well as third-party MSA-compliant cigarette and filtered cigar brands, at our factory in North Carolina.

Our strategic acquisition of our factory has allowed us to become vertically integrated so that we can control production priorities/timing and maintain the required high quality of our products, including our SPECTRUM ® research cigarettes and our PMTA-designation VLNC cigarettes.

In the future, our factory will also allow us to produce our own VLNC cigarette brands in the event they comply with the FDA mandate for reduced nicotine in cigarettes and if/when the FDA authorizes our MRTPA submissions under our proposed product name of VLN ® .

Sources of Raw Materials

We obtain a large portion of our

tobacco leaf from farmers in multiple states in the United States who are under direct contracts with us.

These contracts

prohibit the transfer of our proprietary tobaccos, seeds and plant materials to other parties.

We purchase the balance of our

tobacco through third parties.

As we prepare for the increased need for our proprietary VLNC tobacco in the United States as

a result of the FDA authorization of our PMTA for our Moonlight ®

brand of VLNC cigarettes on December 17, 2019, and

as we also prepare for the anticipated increased need for our proprietary VLNC tobacco in the United States in the event the

FDA mandates that all combustible cigarettes contain only minimally or non-addictive levels of nicotine and/or in the event

the FDA authorizes our MRTPA for our VLNC cigarettes under the proposed product name of VLN ®

, we intend to

increase the amount of tobacco leaf we obtain directly from farmers under contract, both in the United States and in foreign

We likewise grow hemp ourselves and under

contracts with farmers that prohibit the transfer of our proprietary seeds and plant materials to other parties.

We obtain our reduced nicotine tobacco leaf from farmers in multiple states in the United States who are under direct contracts with us.

These contracts prohibit the transfer of our proprietary tobaccos, seeds and plant materials to other parties.

We purchase other tobacco through third parties.

In anticipation of the FDA’s authorization of our MRTPA for our VLN ® cigarettes, and in the event the FDA mandates that all combustible cigarettes contain only minimally or non-addictive levels of nicotine, we have increased the amount of tobacco leaf we obtain directly from growers under contract.

In 2021, we plan to increase our growing quantities of VLNC tobacco to supply the potential launch and expansion of VLN ® cigarette sales.

Our North Carolina-based manufacturing facility is prepared to manufacture quantities of VLN ® cigarettes to supply the anticipated launch and roll-out of VLN ® .

Government Regulation

FDA Mandate to Require Minimally or Non-Addictive

Levels of Nicotine in all Cigarettes in the United States

The Tobacco Control Act, which became law

in June 2009, granted the FDA authority over the regulation of all tobacco products in the United States.

While the Tobacco Control

Act prohibits the FDA from banning cigarettes outright, or mandating that nicotine levels be reduced to zero, it does allow the

FDA to require the reduction of nicotine or other compounds in tobacco and cigarette smoke.

In 2009, the Tobacco Control Act also

banned all sales in the United States of cigarettes with flavored tobacco (other than menthol).

As of June 2010, all cigarette

companies were required to cease use of the terms “low tar,” “light” and “ultra light” in describing

cigarettes sold in the United States.

On July 28, 2017, FDA Commissioner Scott

Gottlieb, M.D., announced the FDA’s plan to exercise its authority under the Tobacco Control Act to require that all combustible

cigarettes sold in the United States contain only minimally or non-addictive levels of nicotine.

On March 16, 2018, the FDA issued

an Advance Notice of Proposed Rulemaking (“ANPRM”) to obtain information for consideration in developing a tobacco

product standard to set the maximum nicotine level for cigarettes.

The FDA is engaging in a required rule-making process to enact

such new nicotine reduction regulations.

It is uncertain how long the FDA rule-making process will take to complete.

We believe this regulatory environment represents

a paradigm shift for the tobacco industry and will create opportunities for us in marketing our VLNC tobacco cigarettes under our

proposed product name of VLN ®

and in licensing our proprietary technology and/or tobaccos to larger competitors.

On July 16, 2018, we publicly submitted to the FDA our formal written response to the ANPRM in which we described how (i) the FDA’s

proposed new rule is supported by rigorous independent, published science, (ii) the FDA’s stated goal to render cigarettes

minimally or non-addictive is immediately feasible as evidenced by our production and delivery of more than 28 million VLNC research

cigarettes since the year 2011, and (iii) the FDA’s proposed new rule is exceedingly practical and urgently needed in the

interests of public health.

Modified Risk Cigarettes

The Tobacco Control Act establishes

procedures for the FDA to regulate the labeling and marketing of Modified Risk Tobacco Products, which includes cigarettes

marketed to (i) reduce harm or the risk of tobacco-related disease or (ii) reduce or eliminate exposure to a substance

(“Modified Risk Cigarettes”).

The Tobacco Control Act required the FDA to issue specific regulations and/or

guidance regarding applications submitted to the FDA for the authorization to label and market Modified Risk Tobacco

On March 30, 2012, the FDA issued Modified Risk Tobacco Product Applications Draft Guidance .

On December 5,

2018, we submitted a new PMTA to the FDA and on December 27, 2018, we submitted a new MRTPA to the FDA, in each case for our

VLNC cigarettes for which we are requesting a reduced exposure marketing authorization from the FDA to market our VLNC

cigarettes as a Modified Risk Cigarette with product labeling that includes the proposed brand name of VLN ®

and states that the VLN ®

product has 95% less nicotine than conventional cigarettes.

We believe that our

cigarettes will qualify as Modified Risk Cigarettes.

We believe that obtaining FDA authorization to

promote our VLN ®

cigarettes as Modified Risk Cigarettes will create opportunities for us to market our own

unique product and license our proprietary technology and/or our tobaccos to larger competitors.

On December 17, 2019, the FDA publicly announced that the FDA

had authorized us to market in the U.S.

our VLNC tobacco cigarettes under the product names of Moonlight ®

and Moonlight

Menthol ®

that were the subject of our PMTA.

Our Moonlight ®

and Moonlight Menthol ®

cigarettes are made with our proprietary VLNC tobacco and, as a result, contain very low levels of nicotine.

Our Moonlight ®

and Moonlight Menthol ®

cigarettes were modeled after our VLNC SPECTRUM ®

research cigarettes.

PMTA reference more than 50 independent studies conducted using our proprietary SPECTRUM ®

research cigarettes.

its public announcement relating to our PMTA, the FDA stated that following a rigorous science-based review of our PMTA, the FDA

had determined that authorizing these reduced nicotine products for sale in the U.S.

is appropriate for the protection of the public

health because of, among several key considerations, the potential to reduce nicotine dependence in addicted adult smokers, who

may also benefit from decreasing nicotine exposure and cigarette consumption.

The FDA further stated that the FDA had determined

that non-smokers, including youth, are also unlikely to start using these products, and those who experiment are less likely to

become addicted than people who experiment with conventional cigarettes.

On February 14, 2020 TPSAC conducted a public hearing regarding

our MRTPA for our VLNC tobacco cigarettes for which we are requesting a reduced exposure marketing authorization from the FDA

to market our VLNC tobacco cigarettes in the U.S.

as a Modified Risk Tobacco Product with product labeling that includes the proposed

brand name of VLN ®

and states that the VLN ®

product has 95% less nicotine than conventional cigarettes.

This meeting was the first time that TPSAC considered an MRTP application for a modified exposure claim and also TPSAC’s

first discussion of an application for a combustible tobacco product.

presented data in support of its product applications

and FDA also presented perspectives on the applications and posed questions for the committee members to discuss.

Recordings of

the proceedings meeting materials, including briefing materials for the committee provided by us and the FDA, and presentation

given by the different stakeholders are publicly available for review via FDA’s website.

The public comment period on the

applications remains open at this time.

FDA continues to comprehensive evaluation of our applications.

We supply our proprietary cigarettes for

use by independent researchers so studies can be conducted to obtain additional information on our products.

We expect this information

will assist us, along with our own funded studies, in obtaining the necessary FDA authorizations to market our VLNC tobacco cigarettes

under our proposed product name of VLN ®

as a Modified Risk Cigarette.

On December 20, 2018, the Agricultural Improvement

Act of 2018, which is also known as the “2018 Farm Bill,” was enacted and, among other things, further legalized hemp

federal law, but with compliance still being required with all applicable state hemp laws.

The 2018 Farm Bill includes

certain benefits for the hemp industry in the United States, including:

(i) the extension of the protections for hemp research

and researchers and the conditions in which hemp research can be done, (ii) the protection of hemp farmers and hemp production

under federal crop insurance programs, (iii) the permitting of the cultivation, interstate transportation and sale of hemp and

hemp products in the U.S.

in compliance with all other applicable federal and state laws, and (iv) the removal of hemp and hemp

derived products from Schedule 1 of the Controlled Substances Act (“CSA”).

However, the FDA has publicly stated that

certain products derived from hemp, including cannabidiol (“CBD”), which is a cannabinoid that can be extracted from

hemp, will be regulated by the FDA.

Thus, participants in the hemp industry will need to comply with all applicable federal and

state laws, rules and regulations in the cultivation, transportation and sale of hemp and hemp derived products.

As of January 1, 2020, (i) federal law and

the laws of 47 states in the United States and the District of Columbia have legalized hemp, (ii) 33 states in the United States

and the District of Columbia have laws and/or regulations that recognize, in one form or another, legitimate medical uses for cannabis/marijuana

and consumer use of cannabis/marijuana in connection with medical treatment, and (iii) 11 states in the United States and the District

of Columbia have legalized cannabis/marijuana for adult recreational use.

The development, testing, manufacturing, and marketing of our potential products are subject to extensive regulation by governmental authorities in the United States and throughout the world.

T he Tobacco Control Act, which became law in June 2009, granted the FDA authority over the regulation of all tobacco products in the United States.

While the Tobacco Control Act prohibits the FDA from banning cigarettes outright, or mandating that nicotine levels be reduced to zero, it does allow the FDA to require the reduction of nicotine or other compounds in tobacco and cigarette smoke.

The FDA has authority to restrict marketing and advertising, impose regulations on packaging, mandate warnings and disclosure of flavors or other ingredients, prohibit the sale of tobacco products with certain flavors or other characteristics, limit or prohibit the sale of tobacco products by certain retail establishments and the sale of tobacco products in certain packaging sizes, and seek to hold retailers and distributors responsible for the adverse health effects associated with both smoking and exposure to environmental tobacco smoke.

In 2009, the Tobacco Control Act also banned all sales in the United States of cigarettes with flavored tobacco (other than menthol).

As of June 2010, all cigarette companies were required to cease use of the terms “low tar,” “light” and “ultra light” in describing cigarettes sold in the United States.

Manufacturers of tobacco products must comply with FDA regulations which require, among other things, compliance with the FDA’s evolving regulations on Current Good Manufacturing Practices (“cGMP(s)”), which are enforced by the FDA through its facilities inspection program.

The manufacture of products is subject to strict quality control, testing and record keeping requirements, and continuing obligations regarding the submission of safety reports and other post-market information.

We expect significant regulatory developments will take place over the next few years in many markets, driven principally by the World Health Organization’s Framework Convention on Tobacco Control (“FCTC”).

The FCTC is the first international public health treaty on tobacco, and its objective is to establish a global agenda for tobacco regulation with the purpose of reducing initiation of tobacco use and encouraging cessation.

Hemp/Cannabis

On December 20, 2018, the Agricultural Improvement Act of 2018, which is also known as the “2018 Farm Bill,” was enacted and legalized hemp and hemp products under U.S.

federal law, but with compliance still being required with all applicable state hemp laws and all regulations developed by the USDA.

In addition, the FDA is regulating products derived from hemp, including CBD, for compliance under the Federal Food, Drug and Cosmetic Act and has issued several warning letters to firms marketing CBD products to treat disease or for other therapeutic uses.

Under the Federal Food, Drug and Cosmetic Act, any product intended to affect the structure or function of the body of humans or animals is considered a drug that must receive premarket approval by the FDA through its new drug application process.

Many other states are considering similar legislation.

Conversely, under the federal CSA, the policies and regulations of the federal government and its agencies are that cannabis/marijuana

has no medical benefit and a range of activities are prohibited, including cultivation, possession, personal use and interstate

distribution of cannabis/marijuana.

Conversely, under the federal Controlled Substance Act (the “CSA”), the policies and regulations of the federal government and its agencies are that marijuana has no medical benefit and a range of activities are prohibited, including cultivation, possession, personal use, and interstate distribution of marijuana.

In the event the U.S.

Department of Justice begins strict enforcement of the CSA in states

that have laws legalizing medical and/or adult recreational cannabis/marijuana, there may be a direct and adverse impact to any

future potential business or prospects that we may have in the cannabis/marijuana business.

However, our current activities involve

only work with legal hemp, which would continue since our hemp activities are permitted under applicable federal and state laws,

rules, and regulations.

We are not currently aware of any

competition to our VLNC tobaccos inside or outside of the United States.

It is possible that our VLNC tobacco cigarettes may

compete with FDA-approved smoking cessation aids.

In the market for FDA-approved smoking cessation aids, our principal

competitors would include Pfizer Inc., GlaxoSmithKline plc, Perrigo Company plc, Novartis International AG, and Niconovum AB,

a subsidiary of Reynolds American Inc.

The industry consists of major domestic and international companies, most of which

have existing relationships in the markets into which we plan to sell, as well as financial, technical, marketing, sales,

manufacturing, scaling capacity, distribution and other resources, and name recognition substantially greater than ours.

We are also not aware of any competition in the creation and

provision of VLNC tobacco research cigarettes for use in independent clinical studies.

Cigarette and filtered cigar companies compete

primarily on the basis of product quality, brand recognition, brand loyalty, taste, innovation, packaging, service, marketing,

advertising, retail shelf space, and price.

Cigarette sales can be significantly influenced by weak economic conditions, erosion

of consumer confidence, competitors’

introduction of low-price products or innovative products, higher taxes, higher absolute

prices and larger gaps between price categories, and product regulation that diminishes the ability to differentiate tobacco products.

Domestic cigarette competitors included Philip Morris USA Inc., Reynolds American Inc., and Vector Group Ltd.

International competitors

included Philip Morris International Inc., British American Tobacco, JT International SA, Imperial Brands plc, and regional and

local tobacco companies;

Department of Justice begins strict enforcement of the CSA in states that have laws legalizing medical and/or adult recreational marijuana, there may be a direct and adverse impact to any future business or prospects that we may have in the marijuana business.

Even in those jurisdictions in which the manufacture and use of medical marijuana has been legalized at the state level, the possession, use, and cultivation of marijuana all remain violations of federal law that are punishable by imprisonment and substantial fines.

Moreover, individuals and entities may violate federal law if they intentionally aid and abet another in violating these federal controlled substance laws or conspire with another to violate them.

We currently conduct sponsored research on hemp in Maryland and the Netherlands with third parties that possess all necessary permits and licenses to engage legally in such activities.

We have conducted hemp research in Virginia, Oregon, and Canada with third-parties possessing all necessary permits and licenses to engage legally in such

In order to carry out research in other countries, similar licenses are required to be issued by the relevant authority in each country.

We also conduct hemp research in our laboratories in New York under a license granted to us by the State of New York.

Environmental Regulations

We are subject to a variety of federal, state and local environmental laws and regulations.

We have developed specific programs across our business units for ensuring high standards of environmental compliance, including, standard operating practices and procedures at our manufacturing facility as well at our research and development centers.

We believe that our manufacturing facility complies with all federal, state, and local environmental regulations, including the Clean Air Act, the Clean Water Act, and the Resource Conservation and Recovery Act.

In addition, any new products introduced by us are subject to a comprehensive environmental assessment by an independent third-party expert, including an assessment of how such products may create environmental risks.

For our PMTA product, the FDA prepared a programmatic environmental assessment (PEA), based on our submitted data in accordance with the Council on Environmental Quality's regulations (40 CFR 1500-1508) implementing the National Environmental Policy Act (NEPA) and FDA’s NEPA regulations (21 CFR 25.40).

The PEA concluded that the marketing orders would have no significant impact and that environmental impact statements would not be required.

We are not currently aware of any competition to our VLNC tobaccos inside or outside of the United States.

It is possible that our VLNC tobacco cigarettes may compete with FDA-approved smoking cessation aids.

In the market for FDA-approved smoking cessation aids, our principal competitors would include Pfizer Inc., GlaxoSmithKline plc, Perrigo Company plc, Novartis International AG, and Niconovum AB, a subsidiary of Reynolds American Inc.

The industry consists of major domestic and international companies, most of which have existing relationships in the markets into which we plan to sell, as well as financial, technical, marketing, sales, manufacturing, scaling capacity, distribution and other resources, and name recognition substantially greater than ours.

We are also aware that several domestic cigarette competitors are continuing to research very low nicotine tobacco and have filed patent applications.

However, our understanding is that these competitors continue to have a long development horizon to obtain a 95% reduction in nicotine.

We are also not aware of any competition in the creation and provision of VLNC tobacco research cigarettes for use in independent clinical studies.

Cigarette and filtered cigar companies compete primarily on the basis of product quality, brand recognition, brand loyalty, taste, innovation, packaging, service, marketing, advertising, retail shelf space, and price.

Cigarette sales can be significantly influenced by weak economic conditions, erosion of consumer confidence, competitors’ introduction of low-price products or innovative products, higher taxes, higher absolute prices and larger gaps between price categories, and product regulation that diminishes the ability to differentiate tobacco products.

Domestic cigarette competitors included Philip Morris USA Inc., Reynolds American Inc., ITG Brands, and Vector Group Ltd.

International competitors included Philip Morris International Inc., British American Tobacco, JT International SA, Imperial Brands plc, and regional and local tobacco companies;

and in some instances, government-owned tobacco enterprises such as the China National Tobacco Corporation.

Currently, competition in the hemp/cannabis

space includes many small regional marketers/packagers of CBD oil and CBD oil containing products.

As of February 15, 2020, we employed 67

people and we consider our employee relations to be good.

Human Capital Resources

As of December 31, 2020, we had 67 employees and we consider our employee relations to be good.

Our human capital resource objectives are designed to attract, and retain, highly motivated and well qualified employees.

We believe that we offer a competitive compensation package and have also worked diligently to provide a flexible and safe work environment—especially during the unforeseen COVID-19 global pandemic.

The health and safety of our employees and clientele is of the upmost importance to us.

We have taken significant steps to protect our workforce during COVID-19 including but not limited to, working remotely, increased cleaning and sanitization of facilities, and social distancing protocols consistent with guidelines issued by federal, state, and local governments.

Corporate Information

We are a Nevada corporation and our corporate

headquarters is located at 8560 Main Street, Suite 4, Williamsville, New York 14221.

We are a Nevada corporation and our corporate headquarters is located at 8560 Main Street, Suite 4, Williamsville, New York 14221.

Our telephone number is (716) 270-1523.

internet address is www.xxiicentury.com .

All of our filings with the Securities and Exchange Commission can be accessed

free of charge through our website promptly after filing;

however, in the event that the website is inaccessible, we will provide

paper copies of our most recent Annual Report on Form 10-K, the most recent Quarterly Report on Form 10-Q, Current Reports filed

or furnished on Form 8-K, and all related amendments, excluding exhibits, free of charge upon request.

These filings are also

accessible on the SEC's website at www.sec.gov .

We do not incorporate the information on our website into this Annual

Report on Form 10-K.

Our internet address is www.xxiicentury.com .

All of our filings with the Securities and Exchange Commission can be accessed free of charge through our website promptly after filing;

however, in the event that the website is inaccessible, we will provide paper copies of our most recent Annual Report on Form 10-K, the most recent Quarterly Report on Form 10-Q, Current Reports filed or furnished on Form 8-K, and all related amendments, excluding exhibits, free of charge upon request.

These filings are also accessible on the SEC’s website at www.sec.gov .

We do not incorporate the information on our website into this Annual Report on Form 10-K.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1. Business