22nd Century Group, Inc. 10-K

Item 1. Business. Overview 22nd Century Group, Inc. is a leading agricultural biotechnology and intellectual property company focused on tobacco harm reduction, reduced nicotine tobacco and improving health and wellness through plant science. In tobacco, hemp/cannabis, and hop plants, we use modern plant breeding technologies, including genetic engineering, gene-editing, and molecular breeding to deliver solutions for the life science and consumer products industries by creating new, proprietary plants with optimized alkaloid and flavonoid profiles as well as improved yields and valuable agronomic traits. 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. Our mission in hops is to leverage our experience with tobacco and hemp/cannabis, a close hop relative, and accelerate the development of proprietary specialty hop varieties or valuable 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 and have further resources directed towards creating and securing additional intellectual property pertaining to all three franchises. Tobacco As stated, our mission in tobacco is to reduce the harm caused by smoking by introducing adult smokers to our proprietary, VLNC tobacco and cigarettes, which contain 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). These studies indicate that use of 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. This was stated on March 19, 2018, where 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 5 Table of Contents 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. On December 23, 2021 we were granted authorization to market our VLN ® cigarettes under a Modified Risk Tobacco Product, modified exposure designation. We subsequently began efforts to offer our proprietary VLNC cigarettes for domestic sale under the brand name of VLN ® within 90 days of the receipt of the Modified Risk Tobacco Product (”MRTP”) marketing order. 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. Proposed Government Mandates Limiting the Nicotine in Cigarettes. In a June 16, 2010 press release, Dr. 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. 22nd Century’s reduced nicotine cigarettes contain between 0.3-0.7 mg/g nicotine. 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, and (iii) increase the rate of quitting and reduce the number of smokers who relapse. 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. 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. 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. 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 April 2021, the New Zealand government announced a six-week consultation (15 April – 5pm, May 31, 2021) on Proposals for a Smokefree Aotearoa 2025 Action Plan. This consultation included proposals to reduce nicotine in smoked tobacco products to very low levels. The Company returned a detailed, comprehensive submission to the New Zealand Ministry of Health in full support of the Smokefree proposals [Response Identifier 1048733132, publicly available]. The final Smokefree Aotearoa 2025 Action Plan was launched on December 9, 2021[ https://www.health.govt.nz/our-work/preventative-health-wellness/tobacco-control/smokefree-aotearoa-2025-action-plan ]. The New Zealand government has committed to introducing an amendment Bill in 2022 to allow only very low nicotine levels in smoked tobacco products for manufacture, importation, distribution and sale and introduce product assurance systems to support compliance with these requirements. 6 Table of Contents We believe that our VLNC tobacco technology and our production and delivery of millions of proprietary variable nicotine research cigarettes since 2011 reflects that the FDA’s plan to dramatically reduce nicotine in cigarettes is technically achievable. In the United States, we are focused on working with the FDA on its nicotine reduction mandate. 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. Modified Risk Tobacco Products 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. 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 Exposure Cigarettes”). On December 5, 2018, we submitted to the FDA a new Premarket Tobacco Application (“PMTA”) and on December 27, 2018 we submitted to the FDA a new MRTP application, 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 Exposure Cigarettes with product labeling that includes the brand name of VLN ® and states that VLN ® has 95% less nicotine than conventional cigarettes. On December 17, 2019, the FDA authorized us to market in the U.S. our VLNC tobacco cigarettes that were the subject of our PMTA. While the PMTA authorized us to market the products in the U.S. it did not allow us to make product claims which would indicate that the product contained 95% less nicotine. Such claims would fall under receiving an order from the FDA which is designated as the MRTP. We made the decision to delay the introduction of our VLNC cigarette products to the market until we received the MRTP order. On February 14, 2020, the FDA’s Tobacco Products Scientific Advisory Committee ("TPSAC") conducted its public hearing regarding our MRTP application 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. On December 23, 2021, we secured the world’s first and only MRTP designation for a combustible cigarette for VLN ® King and VLN ® Menthol King 95% reduced nicotine content cigarettes. The FDA authorized the marketing of VLN ® with the following claims, “ 95% less nicotine ”, “ Helps reduce your nicotine consumption ”, and “ Greatly reduces your nicotine consumption ,”. The FDA also proactively added “ Helps You Smoke Less ” evidence-based headline claim to our requested claims. In 2019 and 2021, we contracted with farmers to grow considerable quantities of VLNC tobacco in anticipation of FDA authorization of its MRTP and subsequent commercial launch of VLN ® cigarettes. In January 2022, at our manufacturing facility in North Carolina, we produced the first cartons of our VLN ® reduced nicotine cigarettes, destined for commercial sale as a part of our pilot launch. Our marketing team has prepared a comprehensive launch plan for VLN ® cigarettes starting with a pilot launch and progressing to a national roll-out. In March 2022, pending state regulatory authorizations, we plan to launch VLN ® cigarettes in the U.S. market. We believe that the commercialization of VLN ® cigarettes will create further opportunities for us to license our proprietary technology tobaccos and the VLN ® brand. VLN ® Commercialization Plan As stated above, our comprehensive launch plan for VLN ® cigarettes starts with a pilot launch and progresses to a national roll-out. The initial pilot program will launch in March 2022 and run for 3 to 6 months. We are also in advanced discussions with multiple additional regional and national retail partners to carry VLN ® and participate in our retail program as we scale nationally. 7 Table of Contents Hemp/Cannabis 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 February 1, 2022, (i) federal law and the laws of 47 states in the United States and the District of Columbia have legalized hemp, (ii) 37 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) 18 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 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 the 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. federal law. 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 which is not legal under U.S. federal law. 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 full compliance with federal and state laws. In the State of New York, we had a license to research and grow hemp in response to the numerous public announcements by former 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 Laboratories, Inc. (“Anandia”) in Vancouver, British Columbia, in full compliance with Canadian regulations. Anandia was later sold to Aurora Cannabis Inc. (“Aurora”) and we continue to maintain a relationship with them to license unique technology to other cannabis companies. Currently, we are in the process of obtaining a license in the State of Maryland to grow hemp. 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. In 2021, we further enhanced our partnership with KeyGene to extend our relationship for an additional three years and to solidify a governance structure whereby we agree on specific research activities to develop intellectual property jointly with KeyGene in the future. In late 2019, we made a minority investment in Panacea Life Sciences (“Panacea” or “PLS”), a vertically integrated producer of CBD consumer products. Since that time our strategy in hemp/cannabis has evolved with our focus now shifting towards developing intellectual property for specific traits of the cannabis plant. We believe that our 8 Table of Contents scientific capability will enable us to execute on this strategy and could result in long term royalty streams for us. To address this, we realigned our relationship with PLS in 2021 as described below. In 2021, we entered into several research contracts with plant breeders and organizations committed to researching the potential effects which cannabis products have on human cell biology. We have evolved our strategy to align with companies which provide for excellent synergies to our research efforts. 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 consisted 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. On July 1, 2021, we restructured our investment in Panacea, in line with the ongoing development of our strategic partnership network. Under terms of the agreements, 22nd Century’s $7 million note in Panacea was exchanged for ownership of Needle Rock Farms, a Colorado hemp/cannabis growing operation consisting of land, water rights and equipment appraised at $2.2 million. We also received a new $4.3 million note and $500,000 in Panacea’s Series B Preferred Stock (which was subsequently converted to Exactus common stock under the Securities Exchange Agreement; this balance is reflected in final shares as stated below). The new note is backed by a mortgage on the Panacea Life Sciences operations building located in Golden, CO, appraised at $10.7 million. Panacea retained certain farm assets under its own nameplate of PANA Organic Botanicals at Needle Rock. Also under the agreement, $7.0 million in Panacea Life Sciences Series B Preferred Stock held by 22nd Century was converted into 91 million shares of Exactus, Inc. (OTCQB: EXDI). We believe this agreement to restructure our investment with Panacea will 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. On October 25, 2021, Exactus announced the completion of a 1 for 28 reverse stock split as well as an entity name change to Panacea Life Sciences Holdings, Inc (OTCQB: PLSH). Panacea Life Sciences Holdings, Inc. was assigned a temporary stock symbol of “EXDID” which formally changed to “PLSH” after twenty business days. As a result of the reverse stock split, our 91,016,026 shares were adjusted to 3,250,573 shares. Hops On August 30, 2021, we announced our intention to commence research and development in hops, a plant which possesses similar biological characteristics to hemp/cannabis. Tobacco, hemp/cannabis and hop plants are all considered alkaloid plants and possess certain traits which can be modulated with the genetic engineering techniques we are applying to both tobacco and hemp/cannabis. In early 2022, we expanded our research agreement with KeyGene to identify specific traits which, if appropriately engineered, could benefit consumers of hop products in both the beer and nutraceuticals segment on the industry. Additionally, we have focused business development resources in place to further identify such opportunities for the future. Research & Development (R&D) & Intellectual Property (IP) Tobacco R&D 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 our funded research. In all such cases, 9 Table of Contents 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. On June 22, 2018, we entered into an amendment to our existing license agreement with NCSU under which we 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. We 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, we 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. We 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. On December 1, 2021, we relocated our own laboratory from Buffalo, New York to Rockville, Maryland, where we are conducting our own proprietary research and development activities in tobacco. The new laboratory space has over four thousand square feet, is near our strategic research partner, KeyGene, and will help support our continued growth and R&D partnerships. After several field trial evaluations throughout the United States, we produced new non-GMO burley and bright tobacco varieties with 95% reduced nicotine. 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. Tobacco IP 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. 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. Our patent families related to nicotine biosynthesis are expected to expire between 2026 and 2041, 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.). 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. 10 Table of Contents We also have exclusive plant variety protection rights in the United States and many 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 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 and know-how enables us to alter 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. 11 Table of Contents 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 of 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. On December 14, 2021, we announced a three-way non-exclusive agreement to license the Anandia biosynthesis intellectual property jointly owned with Aurora to Cronos Group Inc., intended to assist in the advancement of research and development on the biosynthesis of cannabinoids. On February 23, 2022, we made a breakthrough in our hemp/cannabis plant research. We successfully transformed the hemp/cannabis plant genome using a proprietary plant transformation and regeneration technology, resulting in clear protein expression by the introduced genes. We are one of the first companies to show proof of the successful modification of the hemp/cannabis plant genome via transformation techniques directly leading to functional protein expression in hemp/cannabis. This new transformation methodology is a critical enabling technology that dramatically enhances our ability to directly and quickly modify specific target genes in hemp/cannabis. This unique know-how adds another essential tool to our modern plant science capabilities that also includes an extensive library of hemp and cannabis germplasm, a genome database, marker-assisted, rapid-cycle molecular breeding, and mutagenesis, all supported by KeyGene’s bioinformatics and genome sequencing capabilities utilizing machine learning and artificial intelligence. Together, these tools are being used to create new, proprietary hemp/cannabis plants tailored to differentiate the content of specific major and minor cannabinoids, terpenoids or eliminate unwanted metabolites to develop new commercial lines tailored to the preferences and needs of end-users, often at a fraction of the time and cost of traditional breeding methods. 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, Inc. for approximately $3.2 million. 12 Table of Contents 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. On August 29, 2014, the Company became a subsequent participating manufacture under the MSA. Since 2015, we have manufactured and sold our SPECTRUM ® variable nicotine research cigarettes, as well as third-party filtered cigar brands and MSA-compliant cigarette brands, at our factory in North Carolina. The 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 MRTP-designation VLN ® brand cigarettes featuring 95% less nicotine than the top 100 leading brands sold in the United States. In January 2022, our cigarette manufacturing facility completed production of the first cartons of VLN ® King and VLN ® Menthol King cigarettes destined for retail sale. Sources of Raw Materials 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 MRTP application for our VLN ® cigarettes, we increased the amount of tobacco leaf we obtain directly from growers under contract during 2021. In 2022, we plan to again increase our growing quantities of VLNC tobacco to supply the launch and expansion of VLN ® cigarette sales. Government Regulation 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. Tobacco The Family Smoking Prevention and Tobacco Control Act (“Tobacco Control Act”) provides the FDA with broad authority to regulate the design, manufacture, packaging, advertising, promotion, sale and distribution of tobacco products; the authority to require disclosures of related information; and the authority to enforce the Tobacco Control Act and related regulations. 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 13 Table of Contents 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. The Tobacco Control Act, its implementing regulations and its 2016 deeming regulations establish broad FDA regulatory authority over all tobacco products and, among other provisions: ● impose restrictions on the advertising, promotion, sale and distribution of tobacco products; ● establish pre-market review pathways for new and modified tobacco products; ● prohibit any express or implied claims that a tobacco product is or may be less harmful than other tobacco products without FDA authorization; ● authorize the FDA to impose tobacco product standards that are appropriate for the protection of the public health; and ● equip the FDA with a variety of investigatory and enforcement tools, including the authority to inspect product manufacturing and other facilities. 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. The FDA has several investigatory and enforcement tools available to it, including document requests and other required information submissions, facility inspections, examinations and investigations, injunction proceedings, monetary penalties, product withdrawal and recall orders, and product seizures. We expect significant regulatory developments to 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. As of February 1, 2022, (i) federal law and the laws of 47 states in the United States and the District of Columbia have legalized hemp, (ii) 37 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) 18 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 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 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 14 Table of Contents 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 and in Colorado and New York with Company personnel, while possessing all necessary permits and licenses to engage legally in such activities. In order to carry out research in other countries, similar licenses are required to be issued by the relevant authority in each country. 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. Excise Taxes Tobacco products are subject to substantial excise taxes in the U.S. and other countries. Significant increases in tobacco-related taxes or fees have been proposed or enacted and are likely to continue to be proposed or enacted at the federal, state and local levels within the U.S. and other countries. The frequency and magnitude of excise tax increases can be influenced by various factors, including the composition of executive and legislative bodies. Federal, state and local cigarette excise taxes have increased substantially over the past two decades. Tax increases have an adverse impact on sales of tobacco products. Competition 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 companies and other research groups are working to research and grow very low nicotine tobacco and have filed patent applications. 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. 15 Table of Contents In the hemp/cannabis and hop industries, there are numerous companies conducting research and development on the hemp/cannabis and hop plants in order to develop new and differentiated products. Our competitors may render our technologies obsolete by advances in existing technological approaches or the development of new or different approaches, potentially eliminating the advantages that we believe we derive from our research approach and proprietary technologies. Human Capital Resources As of December 31, 2021, we had 76 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 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. Our corporate headquarters is located at 500 Seneca Street, Suite 507, Buffalo, New York 14204. Our telephone number is (716) 270-1523. Our internet address is www.xxiicentury.com. All of our filings with the Securities and Exchange Commission, including our Annual Reports on Form 10-K, our Quarterly Reports on Form 10-Q and Current Reports on Form 8-K 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. ​