What changed in this filing

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Item 1. Business

2024-03-28 compared with 2023-03-09 · 175 added, 309 removed, 119 unchanged (80% of the section changed)

22nd Century Group, Inc.

is a leading biotechnology company focused on utilizing advanced alkaloid plant technologies to improve health and wellness with reduced nicotine tobacco, hemp/cannabis and hops.

We use modern plant breeding technologies, including genetic engineering, gene-editing, and molecular breeding to deliver solutions for the consumer goods and pharmaceutical 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 products is dedicated to reduce the harms of smoking by commercializing our proprietary, very low nicotine content “VLNC” tobacco plants and cigarette products.

We received the first and only Food and Drug Administration (“FDA”) Modified Risk Tobacco Product (“MRTP”) authorization of a combustible cigarette in December 2021.

Beginning in April 2022, we launched our proprietary VLN ® reduced nicotine cigarettes, first through a pilot program conducted in select Circle K stores in and around Chicago, Illinois.

Following our successful pilot program, we initiated an ongoing state-by-state, region-by-region rollout strategy.

Our mission in hemp/cannabis is to develop and monetize proprietary varieties of hemp with valuable cannabinoid and terpene profiles and other superior agronomic traits.

We are a global scale provider of cannabinoid ingredients and Active Pharmaceutical Ingredients (“API”), as well as a contract development and manufacturing organization (CDMO) provider of hemp-derived consumer products.

In hops, our mission is to leverage our experience with tobacco and hemp/cannabis, a close hop plant relative, to accelerate the development of proprietary specialty hop varieties with valuable traits, for 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.

We continue to prioritize research and development activities to achieve our strategic and investment priorities.

Our Recent Acquisitions

In May 2022, we completed the acquisition of GVB Biopharma ("GVB"), a privately held contract development and manufacturing organization (CDMO).

GVB is believed to be one of the largest providers of hemp-derived active ingredients for the pharmaceutical and consumer goods industries worldwide based on total tonnage.

GVB has industry-leading market positions and expertise in many facets of the hemp/cannabis industry, which include:

research and genetics, proprietary cryogenic hemp extraction;

refining, conversion, and product formulation technology;

leading supplier of API’s;

low-cost, scalable manufacturing capabilities;

regulatory and compliance expertise;

industry trusted high-quality products;

and current international capabilities

We believe that GVB’s strengths complement our existing upstream and downstream value chains, which includes expertise in cannabinoid receptor science with CannaMetrix, plant research, molecular breeding, and proprietary genetics through our KeyGene partnership, and breeding expertise with Extractas Bioscience (formerly Tasmanian Alkaloids PTY).

The combination with us results in a vertically integrated, novel cannabinoid value chain by controlling the product cycle from plant genetics to finished ingredients and CDMO formulated products that meet exacting standards required by global consumer and products and pharmaceutical companies.

The acquisition of GVB has expanded our global footprint adding U.S.

and international assets and capabilities.

GVB operates three primary manufacturing facilities that have significant capacity to support growth.

These three facilities are located in Grass Valley, Oregon (refinement facility), Las Vegas, Nevada (Private Label/Contract Manufacturing), and Prineville, Oregon (crude extraction).

GVB’s new Prineville, Oregon facility is one of the largest hemp extraction plants in the world, with expected CBD crude output capacity exceeding 15,000 kg/month at full capacity.

The new facility is expected to be fully operational in the first half of 2023, allowing GVB greater vertical integration and improved gross margins as it ramps volume.

We are actively pursuing additional business development through both our and GVB’s existing relationships to further accelerate its growth.

In January 2023, we completed the acquisition of RX Pharmatech Ltd (“RXP”), a privately held leading United Kingdom distributor of cannabinoids with 1,276 novel food applications with the U.K.

Food Standards Agency (“FSA”).

RXP’s products include CBD isolate and numerous variations of finished products like gummies, oils, drops, candies, tinctures, sprays, capsules and others.

is not accepting new novel food applications for cannabinoid products at this time and denied tens of thousands of product applications earlier in 2022 during the FSA’s first round of screening.

Accordingly, we believe this market dynamic could allow us to open new opportunities to land highly accretive contracts with multinationals for quality CBD and hemp-derived consumer products dependent on the novel food licenses.

Tobacco Segment Overview

We are dedicated to reducing the harms of smoking by commercializing our proprietary VLNC tobacco plants and cigarette products, which contain 95% less nicotine than conventional 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.

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 health 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.

That said, CDC statistics state that while more than two-thirds of adult smokers want to quit successfully, less than ten percent of them are able to quit successfully.

Utilizing GMO and non-GMO methods, we have successfully modified and developed unique proprietary bright, burley, and oriental VLNC tobaccos that grow with at least 95% less nicotine than tobacco used in conventional cigarettes.

In 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 CDC.

Since 2011, we31.6 have provided more than 32.8 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 (measured in cigarettes per day), nicotine exposure and nicotine dependence with little to no evidence of compensatory smoking and without serious adverse events.

A list of ongoing as well as 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 .

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

Our reduced nicotine content cigarettes have been used in more than 50 independent scientific clinical studies by universities and institutions.

These studies show that smokers who use our products:

(i) reduce their nicotine exposure and dependence, (ii) smoke fewer cigarettes per day, (iii) increase their number of smoke-free days, and (iv) double their quit attempts – all with minimal or no evidence of nicotine withdrawal or compensatory smoking.

Our research cigarettes, SPECTRUM ® , continue to be used in numerous independent, scientific studies to validate the enormous public health benefit identified by the FDA and others of implementing a national product standard requiring all cigarettes to contain “minimally or nonaddictive” levels of nicotine.

Our SPECTRUM ® variable nicotine research cigarettes are the precursor to our VLN ® cigarette products.

We believe that our proprietary reduced nicotine content cigarettes, sold under the brand name VLN ® , have a large global market opportunity.

According to a 2021 report by the Foundation for a Smoke Free World, global nicotine retail sales totaled approximately $853 billion and of that, 84.1% was comprised of combustible cigarettes.

According to the CDC and the World Health Organization (“WHO”), there are more than 1 billion global and 30 million U.S.

adult smokers.

CDC statistics state that while more than two-thirds of adult smokers want to quit, less than ten percent of them are able to quit successfully.

Despite the proliferation of vape and other nicotine delivery systems, we believe that smokers are still seeking alternatives to addictive combustible cigarettes.

In our consumer perception studies, 60% of adult smokers indicated a likelihood to use VLN ® .

Our VLN ® cigarettes contain 95% less nicotine content than conventional cigarettes in a familiar combustible product format that replicates the conventional cigarette smoking experience, including the sensory and experiential elements of taste, scent, smell, and “hand-to-mouth” behavior.

The tobacco in VLN ® cigarettes contain a target of just 0.5 milligrams of nicotine per gram of tobacco, an amount cited by the FDA, based on clinical studies, to be “minimally or non-addictive.” It is believed that the reduced nicotine content of VLN ® creates a dissociation between the act of smoking and the rapid introduction of nicotine to the bloodstream, which helps adult smokers to smoke less.

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 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.

is a tobacco products company with sales and distribution of our own proprietary new reduced nicotine tobacco products authorized as Modified Risk Tobacco Products by the FDA.

Additionally, we provide contract manufacturing services for conventional combustible tobacco products for third-party brands.

Our mission in tobacco is dedicated to mitigating the harms of smoking through our proprietary reduced nicotine content (“RNC”) tobacco plants and our Very Low Nicotine, VLN ® combustible cigarette products.

In December 2021, we secured the first and only authorization from the FDA to market a combustible cigarette, our brand VLN ® as a Modified Risk Tobacco Product (“MRTP”) using certain reduced nicotine exposure claims.

In April 2022, the inaugural launch of our proprietary VLN ® cigarettes commenced through a pilot program in select Circle K stores in and around Chicago, Illinois.

Building on the success of the pilot, we initiated a phased rollout strategy in 2023, progressing state by state and region by region to a store footprint spanning more than 5,000 stores in 26 states.

Our VLN ® tobacco products are supported by a substantial intellectual property portfolio comprising issued patents and patent applications related to tobacco plants, and in particular our reduced nicotine tobacco plants.

In addition to continued focus on VLN ® , we renewed our focus on utilizing our tobacco assets to attract additional tobacco business to help fund the growth of VLN ® .

In addition to existing business relationships with multiple tobacco products companies, we will continue to expand the number of brands in our contract manufacturing operations (“CMO”) portfolio in 2024.

GVB Divestiture

On December 22, 2023, we completed the sale of substantially all of the GVB hemp/cannabis business (referred to as the “GVB Divestiture”).

As a result, we have classified the results of operations of the hemp/cannabis segment and disposal group as discontinued operations in the Consolidated Statements of Operations for all periods presented.

Additionally, the associated assets and liabilities linked to the discontinued operations have been designated as held for sale in the Consolidated Balance Sheet as of December 31, 2023 and 2022, respectively.

All results and information presented exclude the hemp/cannabis segment and disposal group unless otherwise noted.

For more detailed information regarding the divestiture, please refer to Note 2, titled “Discontinued Operations and Divestiture,” in the Notes to Consolidated Financial Statements, which can be found in Item 15 of this report.

Tobacco Overview

Our unwavering commitment is centered around reducing the effects of nicotine from smoking and smoking cessation.

We believe we can achieve this mission through the commercialization of our proprietary RNC tobacco plants and cigarette products, prominently featured in our VLN ® brand.

These products contain 95% less nicotine content compared to conventional tobacco and cigarettes, which are intended to help users smoke less.

The urgency of our mission is underscored by alarming statistics – the FDA publicly acknowledged on July 28, 2017, that tobacco use remains the leading cause of preventable disease and death in the United States.

The repercussions include over 480,000 deaths annually and an economic toll of nearly $300 billion in lost productivity and direct health care costs, as reported the U.S.

Centers for Disease Control and Prevention (“CDC”).

Our innovative approach involves utilizing both genetically modified organism (“GMO”) and non-GMO methods to modify and develop proprietary bright, burley, and oriental RNC tobaccos, ensuring they grow with at least 95% less nicotine content.

Our SPECTRUM ® research cigarettes, developed 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 CDC, have played and continue to play a crucial role in independent clinical studies, with more than 32.8 million variable nicotine research cigarettes provided since 2011.

The extensive body of scientific evidenced derived from these studies, published in peer-reviewed journals, including the New England Journal of Medicine and the Journal of the American Medical Association , supports the potential impact of our RNC tobaccos.

Smokers who opt for our RNC cigarettes in clinical studies experienced reductions in smoking (measured in cigarettes per day), nicotine exposure, and dependence, coupled with minimal or no evidence of compensatory smoking or withdrawal and without serious adverse events.

A list of ongoing as well as completed and published clinical studies using cigarettes made with our RNC tobaccos may be viewed at https://www.xxiicentury.com/vln-clinical-studies/published-clinical-studies-on-very-low-nicotine-content-vlnc-cigarettes .

These studies showed that smokers who used for RNC cigarettes increased their frequency of smoke-free days and doubled their efforts to quit smoking.

SPECTRUM ® research cigarettes persist as a key component in various independent scientific studies, aimed at substantiating the public health advantage acknowledged by the FDA and other entities.

This advantage is associated with the FDA’s proposal to establish a national product standard requiring that all cigarettes incorporate “minimally or nonaddictive” levels of nicotine.

Notably, our SPECTRUM ® variable nicotine research cigarettes serve as the precursor to our innovative VLN ® cigarette products.

Our conviction in the significant global market potential of our proprietary RNC cigarettes, marketed under the brand name VLN ® , is rooted in substantial data.

As outlined in a 2021 report by the Foundation for a Smoke Free World, global full nicotine cigarette retail sales reached an estimated 84.1% or $612 billion of the $853 billion market for products that contain nicotine.

The statistics from the CDC and the World Health Organization (“WHO”) highlight a substantial market, with over 1 billion global adult smokers and 30 million in the U.S.

Despite the prevalence of various nicotine delivery systems, including vaping, our belief is that smokers are actively seeking alternatives to traditional addictive combustible cigarettes.

Our confidence is reinforced by consumer perception studies, in which 60% of adult smokers expressed a likelihood to adopt VLN ® as their preferred choice.

Importantly, VLN ® is currently available in the market for sale, positioning itself as a viable option for smokers seeking reduced harm alternatives.

Our VLN ® cigarettes are currently available in a large number of top U.S.

markets and present a groundbreaking alternative with 95% less nicotine content than conventional cigarettes.

Maintaining a familiar combustible product format, VLN ® replicates the conventional cigarette smoking experience, encompassing sensory and experiential elements such as taste, scent, smell, and the familiar “hand-to-mouth” behavior.

The tobacco in VLN ® cigarettes is meticulously crafted to contain a targeted 0.5 milligrams of nicotine per gram of tobacco, a threshold recognized by the FDA, based on clinical studies, as “minimally or non-addictive.” We believe the reduced nicotine content of VLN ® can establish a dissociation between the act of smoking and the rapid introduction of nicotine to the bloodstream, which extensive clinical data indicates helps smokers to smoke less and potentially quit.

The results of numerous completed studies serve as an independent scientific foundation for the FDA’s advanced notice of proposed rule-making (“ANPRM”) on July 28, 2017, which announced FDA’s intention to institute a new rule to require that all combustible cigarettes sold in the United States contain only minimally or non-addictive levels of nicotine, also referred to as the Comprehensive Plan for Tobacco and Nicotine Regulation.

Although this proposal has not yet been finalized or adopted by the FDA, the announcement supported our decision to submit and seek modified risk orders under MRTP applications (“MRTPAs”) for our VLN products.

On December 23, 2021, we received authorization to market our VLN ® cigarettes as a Modified Risk Tobacco Product (“MRTP”) using certain modified exposure claims.

We initiated efforts to offer our proprietary VLN ® cigarettes for domestic sale after receiving the modified risk granted order.

Furthermore, we continue to plan to evaluate opportunities to make VLN ® available for international sale or licensing by third parties.

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 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 ].

In December 2022, the New Zealand government parliamentary body passed the Smokefree Environments and Regulated Products (Smoked Tobacco) Amendment Bill requiring all combustible tobacco cigarettes sold in New Zealand to contain no more than 0.8 mg of nicotine per gram of tobacco.

After becoming law by Royal Asset later that month, the requirement will take effect within 27 months.

We believe that recent political changes will likely be favorable to our business prospects from a policy priority and regulatory standpoint.

Under the new leadership at the FDA and Center for Tobacco Products (“CTP”), we believe that the FDA will refocus on implementing its ground-breaking Comprehensive Plan for Tobacco and Nicotine Regulation, in particular the Agency’s plan to cap the amount of nicotine in combustible cigarettes to a “minimally or non-addictive” level.

We believe that the MRTP authorization and the launch of VLN ® serves as a powerful catalyst for the FDA’s proposed policies.

On January 27, 2022, the FDA posted an update on its FDA Voices site stating that it “remains on track” with its plans to prohibit menthol in combustible tobacco products.

We continue to support upcoming FDA action and believe VLN ® Menthol King reduced nicotine cigarettes could be exempted from the menthol ban to help current menthol smokers transition away from highly addictive nicotine cigarettes.

In a press release dated June 16, 2010, Dr.

David Kessler, a former FDA Commissioner, advocated for swift action by the FDA to decrease nicotine levels in cigarettes to non-addictive thresholds.

Kessler emphasized that lowering the stimulus level would consequently diminish cravings, deeming it the “ultimate harm reduction strategy.” Shortly thereafter, in a Washington Post article, Dr.

Kessler proposed reducing the nicotine content in cigarettes from approximately 10 milligrams to less than 1 milligram.

Notably, VLN ® cigarettes contain between 0.3 to 0.7 mg/g.

In 2015, the WHO Study Group on Tobacco Product Regulation issued an advisory note endorsing a global nicotine reduction strategy, urging limitations on the sale of cigarettes to brands with nicotine content insufficient for addiction development or maintenance.

Although the WHO did not specify absolute threshold for addiction, it suggested a likely threshold equal to or possibly less than 0.4 mg/g of dry cigarette tobacco filler.

Our proprietary SPECTRUM ® research cigarettes were cited in the WHO study as meeting this low nicotine level criterion at 0.4 mg/g of cigarette tobacco filler.

The WHO report concluded that establishing a maximum allowable nicotine content for all cigarettes could (i) reduce the initiation of smoking and progression to addiction, (ii) decrease smoking prevalence among addicted smokers through behavioral extinction, and (iii) increase quit rates while reducing relapse rates.

Emphasizing population-wide benefits, the report highlighted the potential decrease in combusted tobacco use among current cigarette smokers and the prevention of non-smokers, particularly young people, from developing addiction to cigarettes.

On July 28, 2017, in connection with the ANPRM then-FDA Commissioner Scott Gottlieb, M.D., announced the FDA’s intention to use 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.

We believe this announcement marked a significant step towards reducing the addictive nature of cigarettes.

Following this announcement, on August 16, 2017, FDA Commissioner Scott Gottlieb, M.D., and Mitchell Zeller, J.D., the Director of the FDA’s Center for Tobacco Products (“FDA/CTP”), authored and titled “A Nicotine-Focused Framework of Public Health,” published in The New England Journal of Medicine .

The article discussed the regulatory tool provided by the Tobacco Control Act, known as a tobacco “product standard,” which could be employed to alter the addictiveness of combustible cigarettes.

While the statute prohibited reducing nicotine yields to zero, the FDA asserted its clear authority to otherwise reduce nicotine levels.

The conclusion drawn was that a nicotine-limiting standard could render cigarettes minimally or non-addictive, aiding current users in quitting and preventing most future users from developing addiction.

The FDA emphasized its commitment to being guided by scientific principles in shaping health policy.

This commitment was reiterated in the context of addressing nicotine levels in cigarettes, underlining the importance of evidence-based decision-making.

We believe that recent political changes and perceptions towards nicotine addiction have the potential to be favorable to our business prospects from a policy priority and regulatory standpoint.

Under the new leadership at the FDA and Center for Tobacco Products (“CTP”), we believe that the FDA could refocus on implementing its ground-breaking Comprehensive Plan for Tobacco and Nicotine Regulation, and specifically could renew efforts to cap the amount of nicotine in combustible cigarettes to a “minimally or non-addictive” level.

We believe that the MRTP authorization and the launch of our VLN ® cigarettes could serve as a powerful catalyst supporting any such policies.

For example, on January 27, 2022, the FDA posted an update on its FDA Voices site stating that it “remains on track” with its plans to prohibit menthol in combustible tobacco products.

The FDA published a proposed tobacco product standard to ban menthol as a characterizing flavor in cigarettes in April 2022.

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On August 1, 2022, we submitted public comments in support of a tobacco product standard for menthol in cigarettes.

Subsequently, in January 2023 the FDA’s proposed ban on menthol as a flavoring in combustible cigarettes advance to final rule status, with expectations of a final decision in August 2023.

In June 2022, the FDA announced that the Biden-Harris Administration published plans for future regulatory action that includes the FDA’s plans to develop a proposed product standard that would establish a maximum nicotine level to reduce the addictiveness of cigarettes and certain other combusted tobacco products.

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In late October 2022, in coordination with the FDA, the National Institute on Drug Abuse (NIDA), and others, we received an order for 2.8 million variable nicotine cigarettes.

Our research cigarettes will continue to fuel numerous independent, scientific studies to validate the enormous public health benefits identified by the FDA and others of implementing a national standard requiring all cigarettes to contain minimally or non-addictive levels of nicotine.

We believe our research cigarettes will continue to fuel numerous independent, scientific studies that could evaluate the potential benefits suggested by the FDA and others of implementing a national standard requiring all cigarettes to contain minimally or non-addictive levels of nicotine.

The FDA rule making process continued to advance throughout 2023 on both the proposed menthol ban and the proposed reduced nicotine content standard, but announcement of an FDA proposed rule was delayed multiple times for additional public comment and analysis.

We continue to advance on our reduced nicotine technology as we believe that our next generation, non-GMO plant research is the key to commercializing our reduced nicotine content tobacco and technology in international markets where non-GMO products are preferred or where GMO products are banned.

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We have successfully applied our non-GMO technology to bright and burley varieties of tobacco and have initiated commercial growing activities for our non-GMO bright and burley reduced nicotine varieties.

We anticipate commercial production of our American blend cigarettes featuring a mix of bright and burly VLN ® tobacco varieties to begin in 2023.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

We anticipate commercial production of our American blend cigarettes featuring a mix of bright and burley VLN ® tobacco varieties to begin in 2024.We believe that our RNC tobacco technology and our production and delivery of millions of proprietary variable nicotine research cigarettes since 2011 demonstrates the technical achievability of the FDA’s plan to dramatically reduce nicotine in cigarettes.

In the United States, we are focused on working with the FDA on its efforts to reduce nicotine in cigarettes.

Outside the United States, we will focus on working with WHO-member countries that desire to utilize our proprietary RNC 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 (MRTP)

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 further 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, for our reduced nicotine 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 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 contains 95% less nicotine.

Marketing product claims requires the FDA to authorize an MRTP application.

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, ” an evidence-based headline claim to our requested claims.

In previous years, we contracted with farmers to grow considerable quantities of VLNC tobacco in anticipation of FDA authorization of our MRTP and subsequent commercial launch of VLN ® cigarettes.

The Tobacco Control Act further establishes procedures for the FDA to regulate the labeling and marketing of so-called MRTP, which includes, among other things tobacco products that may (i) reduce harm or the risk of tobacco-related disease or (ii) reduce or eliminate exposure to a substance.

The Tobacco Control Act also includes provisions allowing the submission and authorization of a Premarket Tobacco Product Application (“PMTA”) for a new tobacco product, where the PMTA includes scientific data that demonstrates the new tobacco product is appropriate for the protection of public health.

On December 5, 2018, we submitted to the FDA a PMTA and on December 17, 2019, the FDA issued a marketing order in response to our PMTA.

While the FDA’s marketing order authorized us to market the products in the U.S., it did not allow us to make reduced exposure claims which would indicate that the product contains 95% less nicotine.

Marketing such reduced exposure claims requires the FDA to authorize an MRTPA.

Because of this, on December 27, 2018, we submitted to the FDA an MRTPA, seeking FDA authorization to market our reduced nicotine combustible cigarettes with certain reduced exposure claims.

In the MRTPA, we requested authorization from the FDA to market our reduced nicotine tobacco cigarettes with certain product labeling claims under the brand name of VLN ® .

On December 23, 2021, we secured the 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 reduced exposure claims:

“ 95% less nicotine ”, “ Helps reduce your nicotine consumption ”, and “ Greatly reduces your nicotine consumption ,”.

The FDA also required that any use of these claims be accompanied by the statement that the product “ Helps You Smoke Less, ” which we consider an evidence-based claim supporting our products.

In previous years, we contracted with farmers to grow considerable quantities of RNC tobacco in anticipation of FDA authorization of our 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.

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By concentrating and going deeper into select geographies and markets with high cigarette volume and large adult smoker populations, we believe we can capture greater market share effectively.

We also plan to target states where there is a tax exemption for MRTP products.

We also plan to target states where there is a tax exemption for MRTP.

As of March 1, 2024, we have secured regulatory authorizations to sell VLN ® in 48 states and the District of Columbia.

To meet anticipated demand for our VLN ® products in the U.S.

and elsewhere, we contracted with third parties to plant our largest ever VLN ® tobacco crop in 2022, which includes our second-generation reduced nicotine tobacco plants.

We are seeing 30% higher yields, enhanced quality leaf, improved disease resistance, a reduction in nutrient inputs, and increased stability across various environments and geographies.

We have also expanded our existing manufacturing operations to increase capacity by 25%, including installation of a new production line and initiation of a second shift.

At year-end 2023, our phased rollout strategy, progressing state by state and region by region, had placed VLN into a store footprint spanning more than 5,000 stores in 26 states.

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”).

In September 2013, we entered into a Membership Interest Purchase Agreement (the “NASCO Acquisition”) to purchase all 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.

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Tobacco Manufacturing

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

We lease our 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.

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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.

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-designated 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 began production of VLN ® King and VLN ® Menthol King cigarettes.

With high-speed manufacturing capabilities we continue to attract additional CMO business to absorb our manufacturing overhead and help keep our unit cost profile low.

In 2023, we leased additional warehouse space in Winston-Salem, North Carolina.

This bonded and temperature conditioned space will further support VLN ® growth and provide additional distribution opportunities for customers.

Tobacco Sources of Raw Materials

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We purchase conventional tobacco destined for contract manufacturing operations 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 and 2022.

In 2023, we will again grow substantial quantities of VLNC tobacco to supply the expansion of VLN ® cigarette sales.

Hemp/Cannabis Segment Overview

Following the May 2022 acquisition of GVB, our hemp/cannabis business is a global scale provider of hemp-derived cannabinoid ingredients and API, as well as a CDMO to the consumer goods industry.

We are also a solutions provider to companies that utilize cannabinoids in their consumer products, companies looking to optimize their plant genetics and companies seeking large-scale production of high-quality finished products.

Our vertically integrated, novel cannabinoid value chain covers elements from receptor science and plant genetics to finished ingredients and CDMO formulated products that meet the exacting standards required by global consumer product and pharmaceutical companies.

Our innovative product development cycle can potentially produce new, disruptive, and highly differentiated product solutions, including plant lines or ingredients (flower, extracts, distillates, isolates, etc.) derived from hemp/cannabis plants.

Most existing hemp/cannabis plant lines do not exhibit the stable genetics, predictable yield, and specific composition of cannabinoids required to fully unlock the value of the hemp/cannabis industry.

We believe our plant genetics and innovative upstream cannabinoid value chain provide for rapid development and optimization of plant products and scale-up as the industry evolves toward mass production.

We believe we are set to be one of the largest providers of hemp-derived active ingredients for the pharmaceutical and consumer goods industries worldwide based on total tonnage.

We have industry leading market positions and expertise in all facets of the hemp/cannabis industry, which include:

research and genetics, proprietary cryogenic hemp extraction;

refining, conversion, and product formulation technology;

leading supplier of Active Pharmaceutical Ingredients (API);

low-cost, scalable manufacturing capabilities;

regulatory and compliance expertise;

industry trusted high-quality products;

current international capabilities

The combination of the Companies has resulted in a vertically integrated novel cannabinoid value chain by (1) controlling the product cycle from plant genetics to finished ingredients, (2) allows for CDMO formulated products that meet exacting standards required by global consumer products and pharmaceutical companies, and (3) has expanded our global footprint adding U.S.

and international assets and capabilities.

At the time of the acquisition, GVB operated three primary manufacturing facilities with significant capacity to support growth with limited capital expenditure.

These three facilities are located in Grass Valley, Oregon (refinement facility), Las Vegas, Nevada (Private Label/Contract Manufacturing), and Prineville, Oregon (crude extraction).

Our new Prineville, Oregon facility is one of the largest hemp extraction plants in the world, with expected CBD crude output capacity exceeding 15,000 kg/month at full capacity.

The new facility is expected to be fully operational in the first half of 2023, allowing us greater vertical integration and improved gross margins as it ramps volume.

We are actively pursuing additional business development through both our and GVB’s existing relationships to further accelerate its growth.

During the third quarter 2022, we passed the NSF International Audit with a grade A, and no deficiencies were found and, as a result, we obtained a renewal of our cGMP registration for Dietary Supplements Registration for our manufacturing facilities.

NSF is one of the largest third-party compliance and standards organizations globally.

It provides testing, auditing, and certification services, assuring suppliers that an independent organization has reviewed a product or system to comply with specific standards for safety, quality, sustainability or performance.

Our cGMP registration encompasses dietary supplements, dietary ingredients, and functional food facility certification.

With this audit and certification secured, we plan to pursue pharma-grade manufacturing.

In November 2022, a fire occurred at our Grass Valley manufacturing facility in Oregon, where we manufactured bulk ingredients, primarily CBD isolate and distillate.

The site was safely evacuated and there were no serious reported injuries;

however, there was extensive damage to the manufacturing site.

We promptly shifted sourcing to alternate suppliers in order to continue fulfilling customer orders.

Operations for bulk ingredient customers will have minor disruptions continuing in the first half of 2023.

We are presently establishing interim distillate and isolate production capabilities, which we believe will replace the approximate capacity lost at our Grass Valley facilities.

Longer term, we are evaluating options to build a comprehensive production and manufacturing campus with appropriate scale and expansion capabilities to meet both present and future demand requirements for our manufactured bulk ingredients.

In January 2023, we submitted a Drug Master File (DMF) to the FDA to produce and supply cannabinoid-based APIs for the medical and pharmaceutical industries requiring the highest quality cannabinoids in the U.S.

We also expect to pursue The International Council for Harmonisation of Technical Requirements for Pharmaceuticals for Human Use (ICH) Q7 international pharma-grade audit standard certification so we can supply naturally derived hemp/cannabis APIs to companies globally.

In November 2022, we opened a central distribution facility in the Netherlands to support the growing demand for hemp/cannabis products in Europe, the Middle East, and Africa (EMEA).

The facility is intended to speed up transaction flow and optimize cross border tax and customs treatment.

In January 2023, we completed the acquisition of RXP, a privately held distributor of cannabinoids with 1,276 novel food applications with the U.K.’s FSA.

RXP has exclusively utilized GVB’s technical data and worked closely with the FSA on developing their highly effective application and compliance programs that secured 1,276 novel food applications.

RXP’s products include CBD isolate and numerous variations of finished products like gummies, oils, drops, candies, tinctures, sprays, capsules and others.

Hemp/Cannabis Regulatory Background

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 March 1, 2023, (i) federal law and the laws of 50 states in the United States and the District of Columbia have legalized hemp to at least some degree, (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) 31 states in the United States, the District of Columbia, Guam, and the Northern Mariana Islands have decriminalized 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 working with legal hemp in full compliance with U.S.

federal and state laws.

Hemp and marijuana are from the same cannabis genus.

One major difference is 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 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 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 full compliance with federal and state laws, and outside the U.S., we operate in full compliance with the laws of each country in which we operate.

In 2022, we expanded our research facilities in Rockville, Maryland with new state of art laboratory with more than 4,500 square feet and obtained a license in the State of Maryland to do research on and grow hemp.

Hemp/Cannabis Partnerships

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 collaboration with KeyGene, we are focused on traditional and molecular breeding along with genetic engineering using gene editing and mutagenesis to develop 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 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.

Hops Business Overview

On August 30, 2021, we announced our intention to commence research and development in hops, a plant that possesses similar biological characteristics to hemp/cannabis.

We are leveraging our experience with tobacco and hemp/cannabis to accelerate the development of proprietary specialty hop varieties with valuable competitive advantages to increase yields and distinctive aroma, flavor, nutraceutical and medicinal properties, and disease/pest resistance.

We believe that our innovative upstream alkaloid plant value chain is critical to unlocking new disruptive hop plant varieties and IP at large-scale.

We are leveraging research findings from the closely related hemp/cannabis plant and our strategic partnerships to support the development of our new technologies based on molecular breeding, flowering time, and double haploid breeding to accelerate the stabilization or creation of hop varieties.

Industry reliance on high-risk traditional breeding techniques makes hops ripe for disruption with our new accelerated molecular breeding technologies and gene editing tools.

Hops is a large global addressable market with well-established hops providers and consumer brands.

We are actively engaged in discussions with multiple hops growers and consumer product partners to develop specific desired traits in leading hop strains that are already well-accepted by the brewing industry.

In early 2022, we expanded our exclusive 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.

We believe hops presents a faster route to commercialization than tobacco and hemp/cannabis due to lower regulatory barriers.

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 our inception, most 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.

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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 provided for us 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 amendment provided for us to pay NCSU a total exclusive license fee of $1.2 million.

We will also pay running royalties to NCSU based on a portion of the net sales revenue received by us from sales of products that contain any portions of the plant materials that have been received by us 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 provided for us to pay UK a total license fee of $1.2 million—refer to Note 8 to our consolidated financial statements for additional information.

The UK license agreement provided for us to pay UK a total license fee of $1.2 million.

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

On December 1, 2021, we relocated our laboratory from Buffalo, New York to Rockville, Maryland, where we were conducting our own proprietary research and development activities in tobacco.

In February 2024, we relocated our laboratory activities to our Mocksville, NC manufacturing facility.

This reduces the fixed cost of our research and development activities, plus provides us an advantage with the proximity to our factory and NCSU.

In 2022, our R&D collaboration with NCSU delivered the proof of concept and field data for a new gene combination (non-GMO) to reduce nicotine below 95%.

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In addition, this year we extended our VLN production field trial to include new burley and flue-cured VLN (non-GMO).

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

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

and globally.

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The basic techniques include, but are not limited to, those that are used in the production of genetically modified 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.

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

Our patent families related to nicotine biosynthesis are expected to expire between 2026 and 2043, 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”), which further restricts third-parties from using such plants.

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

PVP certificates are issued in the United States by the U.S.

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

Plant variety protection (“PVP”) certificates are issued in the United States by the U.S.

Department of Agriculture.

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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.

Our current RNC tobaccos are protected by our patent portfolio.

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 and gene-edited (new breeding techniques) varieties of other 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 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 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.

In the second quarter of 2022, a significant milestone in our research was the development of gene-editing transformation technology to create non-GMO plants in hemp/cannabis.

We led the research with our partner KeyGene for this breakthrough in hemp/cannabis using a proprietary plant transformation and regeneration technology.

This development allows us to use macronuclease constructs to gene edit the cannabis biosynthesis pathway.

Another 2022 milestone from the KeyGene cannabis collaboration was the successful development of the directed mutagenesis program targeting 30 genes involved in cannabinoid biosynthesis, disease resistance, yield, and terpene regulations.

This program will deliver a number of mutational changes (non-GMO) to relevant commercial traits.

In April 2022, we signed a development agreement and license of our hemp/cannabis lines to Extractas Bioscience (Australia).

This agreement gives us the capability to enter the Asian/ Pacific region and test our lines for commercialization in the southern hemisphere.

In addition, we extended for 2 years our development and exclusive IP license with CannaMetrix company.

This collaboration is developing technology based on a cell‐based assay for quantifying the potency (ED50) and efficacy of one or more cannabinoids and terpenoids, alone or in combination, using a cellular transduction mechanism.

In November 2023, we signed an additional reduced nicotine content technology license with NCSU, providing additional modes of efficiently producing reduced nicotine content tobacco plants and extending our IP portfolio.

This license will provide exclusive rights to the technology until 2042.

Government Regulation

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

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.

FDA Regulation of Tobacco Products

The Family Smoking Prevention and Tobacco Control Act (“Tobacco Control Act”) amended the Federal Food, Drug, and Cosmetic Act (“FDCA”) to provide the FDA with broad authority to regulate the manufacture, quality control, advertising, promotion, labeling, packaging, storage, distribution, recordkeeping, premarket authorization, post-authorization monitoring and post-authorization reporting of tobacco products, including our tobacco products.

Among its authorities, the FDA requires that manufacturers of tobacco products first introduced or modified after February 15, 2007, undergo premarket review and obtain premarket authorization prior to commercialization.

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.

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● 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 Tobacco Control Act requires manufacturers of tobacco products to, among, other things, provide FDA with a list of ingredients added to tobacco products in the manufacturing process and register any establishment engaged in the manufacture, preparation, or processing of a tobacco product.

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.

In April, 2022, the FDA announced proposed product standards to prohibit menthol as a characterizing flavor in cigarettes (Notice of Proposed Rule Making, NPRM) and prohibit all characterizing flavors (other than tobacco) in cigars.

We provided a robust response to the public consultation on the rule in August 2022.

We supported the proposed ban of menthol in highly addictive cigarettes and maintain that this rule should not extend to the companies previously authorized PMTA and MRTP products.

The Tobacco Control Act also authorizes FDA to promulgate regulations requiring that the methods used in, and the facilities and controls used for, the manufacture, preproduction design validation, packing, and storage of a tobacco product conform to current good manufacturing practice (“CGMP”).

On March 8, 2023, FDA issued a proposed rule to promulgate such regulations.

The proposed rule, if finalized, would establish requirements for manufacturers of finished and bulk tobacco products on the methods used in, and the facilities and controls used for, the manufacture, pre-production design validation, packing, and storage of tobacco product.

Regulation of Menthol Cigarettes

In April 2022, the FDA announced proposed product standards to prohibit menthol as a characterizing flavor in cigarettes) and prohibit all characterizing flavors (other than tobacco) in cigars.

In January 2023, the Semi-Annual Agenda for Fall 2022 was released in the US.

Here, the Department of Health and Human Services (HHS), informed that it currently intends to issue a Final Rule on Menthol in Cigarettes.

This product standard would prohibit menthol as a characterizing flavor in cigarettes, and is currently indicated to be issued in August, 2023.

Similarly, in 2022, the State of California banned tobacco retailers from selling most flavored and menthol tobacco products, including VLN ® Menthol King.

The state of Massachusetts has similar laws prohibiting the sale of flavored tobacco sales, including menthol cigarettes.

Here, the Department of Health and Human Services (HHS), stated that it intended to issue a final rule on Menthol in Cigarettes.

This product standard, if enacted, would prohibit menthol as a characterizing flavor in cigarettes.

Although this proposed rule was expected to be finalized in August 2023, its implementation has been delayed.

There has been increasing activity on the state and local levels with respect to scrutiny of menthol and flavored tobacco products.

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 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 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.

For example, in 2022, the State of California banned tobacco retailers from selling most flavored and menthol tobacco products, including VLN ® Menthol King.

The state of Massachusetts has similar laws prohibiting the sale of flavored tobacco sales, including menthol cigarettes.

Premarket Tobacco Product Application (PMTA)

Certain of our products, including our low nicotine cigarettes, are marketed in the United States pursuant to a PMTA.

Under Section 910(b) of the FDCA, a PMTA can be submitted for any new tobacco product seeking a marketing order to enable commercialization of a new tobacco product in the United States.

For FDA to grant such an order, the PMTA must enable the FDA to determine that:

(1) permitting the marketing of the new tobacco product would be appropriate for the protection of the public health;

(2) the methods used in, or the facilities and controls used for, the manufacture, processing, or packing of the product conform to the requirements of Section 906(e) of the FD&C Act (21 U.S.C.

(3) the product labeling is not false or misleading in any particular;

and (4) the product complies with any applicable product standard in effect under section 907 of the FDCA or that there is adequate information to justify a deviation from such standard.

In determining whether to authorize a PMTA, FDA considers, among other things:

● risks and benefits to the population as a whole, including people who would use the proposed new tobacco product as well as nonusers;

● whether people who currently use any tobacco product would be more or less likely to stop using such products if the proposed new tobacco product were available;

● whether people who currently do not use any tobacco products would be more or less likely to begin using tobacco products if the new product were available;

● the methods, facilities, and controls used to manufacture, process, and pack the new tobacco product.

Once a PMTA is submitted FDA conducts an initial acceptance review to determine whether the product falls under CTP jurisdiction and to confirm that the statutory and regulatory requirements of an application are met based upon the criteria set forth in the Tobacco Control Act.

The FDA endeavors to complete its acceptance review within 21 to 60 days of receipt.

If the application does not appear to contain the required information (except for product samples), the FDA may refuse to accept the application for review, and in either case, will notify the applicant.

Once accepted for further review, the FDA makes a threshold determination of whether the application contains enough information to permit a substantive review, referred to as “filing,” and may refuse to file any application that does not include sufficient information.

Once filed, the FDA intends to complete its review of a PMTA within 180 days of receipt, however the FDA’s review period may be paused or even restarted in response to new information from the applicant, and as such, FDA’s review may take significantly longer than expected.

After the FDA completes its review of a PMTA, the FDA may issue a marketing denial order letter, or issue a marketing granted order letter.

A marketing granted order becomes effective on the date it is issued in response to a PMTA and permits the new tobacco product to be legally marketed in the United States.

A marketing order may include restrictions on the sale and distribution of the product, including restrictions on the access to, and the advertising and promotion of, the tobacco product, and unique requirements for record-keeping and post market reporting, among other things.

Holders of authorized PMTAs are, among other things, required to submit detailed periodic and annual reports to the FDA within specified timelines, and are further required to submit reports for serious and unexpected adverse events associated with the product.

Once granted the FDA may suspend or withdraw any marketing order on various grounds, such as a determination that the continued marketing of the tobacco product is no longer appropriate for the protection of public health, or where the PMTA holder has failed to comply with applicable post-market requirements.

Modified Risk Tobacco Products (MRTP)

Certain of our products, including our VLN® cigarettes, are marketed in the United States as MRTPs.

MRTPs are tobacco products that are sold or distributed for use to reduce harm, or the risk of tobacco-related disease associated with commercially marketed tobacco products.

Before an MRTP can be introduced or delivered into interstate commerce in the United States, the FDA must issue a either a “risk modification order” or “exposure modification order” pursuant to the Tobacco Control Act.

An order permitting the sale of an MRTP, if granted by the FDA, enables the applicant to utilize certain claims with respect to a single, specific product, not an entire class of tobacco products.

To obtain a risk modification order under the FDCA, an applicant must demonstrate that the product, as it is actually used by consumers, will:

(i) significantly reduce harm and the risk of tobacco-related disease to individual tobacco users;

and (ii) benefit the health of the population as a whole;

taking into account both users of tobacco products and persons who do not currently use tobacco products.

To obtain an exposure modification order under the FDCA, an applicant must demonstrate that:

● such an order would be appropriate to promote the public health;

● any aspect of the label, labeling, and advertising for the product that would cause the product to be a modified risk tobacco product is limited to an explicit or implicit representation that the tobacco product or its smoke does not contain or is free of a substance or contains a reduced level of a substance, or presents a reduced exposure to a substance in tobacco smoke;

● scientific evidence is not available and, using the best available scientific methods, cannot be made available without conducting long-term epidemiological studies for an application to meet the standards for obtaining a risk modification order;

● the scientific evidence that is available without conducting long-term epidemiological studies demonstrates that a measurable and substantial reduction in morbidity or mortality among individual tobacco users is reasonably likely in subsequent studies.

Furthermore, for FDA to issue an exposure modification order, FDA must find, among other things, that the applicant has demonstrated that the magnitude of overall reductions in exposure to the substance specified in the application is substantial, that such substance is harmful, that the product as actually used exposes consumers to the specified reduced level of the substance or substances, and will not expose them to higher levels of other harmful substances similar marketed products, unless such increases are minimal and the reasonably likely overall impact of use of the product remains a substantial and measurable reduction in overall morbidity and mortality among individual tobacco users.

Notably the FDA also requires the applicant to demonstrate, through testing of actual consumer perception, that consumers will not be misled into believing that the product is or has been demonstrated to be less harmful or presents less of a risk of disease than other commercially marketed tobacco products.

Similar to its review of PMTAs, once an MRTPA is submitted FDA conducts an initial acceptance review to determine whether the product falls under CTP jurisdiction and to confirm that the statutory and regulatory requirements of an application are met based upon the criteria set forth in the Tobacco Control Act.

If the application does not appear to contain the required information, the FDA may refuse to accept the application for review.

If and when the MRTP is accepted for further review, the FDA conducts a preliminary scientific review to ensure the application contains the information required for MRTPAs under the FDCA, a process referred to as “filing,” and the FDA may refuse to file any application that does not include the required information.

Once filed, the FDA intends to complete its review of the PMTA within 360 days of receipt, however the FDA’s review may take significantly longer.

As part of its substantive review, the FDA is required to send the application to the Tobacco Products Scientific Advisory Committee (“TPSAC”) and ask the TPSAC to report its recommendations on the application to the FDA within 60 days.

After the FDA completes its review of the MRTPA, including the views expressed by the TPSAC, the FDA may issue a modified risk order letter, or issue a no modified risk order letter.

If the FDA grants a risk modification order, the applicant must submit protocols for required post market surveillance for FDA concurrence within 30 days after receiving notice that they are required to conduct such surveillance.

If the FDA grants an exposure modification order, the applicant must agree to conduct post market surveillance and studies in accordance with a protocol approved by the FDA.

In either case, an FDA order permitting marketing of an MRTP is valid only for the fixed time period specified in the order and is not permanent, and such period may not be longer than five years.

To continue marketing an MRTP after the set term, the company must submit a new MRTPA for FDA to determine that the product still satisfies the requirements set forth in the Tobacco Control Act.

Environmental Regulations

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Tax increases have an adverse impact on sales of tobacco products.

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.

Although our products are not approved as smoking cessation aids, we believe that our RNC tobacco cigarettes may compete with FDA-approved smoking cessation aids.

In the market for FDA-approved smoking cessation aids, 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.

5 unchanged sentences

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

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 in the hemp/cannabis industry are primarily smaller or niche companies focused in a specific product or service as opposed to our vertically integrated business model.

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, 2022, we had 198 employees, of which 99 are attributable to the acquisition of GVB.

Substantially all employees are located in the United States and we consider our employee relations to be good.

As of December 31, 2023, we had 64 employees.

All employees are located in the United States.

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

6 unchanged sentences

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.

We are a Nevada corporation and our corporate headquarters is located at 500 Seneca Street, Suite 507, Buffalo, New York 14204.

We are a Nevada corporation, and our corporate headquarters is located at 321 Farmington Road, Mocksville, North Carolina 27028.

Our telephone number is (716) 270-1523.

5 unchanged sentences

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