22nd Century Group Suffers Major Losses in Cannabis Industry
American tobacco company 22nd Century Group has lost billions of rubles on its investments in the cannabis sector and has decided to exit the cannabis industry altogether.
Failed Plans to Profit from Cannabis
In May 2022, 22nd Century acquired the hemp company GVB Biopharma for $55–60 million (5–5.4 billion rubles). The company paid with its own shares and agreed to cover GVB Biopharma’s debt of $4.5 million (408 million rubles).
However, just a year and a half later, 22nd Century was forced to divest its cannabis business. In the third quarter of 2023, the company reported record losses of $72.7 million (6.6 billion rubles), more than five times the losses recorded during the same period the previous year. Due to these massive expenses, 22nd Century nearly ran out of cash, and its market capitalization dropped below $7 million (634.7 million rubles).
Sale of GVB Biopharma
After falling into a deep financial hole, 22nd Century’s management decided to sell GVB Biopharma and found a buyer in Specialty Acquisition. By December 30, Specialty Acquisition will pay $2.25 million (204 million rubles) for the hemp company. This sale will result in a loss of at least $52.5 million (4.8 billion rubles) for 22nd Century.
Falling Cannabidiol Prices as a Key Factor
Founded in 2016, GVB Biopharma extracts cannabinoids from industrial hemp in Oregon and Nevada. The company produces and sells isolates of cannabidiol (CBD), cannabigerol (CBG), cannabinol (CBN), and several other cannabinoids found in cannabis, but does not deal in THC extracts. From 2019 to 2020, the price of CBD products plummeted by 40–50%. Although the rate of decline slowed, prices continued to fall, with CBD dropping another 17% last year. The unprofitability of GVB Biopharma’s business can be attributed to the significant decrease in the price of the most in-demand cannabinoid derived from industrial hemp.
Unsuccessful Bet on Low-Nicotine Tobacco
22nd Century’s management also bet on growing low-nicotine tobacco varieties, but this strategy failed. It’s clear that low-nicotine cigarettes are not in high demand, and their production is not profitable. Due to a lack of profits, 22nd Century’s stock price has dropped by 98% since the beginning of 2023 and continues to fall. Compared to its peak in April 2021, the company’s shares have lost almost all their value, declining by 99.4%.
About 22nd Century Group
22nd Century Group is known for its VLN (Very Low Nicotine) cigarettes and its attempts to innovate in both the tobacco and cannabis industries. However, recent financial results highlight the risks and volatility associated with these markets.