22nd Century completes stock sale toward purchase of cannabis company

22nd Century, based in Buffalo, has its cigarette-manufacturing operations in a 62,000-square-foot plant in Mocksville, where it has 49 of its 65 employees.

The manufacturer said May 13 it is paying for the proposed deal by providing 32.9 million unregistered shares of its stock to GVB, along with assuming $4.5 million of GVB debt. That valued the deal at $55 million.

The filing with the Securities and Exchange Commission listed the stock sale being completed May 13 with 64 investors participating.

At $55 million, it is about 20% of 22nd Century’s market capitalization of $268.2 million.

GVB, founded in 2016 and based in Las Vegas, is one of the largest providers of hemp-derived active ingredients in CBD products for pharmaceutical and consumer goods industries.

James Mish, 22nd Century’s chief executive, called the deal “a transformational acquisition for 22nd Century that will enable us to rapidly grow our hemp/cannabis franchise.”

22nd Century gains a 30,000-square-foot hemp ingredient manufacturing facility in central Oregon, a 40,000-square-foot finished product plant in Las Vegas, and an industrial-scale hemp extraction facility in Prineville, Ore. The companies did not disclose the workforce levels at those facilities.

GVB also has offices in the United Kingdom and Brussels.

With GVB projected to have $48 million in fiscal 2022 revenue, it would more than double 22nd Century’s annual revenue, which was at $30.9 million in fiscal 2021.

However, the deal has not spurred significant movement in 22nd Century’s share price, which closed Tuesday down 5 cents to $1.82. The 52-week price range is $1.42 on May 11 to $5.25 on June 7, 2021.

“While heavily dilutive to the existing 22nd Century shareholders, if the projections to be immediately accretive to earnings, then I do not see this as an exceptionally risky transaction,” said Bowman Gray IV, a local independent stockbroker.

22nd Century said GVB’s industry strengths complement its existing hemp/cannabis market presence which includes: cannabinoid receptor science with CannaMetrix; plant research and proprietary genetics through its KeyGene partnership; breeding expertise with Extractas; and cultivation capabilities at Needle Rock Farms.

GVB is a supplier to CBD and cannabinoid brands that include Cookies, Nuleaf and Canaxis Pharma.

“The combination with 22nd Century establishes a global one-of-a-kind asset to serve the rapidly growing hemp/cannabis ingredient market,” Mish said.

“GVB is one of the largest CBD suppliers globally, possessing innovative, vertically integrated cannabinoid product manufacturing technologies driving industry leading scale and cost efficiency.

“GVB represents an opportunity to double our revenue and internalize a comprehensive contract manufacturing and extraction platform, which can be used to directly and exclusively monetize our differentiated and proprietary hemp/cannabis plant genetics and intellectual property,” Mish said.

Gray said 22nd Century is upping its bet on the potential of legislation “to clear the way for hemp/cannabis companies to be able to function as any other.”

If that occurs, Gray said 22nd Century can “situate themselves as a major player in the hemp/cannabis markets, which I believe will be far larger than the market for low-nicotine tobacco products.”

“Given their research work with the University of Virginia and others, this is not a new idea or venture for them,” Gray said. “It’s just executing on what has been their long-term plan.”