22nd Century Group Offloads Hemp/Cannabis Franchise In $2.25M Deal, Seeks To 'Reduce Cash And Operating Demands'

22nd Century Group, Inc. XXII confirmed Tuesday it has reached an agreement to sell "substantially all" of its GVB Biopharma hemp/cannabis operations to Specialty Acquisition Corporation, a Nevada company. Specialty Acquisition Corporation is an entity affiliated with current GVB employees.

Under the deal, the buyer will have to pay $1 million to 22nd Century at the closing of the sale and a 12% secured promissory note for $1.25 million issued by the buyer and payable through six equal monthly installments of principal and accrued interest commencing the fourth calendar month after the closing.

22nd Century plans to use the proceeds from the sale to further deleverage its balance sheet.

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Reducing The Cash And Operating Demands

“The sale of our hemp/cannabis franchise will immediately and materially further reduce the cash and operating demands within our business,” stated John Miller, interim CEO of 22nd Century. “The buyer will assume responsibility for payroll, lease, and other operational expenses, along with future funding requirements for the hemp/cannabis business. We expect this transaction will substantially lower 22nd Century’s operating expenses beyond the previously announced $15 million in cost savings initiatives on an annual basis. Additionally, we will retain rights to the insurance proceeds, subject to certain offsets, effectively recouping cash that was invested into the continuity of the hemp/cannabis business.”

22nd Century is also entitled to retain any insurance proceeds received in connection with the fire at the company’s Grass Valley manufacturing facility, a portion of which will be used to offset the buyer’s portion of the shared liabilities. At present, damages being sought are approximately $9 million, subject to upward revision the longer the disputed claim with the insurer remains unresolved, although the amount received will not be finalized until resolution of the matter.

The sale is expected to close in early December 2023, subject to customary closing conditions including approval by 22nd Century’s board of directors, receipt of a fairness opinion, buyer obtaining $3 million of financing and receipt of third-party consents, including the consent of the company’s senior lender.

“We remain committed to determining the best path forward to create value for our shareholders. Including, evaluating strategic alternatives with respect to our tobacco assets, notably our VLN reduced nicotine content products, as approved by the FDA for harm reduction as a modified risk tobacco product (MRTP),” Miller concluded.

Photo: Benzinga edit with images by Recha Oktaviani on Unsplash and Gordon Johnson from Pixabay