Shares of tobacco specialist 22nd Century Group (NASDAQ:XXII) are up today after the company announced a “significant” new contract manufacturing agreement. The deal centers on the production of branded conventional cigarette products. Due to the implied productivity acceleration, XXII stock is skyrocketing on Friday.
According to a press release, the contract will commence revenue generation in the second quarter of this year. It’s also expected to increase carton production volumes at 22nd Century’s manufacturing facility by “more than 20 percent when fully implemented.”
CEO Larry Firestone expressed excitement regarding the new contract, which reflects the “first result” of the company’s efforts to grow its contract manufacturing business. In addition, the agreement helps support 22nd Century’s proprietary VLN franchise.
Per the company’s website, VLN is 22nd Century’s brand of reduced nicotine content cigarettes. VLN represents the only cigarettes authorized by the U.S. Food and Drug Administration that are “designed to help smokers reduce their intake.”
XXII Stock Presents a Counterintuitive Business Model
According to 22nd Century, the tobacco specialist uses modern plant-breeding technologies to help “deliver healthier solutions” for smokers. “The sole function of our cigarettes is to make it easier to reduce the number of cigarettes smoked,” the company says on its website.
Naturally, this narrative appears to be counterintuitive for XXII stock. If the firm becomes completely successful in its efforts, its addressable market would effectively be zero, right? However, according to the Centers for Disease Control and Prevention (CDC) 28.3 million U.S. adults smoked cigarettes as of 2021.
On top of that, the global smoking cessation and nicotine de-addiction market could expand at a compound annual growth rate (CAGR) of 10.2% from 2022 to 2031. Per Transparency Market Research, the sector could eventually see a valuation of $27.84 billion.
Right now, XXII stock features a market capitalization of less than $8 million. Therefore, while the end game seems counterintuitive, 22nd Century appears to have a massive opportunity.
Why It Matters
Of course, investors should note that opportunity does not mean guaranteed profitability. Even with today’s dramatic rise, XXII stock is only up about 3% year-to-date (YTD). That statistic alone demonstrates its extreme volatility. Over the past one-year period, XXII is still down by more than 98%.
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On the date of publication, Josh Enomoto did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
