TheStreetSweeper issues an alert for investors considering 22nd Century (XXII)!
The stock has been smoking hot since the idea began floating around that if the FDA approves an e-cigarette maker’s claims, XXII might have a future.
A Food and Drug Administration panel will vote this week on whether to let Philip Morris claim its heated-not-burned iQOS tobacco device is not as harmful as regular cigarettes.
XXII stock ran up even though the FDA’s decision ultimately won’t matter to XXII. The overpromoted, underfunded company is irrelevant, offering black-and-white-TV technology against wealthy players in a dying industry … and XXII is always vainly searching for that “catalyst” that won’t go up in smoke.
As this so-called catalyst floats away, consider five top issues challenging XXII:
*1. XXII Is Old-Fashioned
XXII is trying to convince you and the FDA that people will use the company’s low-nicotine cigarettes.
But millennials and teens consider cigarettes …. Gasp … old-fashioned.
Vaping is hot.
Cigarettes, including low-nicotine cigs, are not.
Nearly 28% of surveyed young people report “vaping,” a new 2017 study reports.
Vaping is more popular than traditional cigarettes among youngsters, reported researchers with the National Institute on Drug Abuse.
To understand vaping’s growing popularity, just take a five-minute cruise through the main drag in most any city or town.
*2. XXII Is Uncompetitive, Irrelevant
Meanwhile, the company is unlikely to produce anything that can so much as irritate Big Tobacco.
Philip Morris has recently cranked out the techy iQOS device:
(Source: Philip Morris)
The company claims over 3.7 million people have switched to the trendy Philip Morris product that heats tobacco instead of burning it.
This iQOS device is what all the speculation is about … and what helped ignite XXII’s stock rally.
But, regardless of the FDA decision on iQOS, XXII remains irrelevant.
*3. XXII: “I’m Available,” “Repeating Hype Cycle”
Instead of trying to develop good products, the company spends precious resources trying to tweak the news cycle and ride it into investors’ good graces.
Just last week, the company opined in a press release about the tailwinds created by the “reality of nicotine reform.”
In October, XXII lost a deal with British American Tobacco, but hyped the loss as breaking free of its partner.
In an interview with TheStreetSweeper, University of Toronto adjunct law professor David Sweanor said XXII should have been more gracious.
Instead, Mr. Sweanor said the company came off sounding like an unbelievably happy groom left at the altar.
“It’s as if 22nd Century was saying, ‘Terrific news - every hot woman in the congregation looking for a date - I’m available right now,’” said Mr. Sweanor. “They certainly were spinning it.”
Professional promoter Road Runner Stocks recently wrote to countless newsletter subscribers that an unnamed FDA announcement showed “XXII is well-positioned to break out…”
And so it goes.
“22nd Century looks like a repeating hype-cycle play,” tobacco policy advocate Clive Bates said in an interview with TheStreetSweeper.
“They imply regulators are about to fix the market in favor of their product. But that’s not how it will work out in the real world," added Mr. Bates.
“Most consumers will use anything other than a cigarette with minimal nicotine. And they will have plenty of other options, legal or illicit,” said Mr. Bates.
*4. XXII Is In A Losing Industry
Unfortunately for XXII, almost nobody smokes today.
Smoking has become less and less popular in recent decades, hitting an all-time low in 2015 of just 15% of adults who smoke.
So, what smart company would spend the time and money vainly trying to enter a weak product in this dying industry?
*5. Looming Dilution
Indeed, some folks are wanting out of this industry or at least out of XXII.
The company recently launched a stock sale for big stockholders who own cheap shares, priced around $1 to $2.15 per share. These big investors are trying to sell a whopping 11.29 million shares, representing significant dilution potential.
Below, we can see that the selling stockholders are drastically cutting their ownership or selling out completely.
(Source: Company SEC filing)
XXII looks like a massively overpriced, glorified black-and-white TV.
The company is not the half-billion-dollar entity suggested by the stock market valuation. The company is irrelevant in a dying market and, to make matters worse, its supposed catalyst is about to go up in smoke.
Indeed, this stock appears positioned to get summarily crushed by around 30%.
Disclosure: I am/we are short XXII.
Additional disclosure: The author, Sonya Colberg, holds no position in XXII and does not plan to establish a position in the stock. Contact The Street Sweeper editor at firstname.lastname@example.org.