The big tobacco companies are always in the crosshairs of regulators. That's certainly no secret. But new scrutiny has come in the form of worries about deaths related to "vaping," and the numbers of teens who are using electronic cigarettes in general.
As it turns out, this could create an opening for a little-known company that may hold the key to a lot of problems the tobacco industry is facing.
I'll get to that in a moment. But first, some background...
The 'Vaping' Crisis, Explained
If you're not familiar with vaping, here's how I described it in a recent article:
... vaping is the use of a small battery-powered device called an electronic pen, or e-cigarette. This e-cigarette heats nicotine (extracted from tobacco), flavorings and other chemicals to create a water vapor that is inhaled. The tobacco itself doesn't ignite as it does with a traditional cigarette. So, there's no smoke, just water vapor containing nicotine. Vape pens are also used to smoke marijuana.
As I stated in that article, the whole goal of e-cigarettes was to help adult smokers transition away from traditional cigarettes and offer a less toxic alternative. The problem: vaping has also become popular with middle and high school-aged kids.
If that weren't troubling enough, there have now been a number of reported illnesses and deaths related to vaping. Here's more from my original article:
The U.S. Centers for Disease Control and Prevention (CDC) announced September 19 the eighth U.S. death linked to vaping. The total number of cases of vaping-related illnesses has risen to more than 500. This news comes after an FDA announcement earlier this month that it's investigating whether e-cigs cause seizures. The FDA received 127 reports of seizures or other neurological symptoms between 2010 and 2019. Then the CDC and FDA said they are jointly looking into 215 cases of respiratory illnesses.
Now here's the small company I mentioned earlier comes in...
This Company May Have The Answer...
In 2017, the FDA announced that it would be working on a plan to reduce the amount of nicotine in cigarettes to nonaddictive levels. One company can help achieve this goal by growing tobacco with lower amounts of nicotine.
That company is 22nd Century (Nasdaq: XXII).
The plant-biotech company's proprietary Very Low Nicotine (VLN) tobacco is grown on independently-owned farms in the United States -- without any artificial extraction or chemical processes. In short, they've engineered a way to grow tobacco plants with up to 97% less nicotine than conventional tobacco.
The company also works with marijuana and hemp plants. In fact, it has developed industrial hemp plants that contain zero THC, the chemical responsible for most of marijuana's psychological effects. For those investors concerned about promoting a vice or investing in one, this is exactly what XXII does not do.
Its goal is to help wean smokers off nicotine by providing non-addictive levels of nicotine. And in the cannabis space it is working on adjusting the cannabinoid profiles in the plant. The intended goal is to separate the medicinal properties of cannabis from the cannabinoids -- the chemicals that create a "high." In fact, it can be argued that technologies that allow for making a zero-THC product will help keep the medical properties of cannabis in focus. And if it becomes mainstream, it can help advance the fight for the widespread legalization of cannabis.
Action to Take
XXII is a fascinating company in a promising business. It could hold one of the important keys to the "mainstreaming" of marijuana and hemp.
With the focus from Washington on the supposedly harmful effects of vaping, a company like XXII could come into stronger focus. As the only company with the ability to grow low-nicotine tobacco plants, it could prove to be very beneficial for Big Tobacco. Should that be the case, it's quite possible that one of them comes in and purchases the company. That goes double if the FDA should pass any low-nicotine requirements.
But before you buy shares, remember that XXII is a small, unprofitable company. Its market cap is just $235 million, and the stock price is around $2 a share. The company has routinely tapped the equity markets, issuing more shares to raise cash to keep operations going. More shares dilute the value of the holdings of existing shareholders, which is a big reason why XXII's share price remains low.
If you are looking to add this small, volatile company to your portfolio, it would be wise to take a smaller-than-normal position size.