In the U.S., we spend six times more in health costs than the combined Big Four tobacco companies report in worldwide revenue annually. Adding the high margin volume will depend on a number of variables such as state registrations, number of stores in distribution, rate of sale, among others. We've already begun shipping Pinnacle VLN in August, with the first stocking orders being over 3,000 cartons. Adding the higher margin branded products will break open gross margin profitability as we maximize the capacity and efficiency of our factory that has largely fixed labor and overhead.
We've also improved our working capital outlay by tightening finished good inventory on hand. The increase in volume reflects a significant increase in CMO cigarettes, including export, which has high volume but low priced product. First and foremost, it sounds as if break-even on EBITDA might be pushing back. Can you give some visibility on when you might achieve break-even on a quarterly basis EBITDA?
So this, Andy, this is one of the reasons why we're shifting away from the low margin, and some of its lost margin, the CMO businesses. It will take a little longer as we give up the margin contribution from the high-volume mix, but the focus on the branded business will pay off.
| Metric | Period | Current guidance |
|---|---|---|
| Profitability / break-even | First half of 2026 | Now expect profitability in first half of 2026; definitely Q2, working on Q1, based on timing of branded product stocking, rate of sale, and store count |
| Revenue and gross margin | Beginning Q3 2025 | Expect distribution and customer adoption to begin generating steady revenue growth and gross margin expansion |
| R&D spend | Next two years | Anticipate additional R&D spend to maintain low-nicotine IP stronghold and fund clinical research, market studies, and additional PMTA/MRTP filings |
| Metric | YoY | Note |
|---|---|---|
| Net revenue | — | Decreased sequentially to $4 million from $6 million in Q1 2025 |
| Total cartons sold | — | Increased to 779,000 from 478,000 in Q1 2025, reflecting a significant increase in high-volume, low-priced CMO and export cigarettes |
| Gross margin | — | Consistent at a loss of $0.6 million |
| Operating expenses | — | $2.3 million versus $2 million in Q1 2025; level described as sustainable going forward |
| Net loss from continuing operations | — | Approximately $3.3 million, consistent with Q1 2025 |
| Adjusted EBITDA | — | Loss of $2.6 million versus a $2.3 million loss in Q1 2025 |
| Topic | Previous mention | Current period | Trend |
|---|---|---|---|
| Regulatory tailwind | — | FDA proposed standard requiring combustible cigarettes/filtered cigars to contain less than 0.7 mg/g nicotine (95% less) over a two-year transformation; 22nd Century holds the only authorized compliant combustible cigarette | — |
| Partner / Flanker VLN strategy | Introduced over the past ~18 months | Two early adopters (Smoker Friendly and clinical brands) now carry VLN SKUs, positioned to benefit when the FDA mandate takes effect | — |
| Business model transition | Running high-volume low/negative-margin CMO products | Cycling out of low-margin CMO and replacing with high-margin branded VLN/partner VLN products to break open gross margin profitability | — |
| Profitability timeline | Earlier expectations within 2025 | Pushed into first half of 2026 due to latent go-to-market barriers including state registrations, store count, and rate of sale | — |