Why 22nd Century Group was on fire in December with a 23% gain

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What happened

22nd century group (NASDAQ: XXII) It looked like he was on track to finish 2021 exactly where he started. Just three days before Christmas, the action of tobacco harm reduction biotechnology was trading at exactly the same price as at the start of the year.

Yet the very next day, 22nd century stocks shot up and ended the year up 40% from a year ago. According to data provided by S&P Global Market Intelligence, the maker of reduced-nicotine tobacco posted a month-on-month gain of 23.1% in December.

The reason? The Food and Drug Administration has approved the 22nd Century Group’s request for low-nicotine fuel cigarettes as a modified risk tobacco product (MRTP). CEO James Mish said, “This is the first and quite possibly the only combustible cigarette to carry the FDA MRTP designation.”

Image source: Getty Images.

So what

Traditional cigarettes, of course, are in secular decline and have been for decades. Smokers are quitting or increasingly turning to electronic cigarettes.

Tobacco giants like Altria, British American Tobacco, and Philip Morris International rely on e-cigs to be the future of the industry, and Philip Morris and British American have both achieved FDA approval for their next-generation products.

The former obtained a reduced risk label for its IQOS heated tobacco device while the latter obtained approval for its brand of Vuse steamers, the first of its kind in the United States. IQOS in the United States, giving it a competitive edge and highlighting how crucial tobacco manufacturers see the e-cigarette market for their future.

Man lighting a cigarette.

Image source: Getty Images.

But 22nd Century Group is targeting the millions of smokers who don’t necessarily want to switch to an electronic device. By marketing them a reduced nicotine cigarette as a healthier alternative to traditional cigarettes, the company has a significant competitive advantage, as there are still many more people who smoke compared to those who use an electronic cigarette.

Now what

As promising as the development for 22nd Century Group is, analysts are still uncertain whether the cigarette maker can ramp up production enough to stand out significantly in the market. In the third quarter alone, Altria shipped more than 23.1 billion cigarettes.

Some tobacco control advocates also argue that low-nicotine cigarettes will cause people to smoke more or inhale more deeply in an effort to get the same level of nicotine they received before.

Now that 22nd Century Group has obtained the imprimatur from the FDA to move forward, investors in tobacco stock must see if the hope for a healthier combustible cigarette is real or if it will increase in a puff. of smoke.

This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are motley! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.


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