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22nd Century Group Sells Cannabis Business

The sale is expected to close in early December 2023.

I Stock 833712532

22nd Century Group announced it has reached an agreement to sell substantially all of its GVB Biopharma hemp/cannabis operations to Specialty Acquisition Corporation, an entity affiliated with current GVB employees. The transaction is subject to certain approvals and Buyer obtaining financing.

Terms of the transaction include a cash payment to the company of $1 million at closing of the sale and a 12% secured promissory note for $1.25 million. The parties will equally share liabilities related to any GVB entities not part of the transaction, subject to certain conditions. The company plans to use the proceeds from the sale to further deleverage its balance sheet.

22nd Century is also entitled to retain any insurance proceeds received in connection with the fire at the Company’s Grass Valley manufacturing facility, a portion of which will be used to offset Buyer’s portion of the shared liabilities. At present, damages being sought are approximately $9 million, subject to upward revision the longer the disputed claim with the insurer remains unresolved, although the amount received will not be finalized until resolution of the matter.

The sale is expected to close in early December 2023, subject to customary closing conditions including approval by 22nd Century’s Board of Directors, receipt of a fairness opinion, Buyer obtaining $3 million of financing and receipt of third-party consents, including the consent of the Company’s senior lender. The Company is currently in discussions with the senior lender to obtain such consent. No assurances can be given that the Buyer will obtain the required financing or that the Company’s senior lender will provide the consent to the transaction.

“The sale of our hemp/cannabis franchise will immediately and materially further reduce the cash and operating demands within our business,” stated John Miller, interim Chief Executive Officer of 22nd Century. “The buyer will assume responsibility for payroll, lease, and other operational expenses, along with future funding requirements for the hemp/cannabis business. We expect this transaction will substantially lower 22nd Century’s operating expenses beyond the previously announced $15 million in cost savings initiatives on an annual basis. Additionally, we will retain rights to the insurance proceeds, subject to certain offsets, effectively recouping cash that was invested into the continuity of the hemp/cannabis business.”

“We remain committed to determining the best path forward to create value for our shareholders. Including, evaluating strategic alternatives with respect to our tobacco assets, notably our VLN reduced nicotine content products, as approved by the FDA for harm reduction as a modified risk tobacco product (MRTP),” said Miller.

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