Insights

Why 22nd Century Group Stock Soared Today

What happened

22nd Century Group‘s (NASDAQ: XXII) stock is up more than 22% as of noon ET today as a result of a new rule proposed by the Food and Drug Administration (FDA) that would limit the amount of nicotine contained in cigarettes. The move would reduce their addictiveness and therefore their potential to harm members of the public.

The proposal is the product of years of federally funded research that found cigarettes with lower nicotine levels led to lower cigarette consumption and higher utilization of safer ingestion methods, like nicotine gum.

So what

22nd Century Group already makes FDA-authorized reduced-nicotine-content cigarettes that would still be sellable if the new standards are ultimately adopted, so it could expect higher revenue without needing to spend any money on research and development for the sake of bringing their products into a state of regulatory compliance.

It also stands to steal market share from larger competitors like Altria Group, which may face significant headwinds if it’s forced to pivot into less addictive products. 

Now what

Regulators won’t publish a finalized draft of the rule until 2023, but it’s expected to lead to severe disruption for the cigarette industry because it’ll force nearly all of the companies to remove the majority of the nicotine from their cigarettes.

Of course, 22nd Century won’t have any trouble whatsoever if that disruption occurs, and it might even make additional revenue from helping other cigarette manufacturers to reduce the nicotine levels in their products via licensing its technologies or potentially even white labeling its low-nicotine cigarettes.

Alex Carchidi has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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