22nd Century Group (NASDAQ:XXII) said its second-quarter revenue declined as the company continued to exit lower-margin contract manufacturing work and focus on its branded Pinnacle and VLN reduced-nicotine cigarette offerings.
Net revenue was $2.9 million in the second quarter of 2026, down from $4.1 million in the first quarter. First-half revenue totaled $7 million, compared with $10 million in the first half of 2025. Chief Financial Officer Dan Otto said the lower top line reflected the company’s planned transition away from much of its contract manufacturing, or CMO, business toward reduced-nicotine and branded products that management believes offer better gross-margin potential.
Distribution expansion targets
22nd Century said it ended the quarter with retail presence in approximately 2,000 stores across 20 states. The company is targeting roughly 5,000 retail outlets across 35 states by the end of 2026 for its VLN and Pinnacle VLN cigarette products.
Firestone said the company announced distribution expected to begin ramping in the fourth quarter for Pinnacle VLN in Metro New York and Northern New Jersey through a large cigarette retailer. The expansion is expected to add nearly 150 store locations.
The company also cited recent entries into Metro New York, Northern New Jersey and California. Otto said management anticipates adding independent retailers, cash-and-carry operators and a digital-first convenience chain as it works toward its year-end footprint goal.
Management said much of the volume to date has represented initial load-in orders, and the next stage will depend on converting those placements into repeat purchases and improving product velocity at the store level. Firestone said the company is also seeing interest from large retailers, cash-and-carry operators, drug retailers and digital-first convenience channels.
The company is building out the broader Pinnacle portfolio, including the launch of Pinnacle Pure. Firestone said Pinnacle Pure is aimed at the premium tier-two cigarette category, particularly tobacco- and water-style product offerings, where he said there are relatively few strong options from major retailers and traditional cigarette suppliers.
Margins improve, though losses continue
Gross loss narrowed to $0.3 million in the second quarter from a gross loss of $0.6 million in both the prior quarter and the second quarter of 2025. For the first half, gross loss was $0.9 million, compared with $1.2 million a year earlier.
Otto said the improvement reflected the company’s move away from low-margin CMO export volume and toward higher-margin Pinnacle and VLN products, though he said the pace of improvement had not been as fast as management planned.
Second-quarter gross margin included two non-recurring items, according to Otto:
- A roughly $196,000 charge for the reversal and write-off of aged inventory discontinued by a contract manufacturing customer.
- A roughly $692,000 recovery related to Master Settlement Agreement non-participating manufacturer excise taxes from prior tax periods.
Otto said neither item is included in the company’s forward planning.
Operating loss was $3.3 million, compared with $3 million in the first quarter, while net loss from continuing operations was also $3.3 million, compared with $3 million in the prior quarter. Adjusted EBITDA was negative $3.5 million, compared with $2.6 million in the first quarter, as reported by the company.
The company ended the quarter with $6.1 million in cash and cash equivalents and no outstanding debt. Otto said spending is being directed toward distribution growth, VLN commercial support, the Pinnacle portfolio launch, marketing and the reduced-nicotine product pipeline.
Exit from legacy contract manufacturing
Management said it has raised prices and reassessed contracts in the legacy CMO business, where Firestone said significant historical volume carried low or negative gross margins. He said the company is willing to lose business if customers move to lower-cost suppliers rather than accept pricing that reflects manufacturing and distribution economics.
Firestone said the transition away from low-quality CMO revenue is expected to continue over the next two to three quarters. By early in the first quarter of 2027, the company expects most remaining legacy CMO volume in filtered cigars, white-label cigarettes and export cigarettes to be substantially transitioned away from its factory, with those contracts largely wound down.
Management said it expects second-half results to benefit from a combination of broader distribution for higher-margin products, greater reorder activity and the pricing and contract actions in its legacy business. The company said execution remains central to whether it can improve gross margins and create more recurring branded-product revenue.
Firestone also said 22nd Century hired Katherine Rouse-Bailey as vice president of marketing and expects to add selected talent in sales and research and development to support retail expansion, product development and technology work.
About 22nd Century Group (NASDAQ:XXII)
22nd Century Group, Inc, founded in 1998 and headquartered in New York, is a plant biotechnology company that applies proprietary breeding and gene modulation technologies to tobacco, hemp and related plant species. The company’s core mission is to develop and commercialize plant-based solutions that address public health, consumer wellness and agronomic needs. Its flagship reduced nicotine tobacco platform is engineered to deliver significantly lower levels of nicotine than conventional tobacco products while retaining the sensory characteristics sought by adult smokers.
Through its branded reduced nicotine tobacco products, marketed under the NEXT Generation™ portfolio, and its GenCanna® subsidiary focused on hemp cultivation and cannabinoid extraction, 22nd Century serves both commercial markets and contract research clients.
