Shares of 22nd Century Group (NYSE: XXII), a biotechnology company that creates technology to increase or decrease the level of nicotine in tobacco plants, fell by more than 6 percent on Wednesday after The Street Sweeper published a scathing report on the company.
The Street Sweeper provides in depth research to exposure corporate fraud, misconduct and other wrongdoings in public companies.
In its report on 22nd Century, Street Sweeper noted that the stock’s more than 50 percent gain over the past year is due in part to the company’s use of promotional campaigns which cost up to $30,000 and are paid by third parties.
Of particular note, one of the campaigns wrongfully claimed that 22nd Century Group is in a position to receive MRTP labeling from the U.S. Food and Drug Administration (FDA). Meanwhile, the company has failed to advance its only phase 2 study which has been active for five years so an MRTP approval is out of the question.
And then there is the inconvenient fact that 22nd Century has little cash, $2.8 million as of June and an additional $5 million from a stock and warrant deal to be exact which is well short of the $25 million Street Sweeper estimates is needed to complete a study as a precondition for an MRTP approval.
Moving on, Street Sweeper pointed out that 22nd Century doesn’t have the best relationship with its investors as it has been on the receiving end of a $500 million lawsuit – filed by its chief investor, Terren Peizer.
Peizer, an ex-Goldman Sachs investment banker and Wall Street hotshot, invested $10 million through his private equity group, Crede Capital Group in 2014. As part of the investment, Peizer would provide expertise in tapping the Chinese market. The lawsuit alleged that one of Peizer’s contacts in China said he has been secretly approached by the company about getting permits and regulatory approval to operate in the country.
The company did say that it considers the lawsuit to be frivolous and meritless. Regardless, Street Sweeper suggested this “botched deal keeps the dark clouds hanging” over the company’s shoulders.
Bottom line, Street Sweeper concluded that the hype around 22nd Century is merely a “smoke screen that conceals the company’s truly terrible finances, business and prospects.”