22nd Century Group Files 2016 Second Quarter Report Announces Conference Call to Provide Business Update

CLARENCE, N.Y.–(BUSINESS WIRE)– 22nd Century Group, Inc. (NYSE MKT:XXII),
a plant biotechnology company that is a leader in tobacco harm
reduction, today released the Company’s second quarter 2016 financial
results and announced that it will provide a business update for
investors on a conference call to be held on Wednesday, August 10th, at
4:00 PM (Eastern Time).

Henry Sicignano, III, President and Chief Executive Officer of 22nd
Century Group, together with John T. Brodfuehrer, Chief Financial
Officer, will conduct the call. Interested parties are invited to
participate in the call by dialing 800-768-6570 and using Conference ID
8455411.

The conference call will consist of an overview of the financials
presented in the Company’s second quarter 2016 Form 10-Q and a
discussion of business highlights and updates. Immediately thereafter,
there will be a question and answer segment open to all callers.

Recent Business Highlights

• In April, 22nd Century received an initial purchase order from
  Australian tobacco distributor, Quay Tobacco Trading PTY, LTD., for
  both Very Low Nicotine MAGIC brand cigarettes and “Extreme
  Nicotine” RED SUN cigarettes. This purchase order represents
  22nd Century’s first notable sale of product to the Asia-Pacific
  region. Cigarettes for the Australian market will be made at 22nd
  Century’s wholly-owned manufacturing facility in Mocksville, North
  Carolina and are anticipated to ship in September 2016.
• 22nd Century signed an agreement with Celanese Corporation that grants
  our Company the right to use Celanese’s CelFX® cigarette filter
  technology with our MAGIC, RED SUN and MOONLIGHT brands.
  The agreement also includes exclusive rights for 22nd Century to
  market cigarette tubes containing Celanese CelFX® filters for
  Roll-Your-Own tobacco consumers around the world. We believe the
  addition of the CelFX® filter to the Company’s proprietary cigarette
  brands (MAGIC, RED SUN, MOONLIGHT) results in an extraordinary
  taste experience while significantly reducing many toxic compounds in
  the smoke.
• 22nd Century received an initial purchase order for MAGIC 0
  Very Low Nicotine cigarettes from French distributor, Royal
  Distribution. MAGIC cigarettes destined for France are
  exclusively made with the Company’s proprietary Very Low Nicotine
  tobacco and are manufactured on behalf of 22nd Century by Orion
  Tobacco Corporation in Poland. Cigarettes for the French market are
  anticipated to ship in September 2016.
• The Company opened its own fully-outfitted molecular biology
  laboratories on the Buffalo Niagara Medical Campus. At the same time,
  the Company launched a groundbreaking new initiative to produce
  medically-important marijuana cannabinoids in tobacco plants.
  The Company believes that this tobacco-based approach (that is
  proprietary to 22nd Century) has a possibility of “leap-frogging”
  existing cannabis biotechnology and yielding commercial medical
  products far more rapidly than traditional cannabis breeding programs.
  The Company also continues to work on a very low-THC hemp plant under
  its sponsored research with Anandia Labs in Vancouver, Canada for the
  world-wide commercial hemp market.
• Following the introduction of new “deeming regulations” by the FDA’s
  Center for Tobacco Products affecting tobacco products other than
  cigarettes (i.e. premium cigars, filtered cigars, loose tobacco and
  other products), our Company developed a comprehensive strategy to
  continue to legally make competitive 3+lb filtered cigars. If our
  forthcoming Substantial Equivalence (S.E.) applications to the FDA
  relating to filtered cigars are approved, our NASCO manufacturing
  facility may secure a competitive advantage in the production of
  filtered cigars. Indeed, our strategy to navigate the complex new FDA
  deeming regulations has already resulted in obtaining 8 new contract
  manufacturing customers for NASCO that will begin production at
  various times throughout 2017.
• The Centers for Disease Control and Prevention (CDC) published a
  detailed characterization of the Company’s SPECTRUM® variable nicotine
  research cigarettes identifying 22nd Century’s proprietary cigarettes
  as an important tool for investigating reduced nicotine cigarettes on
  nicotine addiction.
• Several new independent clinical studies were published providing
  further evidence that Very Low Nicotine cigarettes reduce the harm of
  smoking, even among groups of at-risk people. Notably, the Cancer
  Epidemiology Biomarkers and Prevention (CEBP) journal published a
  study on April 17, 2016 which found that using 22nd Century’s
  proprietary Very Low Nicotine tobacco cigarettes “may reduce harm
  exposure.” The researchers concluded that the study’s data provide
  “further support of reduced smoking and exposure with very low
  nicotine content cigarettes.” Another study published in the journal Alcoholism:
  Clinical and Experimental Research concluded that switching to the
  Company’s Very Low Nicotine cigarettes may lead not only to a
  reduction in smoking, but also to a reduction in alcohol use. The
  403-subject study concluded that a national “nicotine reduction
  standard could further improve public health by reducing alcohol use
  among individuals who reduce their nicotine exposure and smoking rate.”

Second Quarter 2016 Financial Summary

The Company’s most recent SPECTRUM order generated substantial
revenue and positive gross margin; however, the shipping of such order
was completed in Q1, so Q2 net sales revenue showed a decrease of
approximately $190,000. Specifically, net sales revenue for the second
quarter of 2016 were $2,828,000, an increase of $521,000, or 22.6%, over
net sales revenue of $2,307,000 for the three months ended June 30,
2015. Net sales revenues for the six months ended June 30, 2016 were
$5,847,000, an increase of $2,924,000, or 100.0%, over net sales revenue
of $2,923,000 for the six months ended June 30, 2015.

For the three months ended June 30, 2016, the Company reported an
operating loss of $2,831,000 as compared to an operating loss of
$2,353,000 for the three months ended June 30, 2015, an increase in the
operating loss of $478,000. The increase in the operating loss is
primarily due to an increase in operating expenses of $630,000,
partially offset by a decrease in the gross loss on product sales in the
amount of $152,000. For the six months ended June 30, 2016, the Company
reported an operating loss of $6,059,000, as compared to an operating
loss of $6,481,000 for the six months ended June 30, 2015, a decrease of
$422,000. The decrease is primarily the result of a decrease in equity
based compensation of $2,296,000 and a decrease in the gross loss on
product sales of $293,000, partially offset by an increase in other
operating expenses (excluding equity based compensation) in the amount
of $2,167,000. This increase in operating expenses consists of costs for
strategic activities including: (1) personnel to strengthen our
regulatory and scientific initiatives, (2) investments in new sponsored
research, and (3) nonrecurring advertising and promotional costs.

The Company’s net loss for the three months ended June 30, 2016 was
$2,902,000, or ($0.04) per share, as compared to a net loss of
$1,289,000, or ($0.02) per share, for the three months ended June 30,
2015. The results for the three months ended June 30,2016 included
non-cash expenses consisting of (i) equity based compensation totaling
$220,000 and (ii) depreciation and amortization in the amount of
$207,000. The Company’s net loss for the six months ended June 30, 2016
was $6,155,000, or ($0.08) per share, as compared to a net loss of
$5,405,000, or ($0.08) per share, for the six months ended June 30,
2015. The results for the six months ended June 30,2016 included
non-cash expenses consisting of (i) equity based compensation totaling
$503,000 and (ii) depreciation and amortization in the amount of
$413,000. The net loss for the three and six months ended June 30, 2015
also included proceeds from a legal settlement with an unrelated
third-party in the amount of $1,000,000.

Adjusted EBITDA (as described in the paragraph and table below) for the
three months ended June 30, 2016 was a negative $2,404,000, or ($0.03)
per share, as compared to a negative $1,807,000, or ($0.03) per share,
for the three months ended June 30, 2015. Adjusted EBITDA for the six
months ended June 30, 2016 was a negative $5,144,000, or ($0.07) per
share, as compared to a negative $3,308,000, or ($0.05) per share, for
the six months ended June 30, 2015.

The table below contains information relating to the Company’s Adjusted
EBITDA for the three and six month periods ended June 30, 2016 and 2015,
including a reconciliation of net loss to Adjusted EBITDA for such
periods.

Adjusted EBITDA is a financial measure not prepared in accordance with
generally accepted accounting principles (“GAAP”). In order to calculate
Adjusted EBITDA, the Company adjusts the net loss for certain non-cash
and non-operating income and expense items listed in the table above in
order to measure the Company’s operating performance. The Company
believes that Adjusted EBITDA is an important measure that supplements
discussions and analysis of its operations and enhances an understanding
of its operating performance. While management considers Adjusted EBITDA
to be important, it should be considered in addition to, but not as a
substitute for or superior to, other measures of financial performance
prepared in accordance with GAAP, such as operating (loss) income, net
loss and cash flows from operations. Adjusted EBITDA is susceptible to
varying calculations and the Company’s measurement of Adjusted EBITDA
may not be comparable to those of other companies.

Company Announcements Made Subsequent to the Close of the Second
Quarter of 2016

The World Health Organization (WHO) Study Group on Tobacco Product
Regulation (TobReg) recommended “a policy of limiting the sale of
cigarettes to brands with a nicotine content that is not sufficient to
lead to the development and/or maintenance of addiction.” The WHO report
explains that government-mandated nicotine reduction strategies
utilizing Very Low Nicotine cigarettes could “decrease the acquisition
of smoking and progression to addiction among experimenters, limit the
number of cigarettes smoked by some proportion of addicted smokers and
both increase the number of addicted smokers who stop smoking and reduce
the number of those who relapse.” Commenting on the WHO report, Drs.
Dorothy Hatsukami, Ghazi Zaatari and Eric Donny warned that “Allowing
this idea [of mandating nicotine reductions in cigarettes to
non-addictive levels] to sit on the shelf when it has the potential to
save millions of lives would be a travesty.”

On July 27, 2016, 22nd Century raised $5.0 million in gross proceeds
through the sale of common stock in a capital raising transaction that
was priced at-market without any discount (even though current capital
raising transactions often include discounts of 10% – 30% from the
market price of a stock) with an existing institutional investor. The
agreement also included 25% warrant coverage (even though current
capital raising transactions often include warrant coverage of between
50% – 100%) with a $1.00 exercise price per share (which exceeded the
then-current market price of the Company’s common stock of $0.81 per
share).

About 22nd Century Group, Inc.

22nd Century is a plant biotechnology company focused on technology
which allows it to increase or decrease the level of nicotine in tobacco
plants and the level of cannabinoids in cannabis plants through genetic
engineering and plant breeding. The Company’s primary mission is to
reduce the harm caused by smoking. 22nd Century currently owns or
exclusively controls more than 200 issued patents and more than 50
pending patent applications around the world. Visit www.xxiicentury.com
for more information.

Cautionary Note Regarding Forward-Looking Statements: This
press release contains forward-looking information, including all
statements that are not statements of historical fact regarding the
intent, belief or current expectations of 22nd Century Group, Inc., its
directors or its officers with respect to the contents of this press
release, including but not limited to our future revenue expectations.
The words “may,” “would,” “will,” “expect,” “estimate,” “anticipate,”
“believe,” “intend” and similar expressions and variations thereof are
intended to identify forward-looking statements. We cannot guarantee
future results, levels of activity or performance. You should not place
undue reliance on these forward-looking statements, which speak only as
of the date that they were made. These cautionary statements should be
considered with any written or oral forward-looking statements that we
may issue in the future. Except as required by applicable law, including
the securities laws of the United States, we do not intend to update any
of the forward-looking statements to conform these statements to reflect
actual results, later events or circumstances, or to reflect the
occurrence of unanticipated events. You should carefully review and
consider the various disclosures made by us in our annual report on Form
10-K for the fiscal year ended December 31, 2015, filed on February 18,
2016, including the section entitled “Risk Factors,” and our other
reports filed with the U.S Securities and Exchange Commission which
attempt to advise interested parties of the risks and factors that may
affect our business, financial condition, results of operation and cash
flows. If one or more of these risks or uncertainties materialize, or if
the underlying assumptions prove incorrect, our actual results may vary
materially from those expected or projected.

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