22nd Century Group Issues Annual Letter to Shareholders

CLARENCE, N.Y.–(BUSINESS WIRE)– 22nd Century Group, Inc. (NYSE MKT: XXII),
a plant biotechnology company that is focused on tobacco harm reduction
and cannabis research, announced today that the Company has issued the
following letter to shareholders as part of 22nd Century Group’s 2016
Annual Report:

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Dear Fellow Shareholders:

In 2016, 22nd Century’s Very Low Nicotine technology captured the
attention of scientists and public health officials around the world.
Over the course of the year, we reported to shareholders the results of
six new independent clinical studies investigating the efficacy and
comparative safety of Very Low Nicotine (VLN) cigarettes among broad
population groups, as well as among several at-risk groups. At the same
time, well-respected, independent scientists published four compelling
recommendations calling on governments worldwide to adopt 22nd Century’s
VLN cigarettes as a central part of efforts to reduce smoking prevalence
around the world. Chief among the organizations endorsing our Company’s
VLN cigarettes was the World Health Organization (WHO) Study Group on
Tobacco Product Regulation (www.who.int/tobacco/publications/prod_regulation/nicotine-reduction/en/).

The WHO report compiled and summarized the available science behind VLN
cigarettes and 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 states: “No specific amount of
nicotine has yet been identified as the absolute threshold for
addiction; however, it is likely to be equal to or possibly less
than 0.4 mg/g of dry cigarette tobacco filler.” 22nd Century is the
only company in the world capable of producing combustible tobacco
cigarettes at this very low level of nicotine – without any artificial
extraction or chemical processes.

The cost of the science conducted in 2016 on our Company’s behalf was
staggering. In fact, 22nd Century was the beneficiary of tens of
millions of dollars of clinical trials that were primarily funded by the
National Institute of Health (NIH) and the U.S. Food and Drug
Administration (FDA). Based on these and previous independent clinical
trials, pragmatic countries in many parts of the world have identified
three likely paths to integrate 22nd Century’s novel VLN tobacco
products as a key ingredient in their respective tobacco control
policies: (1) approval of BRAND A for sale as an over-the counter
reduced exposure tobacco product, (2) approval of X-22 as a
prescription-based smoking cessation aid, and (3) mandate of a maximum
nicotine level for cigarettes in line with the WHO’s recommendation of ≤
0.4 mg per gram of tobacco (a 95% reduction in nicotine versus
conventional cigarette brands). In 2017, we stand on the precipice of
the adoption of VLN tobacco as a harm reduction strategy in one or more
of the 180 WHO-member countries.

Building on 2015’s commercial success, in 2016 we once again reported
record sales. From a revenue base of $8.5 Million in 2015, we grew gross
sales nearly 50% to over $12 Million in 2016. Though we ultimately
expect major licensing contracts or strategic partnerships to generate hundreds
of millions of dollars in revenue, we are very proud of our organic
growth and we look forward to reporting substantially greater sales in
2017. However, in an effort to sharpen our focus on international
regulatory approvals and on public policy initiatives in various
countries in the first half of 2017, we have made the decision to
reallocate Company resources from sales and marketing and toward
regulatory affairs.

Many shareholders have suggested we take this approach. In fact, some
shareholders have suggested that 22nd Century forego all commercial
activities until we receive regulatory approvals to freely sell and
advertise our products as “reduced risk” or, at the very least, as “Very
Low Nicotine.” We have not, however, decided to go quite this far. We
continue to believe annual sales growth is an important metric of
success and we will, therefore, strive to achieve record annual revenues
once again this year. After a soft first quarter, revenues from already
signed contracts will produce total gross revenue for 2017 that will
greatly exceed 2016 total sales.

While our revenues have grown steadily, we recognize that the greatest
opportunity for our Company is not in the sales of conventional
commercial products, but is of course in the licensing of our technology
and in the sales of our proprietary smoking cessation products. In
recognition of this fact, and as a result of the publication of several
very positive, new clinical trial results with VLN cigarettes, we expect
that our regulatory efforts will significantly drive the future sales of
our X-22 smoking cessation aid and our Modified Risk Tobacco
Products in development. Ultimately, we expect that regulatory and
scientific successes with these products will lead to truly explosive
commercial success – amounting to hundreds of millions of dollars
annually.

Our more pronounced attention on regulatory efforts relating to the
differentiation of our unique products is an intentional and planned
progression of our commercial strategy, especially in light of the
tightening of tobacco control laws around the world. For example, since
the spring of 2016, European Union law no longer permits us to disclose
the nicotine yield on our MAGIC cigarette packaging. And so,
rather than continuing to expand MAGIC sales without the ability
to disclose the remarkably low nicotine yield of our Very Low Nicotine MAGIC
cigarettes, we have opted to first secure European regulatory
approvals for our Very Low Nicotine cigarettes. On a country-by-country
basis, we have identified appropriate regulatory pathways which will
lead to the ability to introduce Very Low Nicotine cigarettes together
with an accurate disclosure of their trace nicotine content.

An example of the headway we have made in our pursuit of regulatory
approval comes from the United Kingdom. In the fourth quarter of 2016,
we recognized a unique opportunity in the U.K. after the Medicines and
Healthcare Products Regulatory Agency (MHRA) approved a vape product
called E-Voke as a smoking cessation device. (E-Voke is
made by Nicovations Limited, which is a part of British American
Tobacco.)

The E-Voke device is described as an electronic inhaler.
Interestingly, the E-Voke device that was approved for smoking
cessation in the U.K. delivers with each use about 0.4 mg of nicotine,
or about 10 times the machine-generated smoke yield of nicotine of 22nd
Century’s X-22 Very Low Nicotine cigarettes.

The circumstances surrounding E-Voke’s application and approval
in the U.K. as a smoking cessation device led us to investigate
following a similar path in the U.K. for X-22. Accordingly, we
recently contacted the MHRA and submitted a preliminary information
package. Our submission referenced numerous, independent clinical trials
that used our proprietary Very Low Nicotine tobacco, including a
clinical trial that was conducted in the U.K. at the Queen Mary
University of London. Officials from MHRA have reviewed our submission
and have already offered helpful and straight-forward advice to 22nd
Century. At this point, we are working to prepare a complete dossier on X-22
as a prescription-based smoking cessation product for the U.K. for
review by MHRA.

While we are investigating the regulatory pathways in numerous countries
around the world – starting with the most promising countries – we are
also continuing our efforts to achieve regulatory approval for our VLN
products here in the U.S. As recently announced, we requested and
secured a meeting with FDA’s Center for Drug Evaluation and Research
(CDER). At the meeting, which will take place in June 2017, we will seek
agreement from FDA on an appropriate path for X-22 to become a
prescription-based cessation aid for smokers in the United States – a
huge step forward for our Company!

In the meantime, following guidance provided by FDA’s Center for Tobacco
Products (CTP), we are working to resubmit our Modified Risk Tobacco
Product (MRTP) application for BRAND A Very Low Nicotine
cigarettes as an over-the-counter product with reduced exposure to
nicotine. We will separate our application to the CTP into a Pre-Market
Tobacco (PMT) application and an MRTP application in order to take
advantage of a shorter review process by the CTP for the PMT
application. We anticipate filing a more expansive and robust PMT
application and MRTP application in the first half of 2017.

2016 was also the year that 22nd Century opened and began operating our
own fully functional biotechnology laboratories in Buffalo, New York,
with our small but highly experienced team of scientists and research
associates. Although 22nd Century already owns an impressive portfolio
of tobacco technologies, our researchers are ambitiously working to
produce improved “second generation” non-GMO plants, as well as brand
new tobacco and cannabis technology. Non-GMO varieties will open new
international markets for 22nd Century and will enable us to protect
further our technology with new patents and plant variety protection,
thus extending our competitive advantage.

At the start of 2016, our cannabis portfolio consisted only of licensed
intellectual property in the cannabinoid biosynthetic pathway and a
newly signed research agreement with Anandia Laboratories in Vancouver,
Canada.

During 2016, our sponsored research at Anandia produced several
independent lines of industrial hemp that have either zero THC or
zero total cannabinoids. This is a major breakthrough that has
the potential to transform completely the hemp industry. We are
diligently working to fine-tune these new varieties and plan to
commercialize them as soon as this year and no later than 2018.

Different hemp/cannabis plant varieties produced through our Company’s
sponsored research at Anandia also express other valuable cannabinoid
profiles and are thus good candidates for extraction of cannabinoids for
medical research purposes. To that end, we are talking with a number of
universities to develop 22nd Century’s medical marijuana varieties as
sources of cannabinoids for medical testing and for use in new medicines.

In December 2016, we signed a new cannabis research agreement with the
University of Virginia (UVA). Professor Michael Timko and his colleagues
at UVA are starting an extensive new cannabis biotech project aimed at
developing new technologies for improving hemp through the utilization
of our proprietary intellectual property and our unique and advanced
plants that we are bringing to UVA. Our agreement with UVA is a very
exciting step forward for our Company in the field of hemp/cannabis
research; it serves as a prototype for the types of research
partnerships that 22nd Century seeks in this emerging industry. 22nd
Century co-owns with UVA all results and intellectual property resulting
from the sponsored research; further 22nd Century has the sole and
exclusive rights to commercialize all results of our collaboration with
UVA.

Looking to the future, we are extremely optimistic for 2017. 22nd
Century has been granted a guidance meeting with CDER/FDA for our X-22
smoking cessation aid. 89% of smokers that we have surveyed report
that X-22 would be their top or first choice to help them quit
smoking. We firmly believe that smoking cessation cigarettes made from
22nd Century’s proprietary Very Low Nicotine tobacco could save millions
of lives and billions of dollars in healthcare costs.

We are also encouraged by CTP/FDA’s feedback on our MRTP application and
we look forward to working cooperatively with the FDA to obtain approval
to market BRAND A as an over-the-counter, modified risk tobacco
product that significantly reduces smokers’ exposure to nicotine.

Our own laboratories and new research agreements with third-parties will
result in us co-owning or solely owning, outright, all intellectual
property that is developed in our research with third parties and used
in our new products. Our researchers in Buffalo are developing a new
generation of non-GMO Very Low Nicotine tobacco. Our zero THC hemp lines
are the genesis of a whole new generation of industrial hemp products,
and we stand to be a major force in the medical marijuana industry which
is predicted to be a multi-billion dollar market by 2020.

Achieving our scientific goals – while also securing important
regulatory approvals for our novel technologies – will enable our
Company to grow by quantum leaps. We are confident that achieving these
goals will ensure that 22nd Century shareholders are handsomely rewarded
for their investments.

On behalf of the 22nd Century Group management team and our Board of
Directors, we thank you for being part of our family of shareholders. We
look forward to meeting many of you at our annual shareholder meeting in
April and we look forward to sharing exciting Company developments with
everyone in the weeks and months to come.

Sincerely,

Henry Sicignano III
President & Chief Executive Officer

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, 2016, filed on March 8,
2017, 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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