22nd Century Group Inc (XXII)

[Atlanta1]

$XXII Valuation:
We approached valuation from a sum-of-the-parts perspective to arrive at our $9.00 price target. We discounted the
projected BAT license revenue at 10% and in the low case assumed the license terminated in 2028, while in the high
case we assumed the license was extended by an additional 15 years.
For the commercial products we assume RED SUN and MAGIC can achieve $150 to $200 million in sales by 2023.
Our EV/Sales valuation ranges are comparable to the 3.6x to 5.2x EV/Sales multiples awarded to Altira, British
American Tobacco, Lorillard, Reynolds American and Philip Morris International.
Our modified risk/X-22 valuation of $2 to $4 per share is derived in a number of ways. E-cigarette makers, Victory
Electronic Cigarettes and Vapor Corp., proxies for modified risk valuations, have enterprise values of $499 million and
$141 million respectively. This equates to $2.42 per share using the lower EV as a bogey. X-22 valuation using a modest market share of the smoking cessation market and EV/Sales of 2x to 3x also yields per share valuation to 22nd Century of over $2 per share. We have heavily discounted these assumptions due to the longer-term nature of development of these lines of business as well as the additional capital required for them.