Welcome to the 22nd Century Group's First Quarter 2026 Conference Call and Webcast. At this time, all participants have been placed in listen-only mode. It is now my pleasure to turn the floor over to Matt Kreps of Investor Relations for 22nd Century Group. Please begin.

Hello and welcome to 22nd Century's First Quarter 2026 Results Conference Call. Joining me today are Larry Firestone, CEO, and Dan Otto, CFO. Earlier today, we issued a press release announcing our results for the quarter-ended March 31, 2026. The results release in 10Q will be available in the Investor section of our website at xxiicentury.com. Today's call will include prepared remarks from Larry and Dan, updating you on 22nd Century's business, operations, strategy, and financial results through March 31, 2026, and subsequent events post the close of quarter ends. Before we begin, a few reminders for today's call. Some of the statements made today are forward-looking. Forward-looking statements are subject to risks, uncertainties, and other factors that may cause actual results to differ materially from those contemplated by these statements. Additional information regarding these factors can be found in our annual, quarterly, and other reports filed with the SEC. During today's call, we may also discuss non-GAAP financial measures, including adjusted EBITDA, which we define as earnings before interest, taxes, depreciation, and amortization as adjusted for certain non-cash or non-operating expenses. For more details on these measures, please refer to our results release issued earlier today. And with that, I will now turn the call over to Larry. Thank you, Matt. Good morning, everyone,

and thank you for joining 22nd Century's first quarter 2026 results conference call. As we signaled in our year-end 2025 earnings call, which focused on the relaunch and initial shipments of VLN cigarettes, we expected Q1 2026 to yield modest sequential top-line growth and similar operating results to Q4. We anticipated additional shipments of our VLN products to be minimal while the initial stocking orders were worked through which allowed time for in-store placement setup retailer education and awareness among other activities as i will outline below we will see further traction now in 2026 as a broad overview looking at 2026 the shift for our company is now 100% focused on execution and growth. Not only on growth in our retail outlets and points of distribution within those outlets, but through targeted investments in marketing, merchandising, and developing the base of adult smokers who we believe will, and those who have already begun to smoke VLN cigarettes. We anticipate market expansion to be very much a grassroots effort for VLN products as the headliner of the tobacco harm reduction movement. We know big tobacco, also referred to as big nicotine, is instead putting all their financial and marketing muscle into transitioning combustible cigarette users into nicotine pouches and other highly addictive nicotine solutions. We on the other hand are the contrarian and we accept the challenge to join the global efforts of the many countries around the world and regulatory bodies such as the US FDA and the World Health Organization who have been attempting to curb smoking and the health arms of smoking and nicotine for many years. At the core of this problem is nicotine addiction. Initially, in 2026, focused mainly on the U.S., we are looking for those adult smokers who are looking to change their lifestyle for the better. Life without nicotine addiction, that's the goal. Solving this problem for the adult smoking consumers is and has been the core of 22nd Century's strategy for 28 years. We fully understand that other companies are trying to develop other methods to help adult smokers alter their smoking habits in what they claim is a positive way, like heat not burn and vaping, but with nicotine still at the core. They are not helping. Then, there are additional companies trying to derive alternative solutions in the form of cigarettes, such as hemp-derived answers and even tea leaves. And the fact is, our VLN is the only FDA-authorized cigarette that is made with authentic tobacco to satisfy the adult smoker's true smoking experience. We believe that for many smokers, they like to smoke, as they enjoy the ritual and the experience. They just don't want to be beholden to an addiction where they have no choice. We have heard from some of our new VLN smoking consumers that they're enjoying the VLN smoking experience and have reported the ability to change their smoking habit to a more casual or social activity versus a need driven by nicotine. Along these lines, annual spending on their smoking habit always comes up in the conversation. With big tobacco raising their per-carton prices every quarter, this price gouging has, for years, been putting pressure on the consumer's disposable income, similar to the increases in fuel, groceries, etc. A pack-a-day smoker smoking a premium brand will spend almost $5,000 per year on their smoking habit. Our VLN cigarettes, once adopted, give the consumer the advantage to manage their smoking habit and their personal spending on this commodity. We are here to help the smoking public shift the advantage to the consumer with our VLN cigarettes. The fact still remains, we have a large market of smoking consumers who have weighed in and want to change. But nicotine keeps the escape hatch locked. We believe that changing the dependence on nicotine is the key. Now on to the market and on to our consumer adoption. Make no mistake, our VLN cigarettes are a very disruptive product. In an industry that is desperately trying to keep people smoking, it is a product designed to help them smoke less. On the sales side, during the early phase of our VLN product rollout, we have secured distribution in the number three purveyor of tobacco products in the U.S. with our Pinnacle-branded products. In fact, for this retailer, on a sales-for-retail outlet basis, they rank number one. This is an important early accomplishment for the launch of our VLN products as we now focus in 2026 on using this as a stepping stone to garner additional retail penetration while the product rollout is occurring in planned phases. We are still in our infancy, but as we mature with retailers, we anticipate a regular cadence where we can focus more on consumer adoption. In their stores from the get-go, we have seen sales activity from consumers. Some stores are moving Pinnacle VLN product quite nicely. Others are on a slower start, but nevertheless still selling. The initial launch was designed with limited marketing to establish a baseline, and now we have begun promoting Pinnacle VLN with cross-promotions with other products as well as digital promotions with their fuel rewards program. We are anticipating meaningful lift from this activity. Bottom line, consumers are now finding and buying our Pinnacle VLN. We have also secured distribution of 22nd Century VLN with the number two purveyor of cigarettes in the U.S. in a limited market in Illinois. The results are similar, as we have some stores selling consistent volume, while others are just starting to see movement in the stores as we look forward to the rest of Q2 and Q3 we will be adding distribution in New York New Jersey and Southern California for Pinnacle VLN and other Pinnacle branded products this will cover approximately 200 outlets then in Q3 we'll be adding distribution to the southeast for Pinnacle VLN for a new retailer we expect to see initial shipments in late Q3 and early Q4. This should get us close to our target for 5,000 retail outlets by the end of 2026, and following the rate of sale patterns that we've seen in the early stage of the VLN rollout, we believe we will see measurable growth from all the markets we are in. But more importantly, with every pack or carton sold, we are helping someone change their life for the better. On the marketing side, with our restructured balance sheet and our retail distribution expanding, we are now at the stage where we're investing in consumer marketing as the highest return on our resources. To that end, we're hiring a new vice president of marketing to build out our consumer marketing capability and lead our efforts to drive awareness and adoption of VLN products among adult smokers. Consumer adoption is the unlock from here, and we will build the toolkit to engage customer awareness. On the science side, the science behind VLN cigarettes is proven. Our products and results have been recognized and documented by the FDA and the World Health Organization in their efforts to establish low nicotine standards worldwide. Multiple scientific studies have consistently demonstrated the merits of our VLM products. Using our proprietary technology, we have created and will continue to create new and innovative products, as well as new strains of non-GMO, low-nicotine tobacco, to support our brands and other brands around the world as opportunities arise. We continue to engage the scientific community in advancing approaches to this problem. using the form factor most comfortable for the smoking consumer, a cigarette. On the financial side, we are addressing the remaining low or no margin products that we still produce. We're addressing pricing first, and we are continuing to exit the few remaining unprofitable contracts while ensuring our customers have continuity of supply. This, along with our branded product initiatives, including VLN products, will begin to produce the anticipated improvements in gross profits as the year progresses. On the operating expense side, consistent with our remarks in previous quarters, we will be adding headcount in marketing and sales as we continue to unfold new opportunities to expand. And with that, I'll turn the call over to Dan for a review of the financials.

Thank you, Larry. For the first quarter of 2026, net revenue was $4.1 million compared to $3.5 million in the fourth quarter of 2025, an increase of approximately 16.1% on a sequential basis. Gross loss for the quarter was $0.6 million compared to a gross loss of $0.8 million in the fourth quarter of 2025. As Larry noted, while first quarter revenue improved sequentially, overall top line and profitability performance still remain below where we are targeting. That said, we believe the sequential improvement in revenue and gross margin is an early indicator of the commercial progress we are working to build on as distribution expands and product mix continues to evolve. operating loss for the quarter was 3 million compared to 2.8 million in the fourth quarter of 2025 net loss from continuing operations was 3 million compared to 2.8 million in the fourth quarter of 2025 and finally adjust the EBITDA for the quarter was negative 2.6 million compared to negative 2.4 million in the fourth quarter of 2025 while our near-term profitability metrics remain under pressure, our operating focus continues to be on scaling revenue, improving gross margin mix, and managing costs in a disciplined way as we expand the platform. Turning to the balance sheet, we ended the quarter with cash and cash equivalents of $9.5 million. We continue to manage liquidity carefully and remain focused on aligning spending with our highest priority commercial and regulatory initiatives. Capital allocation remains disciplined with resources directed toward distribution growth, VLN commercial support, marketing initiatives, and key opportunities for advancement of our reduced nicotine pipeline. For the remainder of 2026, we're solely focused on execution. That includes growing store count to more than 5,000 locations, expanding retail availability, supporting new launches under the Pinnacle portfolio of products and partner VLN platform, and improving the underlying economics of the business through better absorption and mix. While the timing of that improvement may not be linear quarter to quarter, we continue to believe and we are very excited about the back half of the year, which has the potential to show much stronger commercial momentum than the first half. With that, I'll now turn the call back to Larry for closing comments.

Thank you, Dan. As we look further into 2026, our priorities are clear. We are focused on execution. This includes expanding distribution, increasing retail outlets, improving the effectiveness of our VLN marketing campaigns, broadening the footprint of the Pinnacle franchise, and continuing to advance the regulatory and product pipeline behind our current VLN reduced nicotine platform. We have very disruptive technology and products with our low nicotine tobacco, and VLN cigarettes. In fact, VLN is the only authorized disruptive product in the form of a cigarette on the market, and it is fully aligned and recognized by the global organizations who have adopted a mission to get to a smoke-free world. To really accomplish this, they know that nicotine must be addressed. But step one is the smoking public. We believe at this time we have the antidote. There are 1.1 billion smokers in the world, and a host of them are looking for an answer to change. We have the answer, and that's the size of our opportunity. Our job now is execution. And we know we will face headwinds from the market, but we'll continue to drive VLN cigarettes into smokers' hands and target to change lives one pack at a time. I'd like to thank our team, as always, for their support and excellent execution, as well as their belief and commitment to the mission we are on. We appreciate your continued interest in 22nd Century and your participation on today's call have a nice day conference has now concluded

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