Chardan Capital affirms 22nd Century Group (AMEX: XXII) at Buy with a price target of $9 following a recent conference call with management.

Analyst James McIlree noted that Chardan's price target was based on a sum-of-the-parts methodology, which was comprised of the discounted present value of the projected BAT license revenue, the discounted value of commercial product sales, RED SUN and MAGIC, and a value for the company’s modified risk and X-22 initiatives.

McIlree commented:

The company’s focus in the near term is revenue generation and it expects a minimum of $5 million in revenue in 2015 from the sale of RED SUN in the US, MAGIC in Europe and contract manufacturing. Revenues from all three sources are expected to begin in January next year. Distribution of RED SUN was delayed while the company received approval by the states to sell in those jurisdictions. Twelve states have granted approval, 22 are expected to approve soon and another 16 states will receive applications in December and approval is expected in January. MAGIC was delayed by the decision to change packaging in Spain so it would comply with all European regulatory requirements. The company needs NAAG approval to sell cigarettes manufactured for Smoker Friendly and hopes to receive this soon, but as NAAG approval for the MSA shows, the process is not in the company’s control.

For 2015 we have revenue of $2 million projected from these three sources, far below the company’s expectation of $5 million (minimum), so there is plenty of room for upside to our estimates. We have modeled a gradual ramp in sales, with Q1 revenue of $125 thousand and Q4 of $875 thousand. Our gross margin is modeled at 50%, but this will depend on the mix. Contract manufacturing has much lower margins than sale of proprietary products so if contract sales are a big portion of the mix, our gross profit estimate would be too high, and vice versa.

X-22 and modified risk remains areas of focus for the company. It is still seeking a partner for X-22 trials and recently met with FDA on a potential modified risk application. Revenue this year and next are not likely, but potential catalysts (partnerships, modified risk applications) are possible next year.

We have a $1.5 million milestone payment built into our model for Q3 of next year. The company, however, pointed out BAT controls when a research milestone is met and when/if it enters into a commercial license agreement. Because of this, the company is reluctant to project a milestone payment this year, although it remains confident of the agreement’s progress.

Tobacco is currently in China for testing and if successful could result in an order next year. However, testing will be extensive and could delay planting, which would take place in the spring. If the company manages to complete testing in time for a spring planting, the crop would be harvested in late summer, cured and process and shipped in December. China is a very large opportunity, and could exceed the revenue from other sources in a very short order. 22nd Century indicated the size of China orders are in the $10’s of million to $100’s millions range.

Botanical Genetics, the subsidiary dealing with cannabis is (in our words) a science project for now. We think the opportunity in the long-run is large, but it will take time for the legal and regulatory frameworks to change before the path is clear for the company to generate significant revenue from this source.

We remain bullish on the shares given near-term revenue generation for multiple sources, the likelihood the company will exceed our revenue estimates and the significant upside possible from its Asian joint venture.

For an analyst ratings summary and ratings history on 22nd Century Group click here. For more ratings news on 22nd Century Group click here.

22nd Century Group closed at $1.93 yesterday.

E-cigarettes contain up to 10 times the level of cancer-causing agents in regular tobacco, Japanese scientists said Thursday, the latest blow to an invention once heralded as less harmful than smoking.

The electronic devices -- increasingly popular around the world, particularly among young people -- function by heating flavoured liquid, which often contains nicotine, into a vapour that is inhaled, much like traditional cigarettes but without the smoke.

Researchers commissioned by Japan's Health Ministry found carcinogens such as formaldehyde and acetaldehyde in vapour produced by several types of e-cigarette liquid, a health ministry official told AFP.

Formaldehyde -- a substance found in building materials and embalming fluids -- was present at much higher levels than carcinogens found in the smoke from regular cigarettes, the official said.

"In one brand of e-cigarette the team found more than 10 times the level of carcinogens contained in one regular cigarette," said researcher Naoki Kunugita, adding that the amount of formaldehyde detected varied through the course of analysis.

"Especially when the... wire (which vaporises the liquid) gets overheated, higher amounts of those harmful substances seemed to be produced."

One brand, the name of which was not revealed, showed a more than 10-fold level of formaldehyde on nine out of every 10 sets.

Another brand showed similar levels on several sets, but was not consistently that high.

Kunugita said the research showed e-cigarettes are not the harmless products many people assume them to be.

"We need to be aware that some makers are selling such products for dual use (with tobacco) or as a gateway for young people" to start a smoking habit, he warned.

- 'Serious threat' -

Nicotine e-cigarettes, or so-called Electronic Nicotine Delivery System (ENDS), are subjected to the country's pharmaceutical laws, but they can be bought easily on the Internet, although they are not readily available in shops as they are in some Western countries.

"You call them e-cigarettes, but they are products totally different from regular tobacco," the ministry official said.

"The government is now studying the possible risks associated with them, with view to looking at how they should be regulated."

In August, the World Health Organisation called on governments to ban the sale of e-cigarettes to minors, warning they pose a "serious threat" to unborn babies and young people.

Despite scant research on their effects, the WHO said there was enough evidence "to caution children and adolescents, pregnant women, and women of reproductive age" about e-cigarette use, due to the "potential for foetal and adolescent nicotine exposure (having) long-term consequences for brain development".

The UN health body also said they should be banned from indoor public spaces.

US health authorities said earlier this year that the number of young people there who have tried e-cigarettes tripled from 2011 to 2013.

More than a quarter of a million young people who had never smoked a cigarette used e-cigarettes last year, the US Centers for Disease Control and Prevention said.

Supporters of e-cigarettes say the devices are a safer alternative to traditional tobacco, whose bouquet of toxic chemicals and gases can cause cancer, heart disease and strokes -- among the leading causes of death in many countries.

But opponents say the devices have only been around for a few years, and the long-term health impact from inhaling their industrial vapour is unclear.

Big tobacco companies are snapping up producers of e-cigarettes, wary of missing out on a snowballing global market worth about $3 billion.

Earlier this month, Oxford Dictionaries picked "vape"-- the act of smoking an e-cigarette -- as their new word of the year.