Welcome to the 22nd Century Group's Second Quarter 2022 Earnings Conference Call. At this time, all participants are in a listen-only mode and the floor will be opened for questions following management's prepared remarks. As a reminder, today's conference is being recorded. At this time, I would like to turn the call over to Joe Schepers, Vice President of Communications and Investor Relations. Please begin.

Thank you, Alex. Good morning and welcome to 22nd Century's second quarter earnings conference call. Joining me on the call today are; Jim Mish, our Chief Executive Officer; Hugh Kinsman, our Chief Financial Officer; and John Miller, who leads our Tobacco Business. Earlier today, we issued a press release announcing our results for the second quarter 2022. We will start today's call with prepared remarks from Jim, John and Hugh before moving into a Q&A session. During our prepared remarks, we will be referring to slides, which are available for viewing in the webcast and posted in Investors section of our website at xxiicentury.com under the Events subheading. We hope these files will serve as a framework for management's prepared remarks, reinforce key takeaways and provide additional transparency and insight into our business, strategy and objectives. Also, those of you joining by webcast can submit questions through the online interface which we may include during the Q&A section of today's call, time permitting. Slide two. Before we begin, 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 this call, we also will 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 and non-operating expenses. For more details on these measures, please refer to our press release issued earlier today. And with that, I'll turn the call over to Jim beginning on slide three.

Thanks, Joe, and good morning to everyone. I'm really excited to be joined today for the first time by John Miller, the President of our Tobacco business; and Hugh Kinsman, our CFO. I welcome these two leaders to deliver on our shareholders' request for more detailed tobacco commercial updates and insight into the execution of our business fundamentals as we grow. If you listen carefully, you're going to hear in much more detail than in the past and help connect the dots. The second quarter was a major transformation that included the most significant developments in the history of the company. We continue to execute and deliver on our mission to improve human health through reduced nicotine content tobacco, improved Hemp/Cannabis plant technologies and advanced top plant science. In fact, we had major success in two key areas. First, we launched our highly anticipated VLN pilot program at more than 150 Chicago land Circle K stores starting in early April. We have exceeded our key market expectations, and that was only through product distribution endpoint -- in-store point-of-sale and general PR and media outreach supporting the launch. We now have a baseline set on market share and are testing several target offers designed specifically to accelerate further growth. In short, we are off to the races on VLN, and John will speak in much more detail on this topic. Second, we completed a major transaction on May 13, acquiring one of the top ingredients and CDMO providers in the hemp-derived active space, GVB Biopharma. In addition to doubling our revenue on an annualized basis and improving our margins, GVB completes the vertical integration of our Hemp/Cannabis business from receptor science and plant genetics, all the way to finished white label goods on shelves for consumers. In addition to global scale…

Thanks, Jim, and good morning. I'm pleased to be here on my first call with 22nd Century Group. I have been involved in the tobacco industry for more than 30 years, and this is potentially the most disruptive and impactful product I have seen in my career, a product that will help adult smokers to smokeless. Moving to slide six. Our Chicago pilot with Circle K is going very well. We started with an initial distribution launch in the more than 150 stores selected to participate, providing basic media support, in-store point-of-sale and for example, client training for in-store promotions. Our goal was to set a baseline market share, with the actual results exceeding our internal targets. Due to a commercial need for confidentiality, we can't share the Circle K numbers at this time. However, what we can share is that we are more than pleased with what we're seeing. Feedback in the stores and from consumer focus groups has been overwhelmingly favorable and has reinforced our confidence that VLN will be accepted and adapted by adult smokers through three key activities, education, awareness and trial. With help you smokeless is part of our FDA required label, smokers know exactly what our product is designed to do. And given that 60% to 70% of smokers want to quit and have even tried repeatedly to do so, we fill a need where they are actively seeking new tools to reduce their nicotine consumption. We are now in Phase 2 of our pilot program, deploying targeted offers to drive increased share. By refining our approach, we will then be able to move into an expanded launch as part of the Phase III rollout. Given that we're talking about an $80 billion US retail market, capturing even a very small percentage of this…

Thanks, John. It really has been an amazing second quarter in tobacco, and we are extremely excited for the path ahead. Let's turn to Slide 12, as we focus for a few minutes on our other two growth franchises, starting with hemp/cannabis. We remain absolutely committed to building our leadership position in the hemp/cannabis industry by developing superior plant lines and now superior extraction, ingredient and finished product capabilities. Our original mission was to optimize the plant genetics and hemp/cannabis to create stable improved varietals needed to move this industry to true commercial scale. In addition to better yield plant consistency for harvest, disease resistance, drought resistance and other key characteristics can be modulated to disrupt this industry. We've now taken it to a new level. On Slide 13, we acquired GVB Biopharma, effective May 13. GVB is a global leader in the manufacturing of hemp-derived, active ingredients and finished products, servicing the nutraceutical consumer products and pharmaceutical industries. This acquisition positioned 22nd Century as the global leader in cannabinoid ingredients and leading CDMO for white label products across many end-use markets. It completed our vertical integration platform through which we can now monetize our deep intellectual property portfolio in hemp/cannabis and also doubled our revenue on an annualized basis, improved our gross margin profile and accelerates our path to profitability in hemp/cannabis. Slide 14 should be very familiar to many of you, illustrating our upstream hemp/cannabis capabilities, you can quickly see the addition of GVB means we now own the extraction, purification products capability with a global leading CDMO facility. We're now fully verticalized and able to bring together plant science, best-in-class ingredients and finished goods capabilities to help move this industry forward. Slide 15 gives you a feel for the facilities we picked up in the transaction, including…

Thanks, Jim, and good morning to everyone. Starting off on Slide 20 with the quarterly results. Net sales increased by 73% year-over-year to $14.5 million, primarily through the addition of a half quarter of GVB revenue and improved CMO manufacturing mix. We continue to generate new business and orders with additional customers, plus are now manufacturing VLN cigarettes for a pilot program and now Colorado. Gross profit margin in the second quarter increased year-over-year to 6.1%. I would mention that, that number is a result of purchase price accounting and does not reflect our projected gross margin for the business going forward. We expect to report a more typical gross margin starting next quarter, and I'll explain on Slide 21. Since we had a partial quarter for GDP, this slide should help level set and explain both revenue and gross margin more clearly. First on revenue, tobacco revenue increased to $10 million from $8.3 million for the second quarter year-over-year, a gain of 19%. Gross margin on tobacco sales increased to 10% through a combination of increased volume and favorable sales mix. On the GVB's side, we recorded approximately half a quarter of operations from the closing date of May 13. Revenue recorded in half a quarter was $4.5 million, while we reported negative gross margin due to a $1 million amortization step up tied to purchase price accounting for the acquisition. Excluding this one-time non-cash charge, GVB’s gross margin was about 22%. And GVB's gross margin is typically 20% to 25% and will be reflected in consolidated operations going forward. Slide 22 illustrates the purchase price accounting in more detail. It should be noted that certain portions of the purchase price accounting will be adjusted in the coming quarters, in particular the goodwill and intangible sections. As the footnote…

Thank you. It's an exciting time for 22nd Century as we accelerate our US VLN launch with several major national C-store and pharmacy change placing our VLN products in front of customers. With our pilot exceeding our expectations and a massive market opportunity, even a relatively small share of that market is transformational to us, as John described. With the proposed menthol ban moving ahead as it should, plus state actions in advance of federal policies, there's never been a better time for a disruptive reduced nicotine content product. We're ready to go, not just on our innovation tobacco products, but also in our hemp/cannabis products and new GVB platform that doubles our revenue now that is fully integrated and enhances our path to profitability as we plan to capture and leverage all of the synergies of our two companies in the months ahead. We have built the framework and foundation, and we are in a strong position to execute the next phase of our strategy to maximize the full potential of our tobacco and hemp/cannabis business now and hops in the future. And with that, operator, please open the call for questions. Thank you.

Thank you. At this time, we'll be conducting a question-and-answer session. We will take questions from the approved list of analysts first. If we have time, Joe will read a question that was submitted via the webcast. Our first question comes from the line of Vivien Azer with Cowen.

Hi, good morning.

Hi, Vivien, good morning.

Hi. Good morning. I wanted to start on Chicago with the VLN pilot, please. I certainly appreciate that Circle K's metrics are competitively sensitive. I was wondering, if you could just offer some relative content, context perhaps, like, how would velocity an average door compared to a mainline combustible cigarette competitor? Just as one example. But just to help dimensionalize the performance. Thank you.

Good morning, Vivian. This is John Miller. The best way to put it is we looked at our own internal goals set forth through several different KPIs and metrics. One of them is, obviously, historical performance of what new product introduction would do in a similar space. We also looked at stores in different areas. So if you look at Chicago land as a market, all of our stores have some very different variables within them. Some of them are in Coke County; some of them are near schools, churches, whatever the different regulation. So the actual performance of the product does vary based on store neighborhood, pricing, there's different taxes in Coke County than in some of the other stores. But overall, we found that our sales and our share levels increased beyond what we set as targets were extremely favorable, and really, some of the keys of that were also the learning that we did in the focus groups about what drove that. That led to our decision to expand through Illinois and then move into Colorado, which different than Illinois has an MRTP tax basis that is $6.50 a carton less than traditional cigarettes. So I mean, in summary, a good, broad segment of stores in different variables achieved our results, looking at historical numbers in terms of what the space has provided for new products, I’m very, very happy with that, took those learnings and now we're expanding through Illinois into Colorado.

Understood. Thank you for that perspective. If I could just follow-up, recognizing, of course, the demographic differences across the store base in the Chicago area. But any trends that are solid enough that you could call out in terms of average age of consumer or average relative income of consumer that's attracted to the VLN product? Thanks.

I would say when you look at the -- I can't say that the demographics of VLN are going to be different than the demographic of a cigarette smoker. What I would say is this, though, the smoker that is looking to quit smoking that 60% to 70% of that population of 34 million to 40 million people, that's who this is attracting. 90 days into the program, I can't tell you household income numbers, things like that. But I can tell you who's interested. It's the people who are trying to quit smoking. That was originally identified as the target consumer. That continues to be the target consumer, and that's where this message resonates. When you look at those three pillars of what we learned in the test and these are the critical pillars. When you look at education, awareness and trial, that is what the marketing platforms will be built off of. That's what people need to understand about this product. If someone's of Marlboro a smoker, it doesn't necessarily translate that this product is for them. Some of the Marlboro smoker who wants to quit, understands what the product is, sees it in store, understands what it does, how it performs. That will be our target demographic. That's who we will attract.

Okay. That's helpful. Thank you. And then just pivoting last question, please, to Colorado. Some of your larger peers haven't had the ability to take advantage of some of these MRTP tax incentives or tax savings. So understanding that you can deploy those savings across a number of different consumer engagement initiatives, does the law mandate that, that's where that tax savings goes? Can you drop some of it to the bottom line? Just curious the mechanics of that tax law? Thank you.

I'm not aware of it being mandated that it has to be put in any specific pricing or promotion or merchandising whatever. I'm not aware of the law saying that. Understanding the law and understand the benefit, what we've learned in the pilot our takeaways out of Chicago, what we've seen in our research moving forward, which is while in my comments I talked about specifically some things we can use that for. That savings certainly could be reflective in price, could be reflective in additional education and awareness programs, trial programs, enhanced margins for retailers for doing additional merchandising. We are still working out some of those things and some of those decisions will be based probably on more on channel than anything else. But it does give us a bit of room to operate. There's no doubt about it.

Understood. Thank you very much.

Does that answers your question?

It does. Thank you.

Thank you.

Our next question comes from the line of Aaron Grey with Alliance Global Partners. Please proceed with your question.

Hi, good morning and thank you for the question. So kind of want to piggyback a little bit on what Vivien was saying in terms of Chicago again, I can appreciate how you cannot give exact numbers. But while it's still in the early days, any color you can provide in terms of retention versus trial that you're seeing, especially given that it is the user that you said was looking to quit conventional cigarettes? And then as well, what you're seeing in terms of like dual use with VLN versus traditional cigarettes or maybe to that on with some type of a patch or Easter any types of consumer trends without giving any exact data would be helpful? Thanks.

Sure. Thanks, Aaron. In terms of very specific connection to data on repeat purchases, previous purchase patterns, we just don't have that yet. One of the great -- several cases are a sophisticated retailer, especially in the convenience industry. One of the best convenience marketers out there. They do have some loyalty programs. We're tying into their technology. And that's really what Phase 2 has been about getting into their Lyft program, DGP programs and kind of understanding how their consumers shop, so we're trying to get some of that data right now. But again, we're looking at 150 store tests. And it's hard -- was the causation correlation about multiple purchases were they in the right stores? Do they understand the test stores. These are all things we're working through. So we understand the importance of that, certainly understand the importance of understanding how many times the consumer buys the product, stays in the category, stays with the brand. Reasons for purchase path to volume, I mean, those are all things we're getting to. So that's why we're hoping expanding the launch going deeper into different states will help us get that type of information. In terms of dual use with a patch, probably the – the best I can tell you is that when you look at the research, the 22nd Century provided the FDA and some of the research that came out of this was actually a consumer, an adult smoker that uses VLN in combination with an NRT and whether that's a gum patch, whatever, it seems to help both of them. Both of those products get people off of nicotine. So right now, we don't have definitive data on a Circle K shop or also buying Nicorette, but we do know that through the data, both of those products work well together, which is a very interesting strategy moving forward.

Okay. Great. Thank you for that. And I wonder, if I can give numbers, just in terms of it exceeding your expectations. Could you just let us know in terms of maybe like the trends. So maybe month-over-month, have you continued to see an increase, or was there kind of an initial large uptake that is then trended down just in terms of whether or not it's continuing to trend upwards in terms of your sales, as well as market share will be helpful without giving the exact numbers? Thanks.

Yeah. No, certainly trending upwards. Certainly, the first six weeks as some of the marketing Pete, that's what we call our Phase 1 timeframe. As those things started to kick in, consumers started to understand what the product was, ramp up, so every store having sales Phase 2 now that we're starting to do more and more of it certainly continues to grow.

Okay. Great. Thanks very much, and I'll jump back in the queue.

Thank you.

Our next question comes from the line of Brian Wright with Roth Capital Partners. Please proceed with your question.

Thanks. Good morning. I was hoping, I think could you provide some color on consumer kind of trials as far as like following test groups or anything like that? Is the initial trials, or there's any work along those lines that you can –can speak to?

Brian, just to clarify, are you saying about the research studies or actual in-store feedback?

Kind of in-store feedback following kind of – following any initial users or groups of initial users or anything of that nature?

We do that now. We have two different things I can kind of report out. One is anecdotal feedback that we have perceived back from just store personnel or the occasional consumer we or our people may have run into. But that feedback, obviously, very positive from some of our brand ambassadors that have worked as store personnel, getting people to understand what this product is, having them try it, that's been very positive. On the research side, we did an in-home use test, which was completed, have gotten the preliminary feedback from that. And again, when you start talking about education awareness trial, key pillars that I came out of that, but even the feedback on the product from the in-home use test, right, people said, it was great smoking experience. People said, it provided good tobacco taste and provided tobacco satisfaction. Some people said things like they never saw anything like this. We got like 93% interest and purchase intent from focus group participants, great acceptance and usage, when you do an in-home use test, invariably some of the people fall out of the group. What we saw here was our first week, 100% of the participants stayed in the focus group. At the end of two weeks, we had 96% of the people still in the focus group. It was really, really interesting seeing what happened. Now again, as we stated -- excuse me, as I already stated, this is a group of consumers that is interested in stopping smoking. This is a group of interest that want to get away from cigarettes. So that's why we know as we move deeper into these markets, and we continue to pursue this education awareness and trial platform, that's how we're going to get people to use the product. The other research we have going -- so that was our in-home use test. The other one we have going is what's called the Capstone Project, which is more a perception post trial, but that research is still being done and I haven't gotten the results of that back yet. Again, about 90 days into this but we know how important it is to understand this about the consumer. We know how important it is to understand why they're using it, whether or not it's working and what their perception is of the product.

No, that's great feedback. Thank you so much. Could you also maybe provide us just a little more detail on kind of the increased Chicago Circle K stores or expansion outside of the Chicago land area and Illinois. Just any way to kind of think about what's next there?

Sure. And like any launch of a product, right? As you get into it, you start understanding where you want to go? What are the drivers of the volume? How are you sourcing your volume, where the consumers, right? We haven't pulled value from wanting to be a national brand. There's no doubt about it. I mean everything we talked about today, what we put in that presentation -- in the press release, all of that is additive to what we want to do. These are things we're going to continue to keep moving forward. We're seeing a change in the environment, right? Since we've launched this product, there's been a tremendous amount of PR on what's happening within low-content nicotine cigarettes. What's happening with the FDA? What's happening with Joe Biden and what he's saying about his policies. We're starting to get out in front of consumers' minds a little bit, but we know we have to get out there and explain to people what this product is. We have to educate them, get awareness on this. So we're going to move through Illinois, where we already have a foothold. We're going to be moving into Colorado, which makes sense. It will be our first MRTP tax state. And we have multiple other things that we're working on right now, which I'm just -- I just don't want to announce right here on this call, but they are in process. The plans are being made, and we're going to continue. This is -- there's a lot of momentum behind this product right now and our activities to expand quick.

No, that sounds great. There are a lot more stores in Chicago? Is it too early to talk about kind of the next -- kind of tranche of the stores and, kind of, how to think about the size on that. You know, as investors, we love numbers. So with something like that would be great.

I totally understand it. I understand for your modeling and things like that. I'd rather not put a hard number on Illinois just yet because we are working on some things that i.e., just don't feel comfortable to announce, but Illinois is a fantastic..

There are some good stuff that's coming, and we just got to be patient..

I got it

Okay.

I just want to be able to announce it, but I mean, to your point about Illinois, there's a lot of stores there. There's a lot of interest in the product now. I mean it's I think Illinois is a number 14 state in terms of sheer volume, very good change in addition to Circle pay very good customers. So we're moving forward to there. Colorado, again, like it's the 24th biggest state. Not the biggest, but there's some very interesting things that go on in Colorado, and there's a reason why we picked it. Not only the MRTP tax savings but also you have Danbury, you have Colorado Springs. You have some different markets there to look at what's working, what's not working you have a real technology base of people. You have a young energized base there that's moving into Colorado. There's a lot of people there that are looking for this solution. We have a firm out there we're working with who did some metrics for us about attitudes towards quitting smoking, understanding that flows right into our messaging. And again, what we're seeing is the importance is to get to -- be able to penetrate a market, get into a market, get the message out. I use the expression all the time about being an oil well or an oil slick. And for this product for people to understand what it does, you have to get into a market and penetrate it and go deep, which is why we're -- again, when you start talking about additive to your plans, certainly want to be a national -- have a national presence. But you know what, you've got to do it smart and you have to do it in the right way, so people know what's happening, what's happening with this brand going deep into a market, getting people understand it. I hope that answers you, Brian

Yes. No, that's very helpful. Very, very helpful. Thank you so much.

Our next question comes from the line of Jim McIlree with Dawson James. Please proceed with your question. Q – Jim McIlree: Thank you. Good morning. Given all that you've seen with the Circle K trial, can you -- it sounds to me like you're going to go multiple regional tests or trials or pilots or phase-ins over the, I don't know, next six to nine months before you go national. Am I hearing that correctly? A – Jim Mish: Jim, it's not that we're nearly not going national, but we are going in a smart sort of way to move through different markets. There are certain things that -- and again, I talk about the oil well oil slick, but also people have to understand what this product is. This product has only been -- we only got the MRTP designation since December. If you're launching another Marlboro line or you're launching another Copenhagen line or you're launching a new Snickers bar, everyone knows what that is. In my old company, we could launch a new flavor amd last across the country. Don't have any problem with people understanding what the product is. What we're learning here is, we have to get people to understand what this product is. There has to be awareness. There has to be education on what this is. If someone were to buy a VLN, a pack of VLN thinking they're getting a pack of Marlboro, they're going to have a different experience. When we have -- when we can connect with the 60% to 70% of that adult population that smokes that wants to quit, and we get them the solution, that's how we're going to be gaining momentum. Yes. I hope that makes sense. It's, again, additive. How do you expand through,…

Yes, I hate to put it to just a number and say that it's going to be x number of months before you see something else. I mean it's -- we're going to continue to keep rolling this out and it's making sense to do it in a very pragmatic straight way about market penetration. There might be multiple markets at the same time. We're working all of that out now. Again, we've only built 150 stores. So now we're starting to move this out and expand it. And for the tobacco, the tobacco world for new product, different products, right, that have been out there, right? When you look at something like that Swedish match out, they tested quite a while in one state like a Utah, Colorado test and they launched that 7, 8 years ago, they were there for a while testing things, right? They're testing pricing flavors, product, packaging, seeing what works best before they went national. Not uncommon for a lot of brands to do this, right? Test it, get it right. Now we've tested it and now we're expanding it, seems like the right way to go, especially keeping the message consistent, getting to the consumer base making sure they understand what the product is, benefits, goals, things like that.

And can you talk about the - yes, it does. Thank you. Can you talk about the cost of doing this type of rollout versus what -- versus what your prior expectations might have been. This is a higher cost endeavor, the lower cost endeavor. It's the same?

Yes. I mean when you look at this test that we started with rate, so you're starting basically from ground zero. So, you're building all the things and you are building websites, you’re putting together apps, you're putting together point-of-sale plans -- we're testing multiple different coupon denominations. So, there's some costs that are upfront on this that will be utilized throughout all the other markets. I don't know that it was any more costly than anything else to launch. We did a lot of things. We had six different pieces of point-of-sale approved in Circle K will we use all of those in every store moving forward? Probably not. I mean, that's just not the way those things work. So, there's costs associated with this, but the upfront costs are always your most expensive. The first store is always much more expensive than your 50,000 stores, just because you're trying to get it right. We're fine-tuning, we're getting things dialed in. And that's why you do pilot, that’s why you do tests and that's why you keep expanding. Will the future programs look like exactly like the 150 stores in Chicago? Absolutely not. I mean as we continue to evolve and understand our learning of the consumer, what the messaging needs to be and how we get to them, this is not a traditional cigarette brand. And I think people have to understand that. This is like I say, this is not a Marlboro line extension, this isn't the Joe, The Camel campaign from 20 years ago. This is a very, very unique product that is really all about public health, as you can see it. And it resonates in our brand. It resonates on our packaging, resonates in our point of sale. This will not be a traditional launch in terms of what people have seen in the past, this is very unique. We've done some very unique things with it and we're continuing to elevate those things.

All right. Thank you. John, just a couple of things on GVB, when you acquired it, I think you were talking $45 million to $50 million in revenues for GVP on a stand-alone basis, not consolidated. Is that still a good number? And is that dependent upon the Oregon extraction facility coming online? Is that a big part of the ramp-up? And what impact does that have on gross margins that the extraction capacity coming online? Is that a higher or lower gross margin versus the 20% to 25% you talked about?

Yes, go ahead, Jim.

Yeah. I will take it. I mean, the run rate's in line on those figures, we're still placing a focus on the 2023 plan or starting to get looking at the 2023 plan, but the run rates in that ballpark -- and it doesn't -- it's not impacted by the extraction unit expansion. The margins favorability certainly are, but we can keep up with the demand side in either case, but certainly, the margins show dramatic improvement, as that unit comes online in the next few months and on a calendarized basis in 2023?

All right, very good. That's it for me. Thanks a lot. Good luck.

Sure.

Our next question comes from the line of Alex Berman with Craig-Hallum Capital Group. Please proceed with your question.

Great. Thanks very much for taking my question and congratulations on the -- what sounds like a very successful early launch of the pilot program. I wanted to ask about something that you mentioned on the call about your cash requirements expected to decrease. Wondering if you can give us a little bit more color on, when we should start to see that happen, I would think, just given the magnitude of the VLN launch, potentially taking a product here from zero to maybe hundreds of millions of dollars of revenue over the next couple of years. I mean, clearly, you're going to need to build inventory and spend on marketing. So is there not going to be a little bit more maybe short-term increase in the cash burn over the next couple of quarters and then things perhaps start to become closer to cash flow breakeven. Just considering all the moving pieces you've got going on here, if you could help to unpack that statement about cash requirements decreasing that would be very helpful.

Sure. This is Hugh Kinsman. So I'm happy to answer that question. So I mean we're obviously going to use the cash that's on hand right now to -- we'll heavily invest the vast majority of those proceeds into continuous launch of the VLN product, not so much on CapEx, but obviously, sales and distribution channels, much to what John just alluded to. There'll be some portion of those proceeds will be used to just build up the working capital for GDP's operations? Do you beat selling out into the perpetual market demand, so there will be a need for a marginal amount of mine to just build up their permanent working capital base and the permanent inventory levels. GDP on a stand-alone basis will eventually become self-sufficient in 2023, later just because of continued organic growth. And so you're right, there'll be a substantial amount of cash that's initially spent going through the launch process and progressive rollout strategy for the VLN product. But after a certain point in time, particularly if we reach a certain accelerated sales level, the overall enterprise becomes somewhat self-sufficient over the next 12 to 18 months and we have the adequate resources to meet these strategic goals and complete the corporate initiatives.

Okay. That's really helpful then. So putting that all together, I mean, if we think about the $8 million adjusted EBITDA loss in Q2, when we start to layer in the full quarter for GVB and the acceleration of the VLN launch, I mean, should we expect the loss in Q3 and Q4 to be greater than that and then start to improve next year? Is that kind of a reasonable time line to think about?

Yes, that's probably the right way to think about it just because of simultaneous investments in both businesses and particularly VLN. So that probably is the right approach.

Okay. That’s really helpful. Thank you.

Sure.

Our final question is a follow-up from Vivien Azer with Cowen. Please proceed with your question.

Hi, thanks for taking the follow-up. Just circling back to VLN in Chicago, the retail footprint opportunity is clearly much, much bigger than what you guys have done in the Chicago area to date. I'm curious, are you thinking about priorities? Do you want to kind of replicate a C-store model, so you've got apples-to-apples competitors or is that outside of your control entirely and that's going to be a joint decision with you in your distribution partner? Thank you.

Yes, thanks Vivien for the follow-up. Yes, there's no doubt Chicago has -- and no, no, thousands of stores. We are not married to a specific channel in terms of our willingness to want to market this to build consumers who are looking for a solution to smoking. Quite honestly, there's some very, very good channels outside of just convenience for this product. That's all being evaluated. It's going to be driven-off of consumer demand, it will be driven-off of where consumers live shop, all those things. So it's -- yes, to your point, we are looking at standing this to a multiple – multiple partners and having much more of a statewide presence there. Hope that answers your question Vivien?

Thank you. It does. Thank you.

Yes.

Thank you. Ladies and gentlemen, we have reached to the end of the question-and-answer session. I will now turn the call over to James Mitch for closing remarks.

Thanks, operator, and thanks, everyone, for joining us today, and thanks for the great questions. Just to tie a bow around some things. What you heard today is that all the recent announcements are in addition to our original strategy and accelerating an expansion of VLN increases. That's what you heard from John today, become efficient with that and to reach our objectives, which is to get this product into the hands of educated consumers as quickly as possible is really what you heard of today. We're going to be sharing more and more of that for the next coming weeks and laying out even more detail to that. But we are truly off and running. And despite all of the headwinds in the macroeconomics and in spite all the challenges of this tobacco industry, we are on a very successful pathway with the VLN expansion and rollout. Not to mention everything we're doing on the cannabis and hemp as well. So stay tuned for our next updates and press releases that will be coming shortly. As we continue to expand our VLN launch in the US and move ahead on our opportunities with GVB and hemp/cannabis. And we will be present in a number of investor and industry events coming this fall. You'll hear more about that as well. If you'd like to range a meeting, please reach out to our Investor Relations team noted on the press release. With that, thank you again. Thank you for your support and continued interest, and we'll speak soon. Have a great day.

Thank you. This does conclude today's call. You may now disconnect.