UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)

☑
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2024

or

☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______________ to _______________

Commission file number: 001-37763

TURNING POINT BRANDS, INC.
(Exact name of registrant as specified in its charter)

Delaware
  
20-0709285
(State or other jurisdiction of Incorporation or organization)
  
(I.R.S. Employer Identification No.)

5201 Interchange Way, Louisville, KY
  
40229
(Address of principal executive offices)
  
(Zip Code)

(502) 778-4421
(Registrant’s telephone number, including area code)

Former name, former address and former fiscal year, if changed since last report: not applicable

Securities registered pursuant to Section 12(b) of the Act:

Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common Stock, $0.01 par value
TPB
New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes  ☑    No  ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yes  ☑    No  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer
☐
  
Accelerated filer
☑
Non-accelerated filer
☐
  
Smaller reporting company
☐
Emerging growth company
☐
      

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act  ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes  ☐    No  ☑

At April 26, 2024, there were 17,621,706 shares outstanding of the registrant’s voting common stock, par value $0.01 per share.

TURNING POINT BRANDS, INC.
TABLE OF CONTENTS

   
Page No.
PART I—FINANCIAL INFORMATION
  
   
 
ITEM 1
Financial Statements (Unaudited)
  
       
   
5
       
   
6
       
   
7
       
   
8
 

 
   
9
       
   
10
       
 
ITEM 2
30
       
 
ITEM 3
 38
       
 
ITEM 4
 39
       
PART II—OTHER INFORMATION
  
   
 
ITEM 1
 40
       
 
ITEM 1A
 40
       
 
ITEM 2
 40
       
 
ITEM 3
 40
       
 
ITEM 4
 40
       
 
ITEM 5
 40
       
 
ITEM 6
 41
       
  42

2
Table of Contents
Cautionary Note Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q for the quarter ended March 31, 2024 (this “Quarterly Report”), contains forward-looking statements within the meaning of the federal securities laws. Forward-looking statements may generally be identified by the use of words such as “anticipate,” “believe,” “expect,” “intend,” “plan,” and “will” or, in each case, their negative, or other variations or comparable terminology. These forward-looking statements include all matters that are not historical facts. By their nature, forward-looking statements involve risks and uncertainties because they relate to events, and depend on circumstances, that may or may not occur in the future. As a result, actual events may differ materially from those expressed in, or suggested by, the forward-looking statements. Any forward-looking statement made by Turning Point Brands, Inc. (“TPB”), in this Quarterly Report on Form 10-Q speaks only as of the date hereof. New risks and uncertainties come up from time to time, and it is impossible for TPB to predict these events or how they may affect it. TPB has no obligation, and does not intend, to update any forward-looking statements after the date hereof, except as required by federal securities laws. Factors that could cause these differences include, but are not limited to:


 ●
declining sales of tobacco products, and expected continuing decline of sales in the tobacco industry overall;

●
our dependence on a small number of third-party suppliers and producers;

●
the possibility that we will be unable to identify or contract with new suppliers or producers in the event of a supply or product disruption, as well as other supply chain concerns, including delays in product shipments and increases in freight cost;

●
the possibility that our licenses to use certain brands or trademarks will be terminated, challenged or restricted;

●
failure to maintain consumer brand recognition and loyalty of our customers;

●
our reliance on relationships with several large retailers and national chains for distribution of our products;

●
intense competition and our ability to compete effectively;

●
competition from illicit sources and the damage caused by illicit products to our brand equity;
 
●
contamination of our tobacco supply or products;

●
uncertainty and continued evolution of the markets for our products;

●
complications with the design or implementation of our new enterprise resource planning system could adversely impact our business and operations;

●
substantial and increasing regulation and changes in U.S. Food and Drug Administration (“FDA”) enforcement priorities;

●
regulation or marketing denials of our products by the FDA, which has broad regulatory powers;

●
many of our products contain nicotine, which is considered to be a highly addictive substance;

●
requirement to maintain compliance with master settlement agreement escrow account;

●
possible significant increases in federal, state and local municipal tobacco- and nicotine-related taxes;

●
our products are marketed pursuant to a policy of FDA enforcement priorities which could change, and our products could become subject to increased regulatory burdens by the FDA;

●
our products are subject to developing and unpredictable regulation, such as court actions that impact obligations;

●
increase in state and local regulation of our products has been proposed or enacted;

●
increase in tax of our products could adversely affect our business;

●
sensitivity of end-customers to increased sales taxes and economic conditions, including as a result of inflation and other declines in purchasing power;

●
possible increasing international control and regulation;

●
failure to comply with environmental, health and safety regulations;

●
imposition of significant tariffs on imports into the U.S.;

●
the scientific community’s lack of information regarding the long-term health effects of certain substances contained in some of our products;

●
significant product liability litigation;

●
our amount of indebtedness;

●
the terms of our indebtedness, which may restrict our current and future operations;
 
●
our ability to establish and maintain effective internal controls over financial reporting;

●
identification of material weaknesses in our internal control over financial reporting, which, if not remediated appropriately or timely, could result in loss of investor confidence and adversely impact our stock price;

●
our certificate of incorporation and bylaws, as well as Delaware law and certain regulations, could discourage or prohibit acquisition bids or merger proposals, which may adversely affect the market price of our common stock;

●
our certificate of incorporation limits the ownership of our common stock by individuals and entities that are Restricted Investors. These restrictions may affect the liquidity of our common stock and may result in Restricted Investors (as defined in our Certificate of Incorporation) being required to sell or redeem their shares at a loss or relinquish their voting, dividend and distribution rights;

●
future sales of our common stock in the public market could reduce our stock price, and any additional capital raised by us through the sale of equity or convertible securities may dilute your ownership in us;

3
Table of Contents

 ●
we may issue preferred stock whose terms could adversely affect the voting power or value of our common stock;

●
our business may be damaged by events outside of our suppliers’ control, such as the impact of epidemics (e.g., coronavirus), political upheavals, or natural disasters;

●
adverse impact of climate change;

●
our reliance on information technology;

●
cybersecurity and privacy breaches, which have increased in part due to artificial intelligence;

●
failure to manage our growth;

●
failure to successfully integrate our acquisitions or otherwise be unable to benefit from pursuing acquisitions;

●
fluctuations in our results;

●
exchange rate fluctuations;

●
adverse U.S. and global economic conditions;

●
departure of key management personnel or our inability to attract and retain talent;

●
infringement on or misappropriation of our intellectual property;

●
third-party claims that we infringe on their intellectual property; and

●
failure to meet expectations relating to environmental, social and governance factors.

4
Table of Contents
PART I—FINANCIAL INFORMATION
Item 1. Financial Statements
Turning Point Brands, Inc.
Consolidated Balance Sheets
(dollars in thousands except share data)
   
(unaudited)
        
    March 31,     December 31,  
ASSETS
  
2024
    
2023
  
Current assets:
            
Cash
  
$
130,903
    
$
117,886
  
Accounts receivable, net of allowances of $43 in 2024 and $78 in 2023
    
8,198
      
9,989
  
Inventories, net
    
105,467
      
98,960
  
Other current assets
    
34,437
      
40,781
  
Total current assets
    
279,005
      
267,616
  
Property, plant, and equipment, net
    
24,790
      
25,300
  
Deferred income taxes
    
1,426
      
1,468
  
Right of use assets
    
10,868
      
11,480
  
Deferred financing costs, net
    
2,305
      
2,450
  
Goodwill
    
136,365
      
136,250
  
Other intangible assets, net
    
80,177
      
80,942
  
Master Settlement Agreement (MSA) escrow deposits
    
28,427
      
28,684
  
Other assets
    
22,953
      
15,166
  
Total assets
  
$
586,316
    
$
569,356
  
                 
LIABILITIES AND STOCKHOLDERS’ EQUITY
                
Current liabilities:
                
Accounts payable
  
$
18,934
    
$
8,407
  
Accrued liabilities
    
30,974
      
33,635
  
Current portion of long-term debt
     59,397       58,294  
Total current liabilities
    
109,305
      
100,336
  
Notes payable and long-term debt
    
306,496
      
307,064
  
Lease liabilities
    
9,360
      
9,950
  
Total liabilities
    
425,161
      
417,350
  
                 
Commitments and contingencies
            
                 
Stockholders’ equity:
                
Preferred stock; $0.01 par value; authorized shares 40,000,000; issued and outstanding shares -0-
    
–
      
–
  
Common stock, voting, $0.01 par value; authorized shares, 190,000,000; 20,016,822 issued shares and 17,627,817 outstanding shares at March 31, 2024, and 19,922,137 issued shares and 17,605,677 outstanding shares at December 31, 2023
    
200
      
199
  
Common stock, nonvoting, $0.01 par value; authorized shares, 10,000,000; issued and outstanding shares -0-
    
–
      
–
  
Additional paid-in capital
    
119,792
      
119,075
  
Cost of repurchased common stock (2,389,005 shares at March 31, 2024 and 2,316,460 shares December 31, 2023)
    
(80,172
)
    
(78,093
)
Accumulated other comprehensive loss
    
(3,048
)
    
(2,648
)
Accumulated earnings
    
123,192
      
112,443
  
Non-controlling interest
    
1,191
      
1,030
  
Total stockholders’ equity
    
161,155
      
152,006
  
Total liabilities and stockholders’ equity
  
$
586,316
    
$
569,356
  

The accompanying notes are an integral part of the consolidated financial statements.
5
Table of Contents
Turning Point Brands, Inc.
Consolidated Statements of Income
(dollars in thousands except share and per share data)
(unaudited)

 
Three Months Ended
March 31,
  
   
2024
    
2023
  
Net sales
  
$
97,058
    
$
100,956
  
Cost of sales
    
45,146
      
52,339
  
Gross profit
    
51,912
      
48,617
  
Selling, general, and administrative expenses
    
32,646
      
30,775
  
Operating income
    
19,266
      
17,842
  
Interest expense, net
    
3,479
      
4,010
  
Investment (gain) loss
    
(119
)
    
4,799
  
Gain on extinguishment of debt
    
–
      
(777
)
Income before income taxes
    
15,906
      
9,810
  
Income tax expense
    
3,727
      
2,468
  
Consolidated net income
    
12,179
      
7,342
  
Net income (loss) attributable to non-controlling interest
    
169
      
(255
)
Net income attributable to Turning Point Brands, Inc.
  
$
12,010
    
$
7,597
  
                 
Basic income per common share:
                
Net income attributable to Turning Point Brands, Inc.
  
$
0.68
    
$
0.43
  
Diluted income per common share:
                
Net income attributable to Turning Point Brands, Inc.
  
$
0.63
    
$
0.41
  
Weighted average common shares outstanding:
                
Basic
    
17,654,684
      
17,531,414
  
Diluted
    
20,170,314
      
20,669,152
  

The accompanying notes are an integral part of the consolidated financial statements.

6
Table of Contents
Turning Point Brands, Inc.
Consolidated Statements of Comprehensive Income
(dollars in thousands)
(unaudited)

 
Three Months Ended
March 31,
  
   
2024
    
2023
  
Consolidated net income
  
$
12,179
    
$
7,342
  
                 
Other comprehensive income (loss), net of tax
                
Unrealized loss on MSA investments, net of tax of $15 in 2024 and $176 in 2023
    
(242
)
    
553
  
Foreign currency translation, net of tax of $0 in 2024 and 2023
    
13
      
(78
)
Unrealized loss on derivative instruments, net of tax of $57 in 2024 and $109 in 2023
    
(185
)
    
(344
)
Unrealized gain on investments, net of tax of $0 in 2024
     6       –  
     
(408
)
    
131
  
Consolidated comprehensive income
    
11,771
      
7,473
  
Comprehensive income (loss) attributable to non-controlling interest
    
169
      
(255
)
Comprehensive income attributable to Turning Point Brands, Inc.
  
$
11,602
    
$
7,728
  

The accompanying notes are an integral part of the consolidated financial statements.

7
Table of Contents
Turning Point Brands, Inc.
Consolidated Statements of Cash Flows
(dollars in thousands)
(unaudited)

 
Three Months Ended
March 31,
  
   
2024
    
2023
  
Cash flows from operating activities:
            
Consolidated net income
  
$
12,179
    
$
7,342
  
Adjustments to reconcile net income to net cash provided by operating activities:
                
Gain on extinguishment of debt
    
–
      
(777
)
Loss (gain) on sale of property, plant, and equipment
    
1
      
(6
)
Gain on MSA investments
     6       –  
Depreciation and other amortization expense
    
944
      
776
  
Amortization of other intangible assets
    
779
      
771
  
Amortization of deferred financing costs
    
696
      
626
  
Deferred income tax expense (benefit)
    
114
      
299
  
Stock compensation expense
    
2,062
      
743
  
Noncash lease income
    
(42
)
    
(14
)
Loss on investments
    
–
      
4,897
  
Changes in operating assets and liabilities:
                
Accounts receivable
    
1,929
      
(216
)
Inventories
    
(6,296
)
    
6,173
  
Other current assets
    
3,130
      
2,639
  
Other assets
    
(270
)
    
(2,895
)
Accounts payable
    
10,525
      
2,051
  
Accrued liabilities and other
    
(3,118
)
    
(7,025
)
Net cash provided by operating activities
  
$
22,639
    
$
15,384
  
                 
Cash flows from investing activities:
                
Capital expenditures
  
$
(366
)
  
$
(2,435
)
Purchases of investments
     (7,119 )     –
  
Purchases of non-marketable equity investments
     (500 )     –  
Proceeds on sale of property, plan and equipment
    
–
      
3
  
Restricted cash, MSA escrow deposits
     (1 )     –  
Net cash used in investing activities
  
$
(7,986
)
  
$
(2,432
)
                 
Cash flows from financing activities:
                
Convertible Senior Notes repurchased
   $ –     $ (13,002 )
Proceeds from call options
     –       33  
Payment of dividends
    
(1,149
)
    
(1,052
)
Exercise of options
    
3
      
357
  
Redemption of restricted stock units
    (136 )     –  
Redemption of performance restricted stock units
     (1,212 )     (889 )
Common stock repurchased
    
(2,079
)
    
–
  
Net cash used in financing activities
  
$
(4,573
)
  
$
(14,553
)
                 
Net increase (decrease) in cash
  
$
10,080
    
$
(1,601
)
Effect of foreign currency translation on cash
  
$
(58
)
  
$
(1
)
                 
Cash, beginning of period:
                
Unrestricted
  
$
117,886
    
$
106,403
  
Restricted
    
4,929
      
4,929
  
Total cash at beginning of period
  
$
122,815
    
$
111,332
  
                 
Cash, end of period:
                
Unrestricted
  
$
130,903
    
$
104,801
  
Restricted
    
1,934
      
4,929
  
Total cash at end of period
  
$
132,837
    
$
109,730
  
                 
Supplemental schedule of noncash investing activities:
                
Accrued capital expenditures
  
$
10
    
$
7
  
                 
Supplemental schedule of noncash financing activities:
                
Dividends declared not paid
  
$
1,261
    
$
1,155
  

The accompanying notes are an integral part of the consolidated financial statements.
8
Table of Contents
Turning Point Brands, Inc.
Consolidated Statements of Changes in Stockholders’ Equity
For the Three Months Ended March 31, 2024 and 2023
(dollars in thousands except share data)
(unaudited)

                      Cost of     Accumulated                    
          Common     Additional    
Repurchased
     Other          
Non-
        
    Voting     Stock,     Paid-In    
Common
    
Comprehensive
     Accumulated     Controlling        

 
Shares
    
Voting
    
Capital
    
Stock
    
Income (Loss)
    
Earnings
    
Interest
    
Total
  
Beginning balance January 1, 2024
    
17,605,677
    
$
199
    
$
119,075
    
$
(78,093
)
  
$
(2,648
)
  
$
112,443
    
$
1,030
    
$
152,006
  
                                                                 
Unrealized loss on MSA investments, net of tax of $15
    
–
      
–
      
–
      
–
      
(242
)
    
–
      
–
      
(242
)
Unrealized loss on derivative instruments, net of tax of $57
     –       –       –       –       (185 )     –       –       (185 )
Foreign currency translation, net of tax of $0
    
–
      
–
      
–
      
–
      
21
      
–
      
(8
)
    
13
  
Unrealized gain on investments, net of tax of $0
     –       –       –       –       6       –       –       6  
Stock compensation expense
    
–
      
–
      
2,062
      
–
      
–
      
–
      
–
      
2,062
  
Exercise of options
    
198
      
–
      
3
      
–
      
–
      
–
      
–
      
3
  
Cost of repurchased common stock
     (72,545 )     –       –       (2,079 )     –       –       –       (2,079 )
Issuance of performance based restricted stock units
     126,109       1       –       –       –       –       –       1  
Issuance of restricted stock units
     21,697       –       –       –       –       –       –       –  
Redemption of performance based restricted stock units
     (48,177 )     –       (1,212 )     –       –       –       –       (1,212 )
Redemption of restricted stock units
     (5,142 )     –       (136 )     –       –       –       –       (136 )
Dividends
    
–
      
–
      
–
      
–
      
–
      
(1,261
)
    
–
      
(1,261
)
Net income
    
–
      
–
      
–
      
–
      
–
      
12,010
      
169
      
12,179
  
Ending balance March 31, 2024
    
17,627,817
    
$
200
    
$
119,792
    
$
(80,172
)
  
$
(3,048
)
  
$
123,192
    
$
1,191
    
$
161,155
  
                                                                 
                                                                 
Beginning balance January 1, 2023
    
17,485,163
    
$
198
    
$
113,242
    
$
(78,093
)
  
$
(2,393
)
  
$
78,691
    
$
1,735
    
$
113,380
  
                                                                 
Unrealized gain on MSA investments, net of tax of $176
    
–
      
–
      
–
      
–
      
553
      
–
       –      
553
  
Unrealized loss on derivative instruments, net of tax of $109
     –
       –       –       –       (344 )     –       –       (344 )
Foreign currency translation, net of tax of $0
     –       –       –       –       (50 )     –       (28 )     (78 )
Stock compensation expense
    
–
      
–
      
743
      
–
      
–
      
–
       –      
743
  
Exercise of options
    
24,955
      
–
      
357
      
–
      
–
      
–
       –      
357
  
Performance restricted stock units issuance 
    114,274       1       (1 )     –       –       –       –       –  
Performance restricted stock units redeemed
     (38,863 )     –       (889 )     –       –       –       –       (889 )
Settlement of call options, net of tax of $8
     –       –       25       –       –       -       -       25  
Dividends
    
–
      
–
      
–
      
–
      
–
      
(1,155
)
     –      
(1,155
)
Net income
    
–
      
–
      
–
      
–
      
–
      
7,597
       (255 )    
7,342
  
Ending balance March 31, 2023
    
17,585,529
    
$
199
    
$
113,477
    
$
(78,093
)
  
$
(2,234
)
  
$
85,133
    
$
1,452
    
$
119,934
  

The accompanying notes are an integral part of the consolidated financial statements.

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Turning Point Brands, Inc.
Notes to Consolidated Financial Statements
(dollars in thousands, except where designated and per share data)
Note 1. Description of Business and Basis of Presentation

Description of Business

Turning Point Brands, Inc. and its subsidiaries (collectively referred to herein as the “Company,” “we,” “our,” or “us”) is a leading manufacturer, marketer and distributor of branded consumer products. The Company sells a wide range of products to adult consumers consisting of staple products with its iconic brands Zig-Zag® and Stoker’s® and its next generation products to fulfill evolving consumer preferences. Its segments are led by its core proprietary and iconic brands: Zig-Zag® and CLIPPER® in the Zig-Zag Products segment and Stoker’s® along with Beech-Nut® and Trophy® in the Stoker’s Products segment. The Company’s products are available in more than 217,000 retail outlets in North America. The Company operates in three segments: (i) Zig-Zag Products, (ii) Stoker’s Products, and (iii) Creative Distribution Solutions (formerly known as NewGen).

Basis of Presentation

The accompanying unaudited, interim, consolidated financial statements have been prepared in accordance with the accounting practices described in the Company’s audited, consolidated financial statements as of and for the year ended December 31, 2023. In the opinion of management, the unaudited, interim, consolidated financial statements included herein contain all adjustments necessary to present fairly the financial position, results of operations, and cash flows of the Company for the periods presented. Such adjustments, other than nonrecurring adjustments separately disclosed, are of a normal and recurring nature. The operating results for interim periods are not necessarily indicative of results to be expected for a full year or future interim periods. The unaudited, interim, consolidated financial statements should be read in conjunction with the Company’s audited, consolidated financial statements and accompanying notes as of and for the year ended December 31, 2023. The accompanying interim, consolidated financial statements are presented in accordance with the rules and regulations of the Securities and Exchange Commission (the “SEC”) and, accordingly, do not include all the disclosures required by generally accepted accounting principles in the United States (“GAAP”) with respect to annual financial statements.

Note 2. Summary of Significant Accounting Policies

Consolidation

The consolidated financial statements include the accounts of the Company, its subsidiaries, all of which are wholly-owned, and variable interest entities for which the Company is considered the primary beneficiary. All significant intercompany transactions have been eliminated.

Revenue Recognition

The Company recognizes revenues in accordance with Accounting Standards Codification (“ASC”) 606, Revenue from Contracts with Customers (Topic 606), which includes excise taxes and shipping and handling charges billed to customers, net of cash discounts for prompt payment, sales returns and incentives, upon delivery of goods to the customer – at which time the Company’s performance obligation is satisfied - at an amount that the Company expects to be entitled to in exchange for those goods in accordance with the five-step analysis outlined in Topic 606: (i) identify the contract with the customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price, (iv) allocate the transaction price to the performance obligations, and (v) recognize revenue when (or as) performance obligations are satisfied. The Company excludes from the transaction price, sales taxes and value-added taxes imposed at the time of sale (which do not include excise taxes on smokeless tobacco, cigars or other nicotine products billed to customers).

The Company records an allowance for sales returns, based principally on historical volume and return rates, which is included in accrued liabilities on the consolidated balance sheets. The Company records sales incentives, which consist of consumer incentives and trade promotion activities, as a reduction in revenues (a portion of which is based on amounts estimated to be due to wholesalers, retailers and consumers at the end of the period) based principally on historical volume and utilization rates. Expected payments for sales incentives are included in accrued liabilities on the consolidated balance sheets.

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A further requirement of ASC 606 is for entities to disaggregate revenue recognized from contracts with customers into categories that depict how the nature, amount, timing, and uncertainty of revenue and cash flows are affected by economic factors. The Company’s management views business performance through segments that closely resemble the performance of major product lines. Thus, the primary and most useful disaggregation of the Company’s contract revenue for decision making purposes is the disaggregation by segment which can be found in Note 16, “Segment Information”. An additional disaggregation of contract revenue by sales channel can be found within Note 16 as well.

Shipping Costs

The Company records shipping costs incurred as a component of selling, general, and administrative expenses. Shipping costs incurred were approximately $5.6 million and $6.2 million for the three months ending March 31, 2024 and 2023, respectively.

Inventories

Inventories are stated at the lower of cost or net realizable value using the first-in, first-out method. Leaf tobacco is presented in current assets in accordance with standard industry practice, notwithstanding the fact that such tobaccos are carried longer than one year for the purpose of curing.

Fair Value

GAAP establishes a framework for measuring fair value. That framework provides a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3).

The three levels of the fair value hierarchy under GAAP are described below:


●
Level 1 – Inputs to the valuation methodology are unadjusted quoted prices for identical assets or liabilities in active markets at the measurement date.

●
Level 2 – Inputs to the valuation methodology include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in inactive markets, inputs other than quoted prices that are observable for the asset or liability, and inputs that are derived principally from or corroborated by observable market data by correlation or other means.

●
Level 3 – Unobservable inputs that reflect management’s best estimate of what market participants would use in pricing the asset or liability at the measurement date.

Derivative Instruments

The Company enters into foreign currency forward contracts to hedge a portion of its exposure to changes in foreign currency exchange rates on inventory purchase commitments. The Company accounts for its forward contracts under the provisions of ASC 815, Derivatives and Hedging. Under the Company’s policy, the Company may hedge up to 100% of its anticipated purchases of inventory in the denominated invoice currency over a forward period not to exceed twelve months. The Company may also, from time to time, hedge up to 100% of its non-inventory purchases (e.g., production equipment) in the denominated invoice currency. Forward contracts that qualify as hedges are adjusted to their fair value through other comprehensive income as determined by market prices on the measurement date, except any hedge ineffectiveness which is recognized currently in income. Gains and losses on these forward contracts are reclassified from other comprehensive income into inventory as the related inventories are received and are transferred to net income as inventory is sold. Changes in fair value of any contracts that do not qualify for hedge accounting or are not designated as hedges are recognized currently in income.

Risks and Uncertainties

Manufacturers and sellers of tobacco products are subject to regulation at the federal, state, and local levels. Such regulations include, among others, labeling requirements, limitations on advertising, and prohibition of sales to minors. The tobacco industry is likely to continue to be heavily regulated. There can be no assurance as to the ultimate content, timing, or effect of any regulation of tobacco products by any federal, state, or local legislative or regulatory body, nor can there be any assurance that any such legislation or regulation would not have a material adverse effect on the Company’s financial position, results of operations, or cash flows. In a number of states targeted flavor bans have been proposed or enacted legislatively or by the administrative process. Depending on the number and location of such bans, that legislation or regulation could have a material adverse effect on the Company’s financial position, results of operations or cash flows. The U.S. Food and Drug Administration (“FDA”) continues to consider various restrictive regulations around our products, including targeted flavor bans; however, the details, timing, and ultimate implementation of such measures remain unclear.

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The tobacco industry has experienced, and is experiencing, significant product liability litigation. Most tobacco liability lawsuits have been brought against manufacturers and sellers of cigarettes for injuries allegedly caused by smoking or exposure to smoke. However, several lawsuits have been brought against manufacturers and sellers of smokeless products for injuries to health allegedly caused by use of smokeless products. Typically, such claims assert that use of smokeless products is addictive and causes oral cancer. Additionally, several lawsuits have been brought against manufacturers and distributors of Creative Distribution Solutions products due to malfunctioning devices. There can be no assurance the Company will not sustain losses in connection with such lawsuits and that such losses will not have a material adverse effect on the Company’s financial position, results of operations, or cash flows.

Master Settlement Agreement (MSA)

Pursuant to the Master Settlement Agreement (the “MSA”) entered into in November 1998 by most states (represented by their attorneys general acting through the National Association of Attorneys General) and subsequent states’ statutes, a “cigarette manufacturer” (which is defined to include a manufacturer of make-your-own (“MYO”) cigarette tobacco) has the option of either becoming a signatory to the MSA or opening, funding, and maintaining an escrow account to have funds available for certain potential tobacco-related liabilities with sub-accounts on behalf of each settling state. Such companies are entitled to direct the investment of the escrowed funds and withdraw any appreciation but cannot withdraw the principal for twenty-five years from the year of each annual deposit, except to withdraw funds deposited pursuant to an individual state’s escrow statute to pay a final judgement to that state’s plaintiffs in the event of such a final judgement against the Company. The Company chose to open and fund an escrow account as its method of compliance. It is the Company’s policy to record amounts on deposit in the escrow account for prior years as a non-current asset. As of March 31, 2024, the Company had on deposit approximately $32.1 million, the fair value of which was approximately $28.4 million. At December 31, 2023, the Company had on deposit approximately $32.1 million, the fair value of which was approximately $28.7 million. The Company discontinued its generic category of MYO in 2019 and its Zig-Zag branded MYO cigarette smoking tobacco in 2017. Thus, pending a change in MSA legislation, the Company has no remaining product lines covered by the MSA and will not be required to make future escrow deposits.

The Company has chosen to invest a portion of the MSA escrow, from time to time, in U.S. Government securities including TIPS, Treasury Notes, and Treasury Bonds. These investments are classified as available-for-sale and carried at fair value. Realized losses are prohibited under the MSA; any investment in an unrealized loss position will be held until the value is recovered, or until maturity.


Fair values for the U.S. Governmental agency obligations are Level 2 in the fair value hierarchy. The following tables show cost and estimated fair value of the assets held in the MSA account, respectively, as well as the maturities of the U.S. Governmental agency obligations held in such account for the periods indicated.


    As of March 31, 2024     As of December 31, 2023  
         
Gross
    
Estimated
          
Gross
    
Estimated
  
         
Unrealized
    
Fair
          
Unrealized
    
Fair
  
   
Cost
    
Gains (Losses)
    
Value
    
Cost
    
Losses
    
Value
  
Cash and cash equivalents
  
$
1,934
    
$
–
    
$
1,934
    
$
1,929
    
$
–
    
$
1,929
  
U.S. Governmental agency obligations (unrealized position < 12 months)
    
1,196
      
6
   
1,202
      
–
      
–
   
–
  
U.S. Governmental agency obligations (unrealized position > 12 months)
    
28,943
      
(3,652
)
    
25,291
      
30,144
      
(3,389
)
    
26,755
  
   
$
32,073
    
$
(3,646
)
  
$
28,427
    
$
32,073
    
$
(3,389
)
  
$
28,684
  

   
As of
  
   
March 31, 2024
  
Less than one year
  
$
3,250
  
One to five years
    
13,775
  
Five to ten years
    
11,159
  
Greater than ten years
    
1,955
  
Total
  
$
30,139
  

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The following shows the amount of deposits by sales year for the MSA escrow account:


 
Deposits as of
  
Sales
Year
  
March 31,
2024
    
December 31,
2023
  
1999
  
$
211
    
$
211
  
2000
    
1,017
      
1,017
  
2001
    
1,673
      
1,673
  
2002
    
2,271
      
2,271
  
2003
    
4,249
      
4,249
  
2004
    
3,714
      
3,714
  
2005
    
4,553
      
4,553
  
2006
    
3,847
      
3,847
  
2007
    
4,167
      
4,167
  
2008
    
3,364
      
3,364
  
2009
    
1,619
      
1,619
  
2010
    
406
      
406
  
2011
    
193
      
193
  
2012
    
199
      
199
  
2013
    
173
      
173
  
2014
    
143
      
143
  
2015
    
101
      
101
  
2016
    
91
      
91
  
2017
    
82
      
82
  
                 
 Total   $
32,073
    $
32,073
 

Note 3. Derivative Instruments

Foreign Currency

During the three months ended March 31, 2024, the Company executed no foreign exchange contracts meeting hedge accounting requirements. 

At March 31, 2024, the Company had foreign currency contracts outstanding for the purchase of €9.2 million and sale of €9.2 million. The foreign currency contracts’ fair value at March 31, 2024, resulted in an asset of $0.0 million included in Other current assets and a liability of $0.1 million included in Accrued liabilities. At December 31, 2023, the Company had foreign currency contracts outstanding for the purchase of €15.2 million and sale of €15.2 million. The foreign currency contracts’ fair value at December 31, 2023, resulted in an asset of $0.3 million included in Other current assets and a liability of $0.1 million included in Accrued liabilities.

Note 4. Fair Value of Financial Instruments

The estimated fair value amounts have been determined by the Company using the methods and assumptions described below. However, considerable judgment is required to interpret market data to develop estimates of fair value. Accordingly, the estimates presented herein are not necessarily indicative of the amounts the Company could realize in a current market exchange. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts.

Cash and Cash Equivalents

Cash and cash equivalents are, by definition, short-term. Thus, the carrying amount is a reasonable estimate of fair value.

Accounts Receivable

The fair value of accounts receivable approximates their carrying value due to their short-term nature.

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Long-Term Debt

The Company’s Senior Secured Notes (as defined in Note 10) bear interest at a rate of 5.625% per year. As of March 31, 2024, the fair value approximated $237.3 million, with a carrying value of $250 million. As of December 31, 2023, the fair value of the Senior Secured Notes approximated $234.9 million, with a carrying value of $250 million.

The Convertible Senior Notes (as defined in Note 10) bear interest at a rate of 2.50% per year, and the fair value of the Convertible Senior Notes without the conversion feature approximated $117.5 million, with a carrying value of $118.5 million as of March 31, 2024. As of December 31, 2023, the fair value of the Convertible Senior Notes without the conversion feature approximated $114.7 million, with a carrying value of $118.5 million.

See Note 10, “Notes Payable and Long-Term Debt”, for further information regarding the Company’s long-term debt.

Note 5. Inventories

The components of inventories are as follows:

    March 31,     December 31,  

 
2024
    
2023
  
Raw materials and work in process
  
$
7,148
    
$
5,201
  
Leaf tobacco
    
41,461
      
34,894
  
Finished goods - Zig-Zag Products
    
39,103
      
41,783
  
Finished goods - Stoker’s Products
    
10,232
      
8,090
  
Finished goods - Creative Distribution Solutions
    
6,086
      
7,281
  
Other
    
1,437
      
1,711
  
Inventories
  
$
105,467
    
$
98,960
  

The inventory valuation allowance was $20.6 million as of  March 31, 2024 and December 31, 2023.

In December 2023, a third-party warehouse in Tennessee used to store some of the Company’s leaf tobacco incurred significant tornado damage resulting in damage to the leaf tobacco. As a result, the Company recorded a $15.2 million inventory reserve related to its leaf tobacco inventory which is included in Other operating income, net in the consolidated statement of income for the quarter ended December 31, 2023. The leaf tobacco inventory is covered by the Company’s stock throughput insurance policy and the Company believes the inventory loss is probable of being fully recovered under the policy. The Company does not expect to incur any delays in customer deliveries as a result of the damage.

Note 6. Other Current Assets

Other current assets consist of:

    March 31,     December 31,  

 
2024
    
2023
  
Inventory deposits
  
$
7,392
    
$
5,707
  
Insurance deposit
    
–
      
3,000
  
Prepaid taxes
     –
       153
  
Settlement receivable
     –
      4,000
 
Insurance recovery receivable
     15,181
      15,181
 
Other
    
11,864
      
12,740
  
Total
  
$
34,437
    
$
40,781
  

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Note 7. Property, Plant, and Equipment

Property, plant, and equipment consists of:

    March 31,     December 31,  

 
2024
    
2023
  
Land
  
$
22
    
$
22
  
Buildings and improvements
    
4,217
      
3,956
  
Leasehold improvements
    
6,614
      
5,440
  
Machinery and equipment
    
28,568
      
29,751
  
Furniture and fixtures
    
8,439
      
8,391
  
Gross property, plant and equipment
    
47,860
      
47,560
  
Accumulated depreciation
    
(23,070
)
    
(22,260
)
Net property, plant and equipment
  
$
24,790
    
$
25,300
  

Note 8. Other Assets

Other assets consist of:

    March 31,     December 31,  

 
2024
    
2023
  
Non-marketable equity investments
  
$
2,882
    
$
2,405
  
Debt security investment     6,750       6,750
  
Capitalized software
     6,108       5,923  
Available-for-sale marketable securities
     7,125       –  
Other
    
88
      
88
  
Total
  
$
22,953
    
$
15,166
  

Debt and Non-Marketable Equity Investments

The Company records its non-marketable equity investments without a readily determinable fair value, that are not accounted for under the equity method, at cost, with adjustments for impairment and observable price changes. Should assumptions underlying the determination of the fair values of the Company’s non-marketable equity and debt security investments change, it could result in material future impairment charges.

In January 2024, the Company invested $0.8 million to acquire an 18.744% stake in Teaza Energy, LLC (“TeaZa”). TeaZa is an innovative brand of flavorful oral pouch products that can be dipped or sipped, designed as a health-conscious alternative to high energy drinks and other conventional oral stimulants. The investment is comprised of $0.5 million in cash and a $0.3 million payable to be offset against the Company’s allocated portion of future profit distributions. The Company also has options to purchase, at fair value, up to 51.744% of the equity interest in TeaZa between September 30, 2024 and January 31, 2025, and up to 100% of the equity interest from February 1, 2025 to June 30, 2026. The Company accounts for its investment in TeaZa using the equity method of accounting.

In July 2021, the Company invested $8.0 million in Old Pal Holding Company LLC (“Old Pal”). In July 2022, the Company invested an additional $1.0 million in Old Pal.  The Company invested in the form of a convertible note which includes additional follow-on investment rights. The accrued interest of $0.2 million from July 2021 to July 2022 was rolled into the convertible note in July 2022 resulting in a total investment of $9.2 million. Old Pal is a leading brand in the cannabis lifestyle space that operates a non-plant touching licensing model. The convertible note bears an interest rate of 3.0% per year and matures July 31, 2026.Interest and principal not paid to date are receivable at maturity. Old Pal has the option to extend the maturity date in one-year increments. The interest rate is subject to change based on Old Pal reaching certain sales thresholds. The weighted average interest rate on the convertible note was 3.0% for the three months ended March 31, 2024 and 2023. Old Pal has the option to convert the note into shares once sales reach a certain threshold. The conditions required to allow Old Pal to convert the note were not met as of March 31, 2024. Additionally, the Company has the right to convert the note into shares at any time. The Company has classified the debt security with Old Pal as available for sale. The Company reports interest income on available for sale debt securities in interest income in our Consolidated Statements of Income. Quarterly, we perform a qualitative assessment to determine if the fair value of the investment could be less than the amortized cost basis. In the second and fourth quarters of 2023, based on third-party quantitative assessments of the fair value using a Monte Carlo simulation (Level 3), the Company determined the fair value to be $7.7 million and 6.9 million, respectively, and recorded an allowance for credit losses of $0.3 million and $1.0 million, respectively, included in investment loss for the quarters ended June 30 and December 31, 2023. The Company has recorded accrued interest receivable of $0.2 million and $0.1 million at March 31, 2024 and December 31, 2023, respectively, in Other current assets on our Consolidated Balance Sheets.
 
15
In April 2021, the Company invested $8.7 million in Docklight Brands, Inc., a pioneering consumer products company with celebrated brands including Marley Natural® and Marley™. The Company has additional follow-on investment rights. As part of the investment, the Company has obtained exclusive U.S. distribution rights for Docklight’s Marley™ CBD topical products. In the first quarter of 2023, based on Docklight’s financial results and other operating difficulties, and the decline in the revenue multiples for public companies comparable to Docklight, the Company deemed the investment in Docklight was impaired resulting in a loss of $4.9 million which was recorded for the three months ended March 31, 2023. In the second quarter of 2023, based on a significant change in Docklight’s business model, the Company deemed its investment in Docklight fully impaired. Fair value for all periods presented was determined using a valuation derived from relevant revenue multiples (Level 3).

Available-for-Sale Marketable Securities

In December 2023, the Company formed a captive insurance company, Interchange IC, incorporated in the District of Columbia, to write a portion of our general product, and officer and director liability coverages under deductible reinsurance policies. Interchange IC is a fully licensed captive insurance company holding a certificate of authority from the District of Columbia Department of Insurance, Securities and Banking. Interchange IC is a wholly-owned subsidiary of Turning Point Brands and is consolidated in the Company’s financial statements.

The investments held within the captive are not available for operating activities and are carried at fair value on the consolidated balance sheet. They consist of money market, corporate bonds, government securities, real estate investment trusts and exchange traded funds. The Company believes any impairment of investments held with gross unrealized losses to be temporary and not the result of credit risk.

The Company’s captive investments are summarized in the following table.


 
As of March 31, 2024
  
     
Gross
  
Estimated
  
 
Amortized
  
Unrealized
  
Fair
  
 
Cost
  
Gains (Losses)
  
Value
  
Corporate bonds
  
$
1,703
    
$
8
    
$
1,711
  
U.S. Governmental agency obligations
    
1,799
      
(3
)
    
1,796
  
Real estate investment trusts and exchange traded funds
    
3,617
      
1
      
3,618
  
   
$
7,119
    
$
6
    
$
7,125
  



The following table summarizes the fair value of the Company’s captive investments by contractual maturity.


   
As of
  
   
March 31, 2024
  
Due within one year
  
$
1,711
  
Due after ten years
    
1,796
  
Real estate investment trusts and exchange traded funds
    
3,618
  
Total investments at fair value
  
$
7,125
  

Note 9. Accrued Liabilities

Accrued liabilities consist of:

    March 31,     December 31,  

 
2024
    
2023
  
Accrued payroll and related items
  
$
4,669
    
$
7,085
  
Customer returns and allowances
    
4,642
      
5,239
  
Taxes payable
    
6,995
      
3,821
  
Lease liabilities
    
2,615
      
2,678
  
Accrued interest
    
2,221
      
6,682
  
Other
    
9,832
      
8,130
  
Total
  
$
30,974
    
$
33,635
  

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Note 10. Notes Payable and Long-Term Debt

Notes payable and long-term debt consists of the following in order of preference:

    March 31,     December 31,  

 
2024
    
2023
  
Senior Secured Notes
  
$
250,000
    
$
250,000
  
Convertible Senior Notes
    
118,541
      
118,541
  
Gross notes payable and long-term debt
    
368,541
      
368,541
  
Less deferred finance charges
    
(2,648
)
    
(3,183
)
Less current maturities
     (59,397 )     (58,294 )
Notes payable and long-term debt
  
$
306,496
    
$
307,064
  

Senior Secured Notes

On February 11, 2021, the Company closed a private offering (the “Offering”) of $250.0 million aggregate principal amount of its 5.625% senior secured notes due 2026 (the “Senior Secured Notes” or the “Notes”). The Senior Secured Notes bear interest at a rate of 5.625% and will mature on February 15, 2026. Interest on the Senior Secured Notes is payable semi-annually in arrears on February 15 and August 15 of each year, commencing on August 15, 2021.The Company used the proceeds from the Offering (i) to repay all obligations under and terminate the 2018 First Lien Credit Facility, (ii) to pay related fees, costs, and expenses and (iii) for general corporate purposes.

Obligations under the Senior Secured Notes are guaranteed by the Company’s existing and future wholly-owned domestic subsidiaries (the “Guarantors”) that guarantee any credit facility (as defined in the indenture governing the Senior Secured Notes or the “Senior Secured Notes Indenture”) or capital markets debt securities of the Company or Guarantors in excess of $15.0 million. The Senior Secured Notes and the related guarantees are secured by first-priority liens on substantially all of the assets of the Company and the Guarantors, subject to certain exceptions.

The Company may redeem the Senior Secured Notes, in whole or in part, at any time at the redemption prices (expressed as a percentage of the principal amount to be redeemed) set forth below, plus accrued and unpaid interest, if any, on the Senior Secured Notes to be redeemed to (but not including) the applicable redemption date if redeemed during the period indicated below:

On or after February 15, 2023
    
102.813
%
On or after February 15, 2024
    
101.406
%
On or after February 15, 2025 and thereafter
    
100.000
%

If the Company experiences a change of control (as defined in the Senior Secured Notes Indenture), the Company must offer to repurchase the Senior Secured Notes at a repurchase price equal to 101% of the principal amount of the Notes to be repurchased, plus accrued and unpaid interest.

The Senior Secured Notes Indenture contains covenants that, among other things, restrict the ability of the Company and its restricted subsidiaries to: (i) grant or incur liens; (ii) incur, assume or guarantee additional indebtedness; (iii) sell or otherwise dispose of assets, including capital stock of subsidiaries; (iv) make certain investments; (v) pay dividends, make distributions or redeem or repurchase capital stock; (vi) engage in certain transactions with affiliates; and (vii) consolidate or merge with or into, or sell substantially all of our assets to another entity. These covenants are subject to a number of limitations and exceptions set forth in the Senior Secured Notes Indenture. The Senior Secured Notes Indenture provides for customary events of default. The Company was in compliance with all covenants as of March 31, 2024.

The Company incurred debt issuance costs attributable to the issuance of the Senior Secured Notes of $6.4 million which are amortized to interest expense using the straight-line method over the expected life of the Senior Secured Notes.

2021 Revolving Credit Facility

In connection with the Offering, the Company also entered into a $25.0 million senior secured revolving credit facility (the “2021 Revolving Credit Facility”) with the lenders party thereto and Barclays Bank PLC, as administrative agent and collateral agent (in such capacity, the “Agent”). On May 10, 2023, the Company and certain of its subsidiaries, as guarantors, entered into an amendment (the “Amendment”) to the 2021 Revolving Credit Facility (as amended, the “Amended Revolving Credit Facility”).  The Amendment includes certain modifications to the 2021 Revolving Credit Facility relating to the replacement of the London Inter-Bank Offered Rate with a Secured Overnight Financing Rate (“SOFR”) as the interest rate benchmark under the 2021 Revolving Credit Facility and adjusts certain other provisions to reflect current documentation standards and other agreed modifications.

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On November 7, 2023, in connection with the entry by a subsidiary of the Company in a new asset-backed revolving credit facility, the Company terminated the Amended Revolving Credit Facility. See “2023 ABL Facility” below.

The Company had letters of credit outstanding under the Amended Revolving Credit Facility of approximately $1.4 million that were terminated with the facility in the fourth quarter of 2023.

The Company incurred debt issuance costs attributable to the issuance of the Amended Revolving Credit Facility of $0.5 million, with the remaining $0.2 million written off to gain on debt extinguishment upon termination of the facility.

2023 ABL Facility

On November 7, 2023, TPB Specialty Finance, LLC, a wholly-owned subsidiary of the Company (the “ABL Borrower”), entered into a new $75.0 million  asset-backed revolving credit facility (the “2023 ABL Facility”), with the several lenders thereunder, and Barclays Bank Plc, as administrative agent (the “Administrative Agent”) and as collateral agent (the “Collateral Agent”) and First-Citizens Bank & Trust Company as additional collateral agent (the “Additional Collateral Agent”). Under the 2023 ABL Facility, the ABL Borrower may draw up to $75.0 million under Revolving Credit Loans and Last In Last Out (“LILO”) Loans. The 2023 ABL Facility includes a $40.0 million accordion feature.  In connection with the 2023 ABL Facility, Turning Point Brands contributed certain existing inventory to the ABL Borrower. The 2023 ABL Facility is secured on a first priority basis (subject to customary exceptions) by all assets of the ABL Borrower.

The 2023 ABL Facility contains customary borrowing conditions including a borrowing base equal to the sum of (a) the lesser of (1) 85% of the lower of (A) the market value (on a first in first out basis) of the sum of eligible inventory, plus eligible in-transit inventory of the ABL Borrower and (B) 85% of the cost of the sum of eligible inventory, plus eligible in-transit inventory of the ABL Borrower and (2) 85% of the net orderly liquidation value (“NOLV”) percentage of the lower of (1)(A) or (1)(B); plus (b) 85% of the face value of all eligible accounts of the ABL Borrower minus (c) the amount of all eligible reserves.  The 2023 ABL Facility also includes a LILO borrowing base equal to the sum of (a) the lesser of: (1) 10% of the lower of (A) the market value (on a first in first out basis) of the sum of eligible inventory, plus eligible in-transit inventory of the ABL Borrower and (B) the cost of the sum of eligible inventory, plus eligible in-transit inventory and (2) 10% of the NOLV percentage of the lower of  (1)(A) or (1)(B); plus (b) 10% of the face amount of eligible account; minus (c) the amount of all eligible reserves.

Amounts borrowed under the 2023 ABL Facility are subject to an interest rate margin per annum equal to (a) from and after the closing date until the last day of the first full fiscal quarter ended after the closing date, (i) 1.25% per annum, in the case base rate loans, and (ii) 2.25% per annum, in the case of revolving credit loans that are SOFR Loans, (b)(i) 2.25% per annum, in the case of LILO loans that are base rate loans, and (ii) 3.25% per annum, in the case of LILO loans that are SOFR loans, (c) on the first day of each fiscal quarter, the applicable interest rate margins will be determined from the pricing grid below based upon the historical excess availability for the most recent fiscal quarter ended immediately prior to the relevant date, as calculated by the Administrative Agent.

Level
Historical Excess Availability
Applicable Margin
for SOFR Loans
Applicable Margin
for Base Rate Loans
I
Greater than or equal to 66.66%
1.75%
0.75%
II
Less than 66.66%, but greater than or equal to 33.33%
2.00%
1.00%
III
Less than 33.33%
2.25%
1.25%

The 2023 ABL Facility also requires the Company and its restricted subsidiaries to maintain a fixed charge coverage ratio of at least 1.00 to 1.00 as of the end of any four consecutive fiscal quarters if excess availability shall be less than the greater of (a) 12.5% of the line cap and (b) $9.4 million, at any time and continuing until excess availability is equal to or exceeds the greater of (i) 12.5% of the line and (ii) $9.4 million for thirty (30) consecutive calendar days; provided that such $9.4 million level shall automatically increase in proportion to the amount of any increase in the aggregate revolving credit commitments thereunder in connection with any incremental facility.

The 2023 ABL Facility shall mature on the earlier of (x) November 7, 2027 and (y) the date that is 91 days prior to the maturity date of any material debt of the ABL Borrower or the Company or any of its restricted subsidiaries (subject to customary extensions agreed by the lenders thereunder); provided that clause (y) shall not apply to the extent that on any applicable date of determination (on any date prior to the date set forth in clause (y)), (A) the sum of (x) cash that is held in escrow for the repayment of such material debt pursuant to arrangements satisfactory to the Administrative Agent, (y) cash that is held in accounts with the Administrative Agent and/or the Additional Collateral Agent, plus (z) excess availability, is sufficient to repay such material debt and (B) the ABL Borrower has excess availability of at least $15.0 million after giving effect to such repayment of material debt, including any borrowings under the commitments in connection therewith.

18
The Company has not drawn any borrowings under the 2023 ABL Facility but has letters of credit of approximately $1.2 million outstanding under the facility and has an available balance of $59.0 million based on the borrowing base as of March 31, 2024.

The Company incurred debt issuance costs attributable to the 2023 ABL Facility of $2.6 million which are amortized to interest expense using the straight-line method over the expected life of the 2023 ABL Facility.

Convertible Senior Notes

In July 2019, the Company closed an offering of $172.5 million in aggregate principal amount of its 2.50% Convertible Senior Notes due July 15, 2024 (the “Convertible Senior Notes”). The Convertible Senior Notes bear interest at a rate of 2.50% per year, payable semiannually in arrears on January 15 and July 15 of each year, beginning on January 15, 2020. The Convertible Senior Notes are senior unsecured obligations of the Company.

In  2023, a wholly owned subsidiary of the Company repurchased $44.0 million in aggregate principal amount of the Convertible Senior Notes on the open market resulting in a $1.9 million gain on extinguishment of debt. The repurchased notes continue to be held by our subsidiary and may be resold subject to compliance with applicable securities law. As of March 31, 2024, $118.5 million aggregate principal remains outstanding and held by third parties.

The Convertible Senior Notes held by third parties are convertible into approximately 2,219,704 shares of TPB Common Stock under certain circumstances prior to maturity at a conversion rate of 18.7252 shares per $1,000 principal amount of the Convertible Senior Notes, which represents a conversion price of approximately $53.40 per share, subject to adjustment under certain conditions, but will not be adjusted for any accrued and unpaid interest. The conversion price is adjusted periodically as a result of dividends paid by the Company in excess of pre-determined thresholds of $0.04 per share. Upon conversion, the Company may pay cash, shares of common stock or a combination of cash and stock, as determined by the Company at its discretion. The conditions required to allow the holders to convert their Convertible Senior Notes were not met as of March 31, 2024.

As discussed above, on November 7, 2023, a wholly-owned subsidiary of the Company entered into the 2023 ABL Facility to refinance up to $75.0 million of the Convertible Senior notes at maturity. As a result, the Company classified $59.0 million related to the Convertible Senior Notes in Notes payable and long-term debt on the Company’s March 31, 2024 Consolidated Balance Sheet. Based on current liquidity, free cash flow generation and availability under the 2023 ABL Facility, the Company believes it will have sufficient liquidity to address the maturity of the remaining Convertible Senior Notes.

The Company incurred debt issuance costs attributable to the Convertible Senior Notes of $5.9 million which are amortized to interest expense using the straight-line method over the expected life of the Convertible Senior Notes.

In connection with the Convertible Senior Notes offering, the Company entered into privately negotiated capped call transactions with certain financial institutions. The capped call transactions have a strike price of $53.40 per share and a cap price of $82.86 per share, and are exercisable when, and if, the Convertible Senior Notes are converted. The Company paid $20.53 million for these capped calls at the time they were entered into and charged that amount to additional paid-in capital.

Note 11. Leases

The Company’s leases consist primarily of leased property for manufacturing, warehouse, corporate offices and retail space, as well as vehicle leases. At lease inception, the Company recognizes a lease right of use asset and lease liability calculated as the present value of future minimum lease payments. In general, the Company does not recognize any renewal periods within the lease terms as there are no significant barriers to ending the lease at the initial term. Lease and non-lease components are accounted for as a single lease component.

Leases with an initial term of 12 months or less are not recorded on the balance sheet. Lease expense for these leases is recognized on a straight-line basis over the lease term.

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The components of lease expense consisted of the following:

 
Three Months Ended March 31,
  
   
2024
    
2023
  
Operating lease cost
            
Cost of sales
  
$
133
    
$
128
  
Selling, general and administrative
    
464
      
521
  
Variable lease cost (1)
    
297
      
225
  
Short-term lease cost
    
–
      
6
  
Total
  
$
894
    
$
880
  

(1)
Variable lease cost includes elements of a contract that do not represent a good or service but for which the lessee is responsible for paying.

   
Three Months Ended March 31,
  
   
2024
    
2023
  
Financing lease cost
            
Selling, general and administrative
  
$
150
    
$
338
  
Total
  
$
150
    
$
338
  

    March 31,     December 31,  
   
2024
    
2023
  
Assets:
            
Right of use assets - Operating
  
$
8,714
    
$
8,950
  
Right of use assets - Financing
    
 2,154      
 2,530  
Total lease assets
  
$
10,868
    
$
11,480
  
                 
Liabilities:
                
Current lease liabilities - Operating (2)
  
$
1,946
    
$
1,991
  
Current lease liabilities - Financing (2)
    
 669      
 687  
Long-term lease liabilities - Operating
    
7,925
      
8,374
  
Long-term lease liabilities - Financing
    1,435       1,576  
Total lease liabilities
  
$
11,975
    
$
12,628
  

(2)
Reported within accrued liabilities on the balance sheet.

Note 12. Income Taxes

The Company’s effective income tax rate for the three months ended March 31, 2024 was 23.4%. The Company’s effective income tax rate for the three months ended March 31, 2023 was 25.2%.

The Company follows the provisions of ASC 740-10-25, which prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more-likely-than-not to be sustained upon examination by taxing authorities. The amount recognized is measured as the largest amount of benefit that is greater than 50 percent likely of being realized upon ultimate settlement. The Company has determined that the Company did not have any uncertain tax positions requiring recognition under the provisions of ASC 740-10-25. The Company’s policy is to recognize interest and penalties accrued on uncertain tax positions, if any, as part of interest expense. The Company files income tax returns in the U.S. federal jurisdiction and various state jurisdictions. In general, the Company is no longer subject to U.S. federal and state tax examinations for years prior to 2020.

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Note 13. Share Incentive Plans

On March 22, 2021, the Company’s Board of Directors adopted the Turning Point Brands, Inc. 2021 Equity Incentive Plan (the “2021 Plan”), pursuant to which awards may be granted to employees, non-employee directors, and consultants. In addition, the 2021 Plan provides for the granting of nonqualified stock options to employees of the Company or any subsidiary of the Company. Pursuant to the 2021 Plan, 1,290,000 shares, plus 100,052 shares remaining available for issuance under the 2015 Equity Incentive Plan (the “2015 Plan”), of TPB Common Stock are reserved for issuance as awards to employees, non-employee directors, and consultants as compensation for past or future services or the attainment of certain performance goals. The 2021 Plan is scheduled to terminate on March 21, 2031. The 2021 Plan is administered by the compensation committee (the “Committee”) of the Company’s Board of Directors. The Committee determines the vesting criteria for the awards, with such criteria to be specified in the award agreement. As of March 31, 2024, net of forfeitures, there were 400,682 Restricted Stock Units (“RSUs”), 161,658 options and 102,216 Performance Based Restricted Stock Units (“PRSUs”) granted under the 2021 Plan. There are 725,496 shares available for future grant under the 2021 Plan.

On April 28, 2016, the Board of Directors of the Company adopted the 2015 Plan, pursuant to which awards could have been granted to employees, non-employee directors, and consultants. In addition, the 2015 Plan provided for the granting of nonqualified stock options to employees of the Company or any subsidiary of the Company. Upon adoption of the 2021 Plan, the 2015 Plan was terminated, and the Company determined no additional grants would be made under the 2015 Plan. However, all awards issued under the 2015 Plan that have not been previously terminated or forfeited remain outstanding and continue unaffected. There are no shares available for grant under the 2015 Plan. 

On February 8, 2006, the Board of Directors of the Company adopted the 2006 Equity Incentive Plan (the “2006 Plan”) of North Atlantic Holding Company, Inc., pursuant to which nonqualified stock options and restricted stock awards may be granted to employees. Upon the adoption of the Company’s 2015 Equity Incentive Plan in connection with its IPO, the Company determined no additional grants would be made under the 2006 Plan. However, all awards issued under the 2006 Plan that have not been previously terminated or forfeited remain outstanding and continue unaffected. There are no shares available for grant under the 2006 Plan.

Stock option activity for the 2006, 2015 and 2021 Plans is summarized below:

   
    Weighted     Weighted  
    Stock     Average     Average  
    Option     Exercise    
Grant Date
  

 
Shares
    
Price
    
Fair Value
  
Outstanding, December 31, 2022
    
683,214
    
$
29.74
    
$
9.24
  
Granted
    
77,519
      
20.71
      
6.45
  
Exercised
    
(33,851
)
    
13.30
      
4.24
  
Forfeited
    
(69,931
)
    
27.51
      
9.11
  
Outstanding, December 31, 2023
    
656,951
     $
29.79
     $
9.18
  
                         
Granted
     54,289       27.19       9.21  
Exercised
    
(198
)
    
14.85
      
4.41
  
Forfeited
    
(6,433
)
    
30.19
      
8.85
  
Outstanding, March 31, 2024
    
704,609
    
$
29.59
    
$
9.19
  

Under the 2006, 2015 and 2021 Plans, the total intrinsic value of options exercised during the three months ended March 31, 2024 and 2023, was $0.0 million, and $0.2 million, respectively.

At March 31, 2024, under the 2006 Plan, the exercise price for the 43,693 outstanding options is $3.83 per share, all of which are exercisable. The weighted average of the remaining lives of the outstanding stock options with an exercise price of $3.83 is approximately 0.35 years. The Company estimates the expected life of these stock options is ten years from the date of grant. For the $3.83 per share options, the weighted average fair value of options at the date of grant was determined using the Black-Scholes model with the following assumptions: a ten-year life from grant date, a current share price and exercise price of $3.83, a risk-free interest rate of 3.57%, volatility of 40%, and no assumed dividend yield. Based on these assumptions, the fair value of these options is approximately $2.17 per share option granted.

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Table of Contents
At March 31, 2024, under the 2015 and 2021 Plans, the risk-free interest rate is based on the U.S. Treasury rate for the expected life at the time of grant. The expected volatility is based on the average long-term historical volatilities of peer companies. We intend to continue to consistently use the same group of publicly traded peer companies to determine expected volatility until sufficient information regarding volatility of our share price becomes available or until the selected companies are no longer suitable for this purpose. Due to our limited trading history, we are using the simplified method presented by SEC Staff Accounting Bulletin No. 107 to calculate expected holding periods, which represent the periods of time for which options granted are expected to be outstanding. We will continue to use this method until we have sufficient historical exercise experience to give us confidence in the reliability of our calculations. The fair values of these options were determined using the Black-Scholes option pricing model.

The following table outlines the assumptions based on the number of options granted under the 2015 Plan.

   
February 10,
    
May 17,
    
March 7,
    
March 20,
    
October 24,
    
March 18,
    
  February 18,
    
May 3,
  

 
2017
    
2017
    
2018
    
2019
    
2019
    
2020
    
2021
    
2021
  
Number of options granted
    
40,000
      
93,819
      
98,100
      
155,780
      
25,000
      
155,000
      
100,000
      
12,000
  
Options outstanding at March 31, 2024
    
20,000
      
38,033
      
51,067
      
124,864
      
25,000
      
77,777
      
87,350
      
12,000
  
Number exercisable at March 31, 2024
    
20,000
      
38,033
      
51,067
      
124,864
      
25,000
      
77,777
      
87,350
      
12,000
  
Exercise price
  
$
13.00
    
$
15.41
    
$
21.21
    
$
47.58
    
$
20.89
    
$
14.85
    
$
51.75
    
$
47.76
  
Remaining lives
    
2.87
      
3.13
      
3.94
      
4.97
      
5.57
      
5.97
      
6.89
      
7.09
  
Risk free interest rate
    
1.89
%
    
1.76
%
    
2.65
%
    
2.34
%
    
1.58
%
    
0.79
%
    
0.56
%
    
0.84
%
Expected volatility
    
27.44
%
    
26.92
%
    
28.76
%
    
30.95
%
    
31.93
%
    
35.72
%
    
28.69
%
    
29.03
%
Expected life
    
6.000
      
6.000
      
6.000
      
6.000
      
6.000
      
6.000
      
6.000
      
6.000
  
Dividend yield
    
–
      
–
      
0.83
%
    
0.42
%
    
0.95
%
    
1.49
%
    
0.55
%
    
0.59
%
Fair value at grant date
  
$
3.98
    
$
4.60
    
$
6.37
    
$
15.63
    
$
6.27
    
$
4.41
    
$
13.77
    
$
13.06
  

The following table outlines the assumptions based on the number of options granted under the 2021 Plan.

   
May 17,
    
March 14,
    
April 29,
     May 12,     March 11,
  
 
  
2021
    
2022
    
2022
     2023     2024  
Number of options granted
    
7,500
       100,000       14,827       77,519       54,289  
Options outstanding at March 31, 2024
    
7,500
       70,690       14,827       77,519       54,289  
Number exercisable at March 31, 2024
    
7,500
       47,442       9,935       77,519       –  
Exercise price
  
$
45.05
     $ 30.46     $ 31.39     $ 20.71     $ 27.19  
Remaining lives
    
7.13
       7.96       8.08       9.12       9.95  
Risk free interest rate
    
0.84
%
     2.10 %     2.92 %     3.41 %     4.06 %
Expected volatility
    
31.50
%
     35.33 %     35.33 %     34.51 %     35.09 %
Expected life
    
6.000
       6.000       6.000       5.186       5.186  
Dividend yield
    
0.63
%
     1.01 %     0.98 %     1.61 %     1.26 %
Fair value at grant date
  
$
13.23
     $ 10.23     $ 11.07     $ 6.45     $ 9.21  

The Company has recorded compensation expense related to the options based on the provisions of ASC 718 under which the fixed portion of such expense is determined as the fair value of the options on the date of grant and amortized over the vesting period. The Company recorded compensation expense related to the options of approximately $0.3 million and $0.0 million for the three months ended March 31, 2024 and 2023, respectively. Total unrecognized compensation expense related to options at March 31, 2024, is $0.3 million, which will be expensed over 0.75 years.

PRSUs are restricted stock units subject to both performance-based and service-based vesting conditions. The number of shares of TPB Common Stock a recipient will receive upon vesting of a PRSU will be calculated by reference to certain performance metrics related to the Company’s performance over a five-year period. PRSUs will vest on the measurement date, which is no more than 65 days after the performance period provided the applicable service and performance conditions are satisfied. As of March 31, 2024, there are 447,266 PRSUs outstanding. The following table outlines the PRSUs granted and outstanding as of March 31, 2024.

   
March 18,
    
February 18,
    
March 14,
    
May 4,
    
March 1,
  
   
2020
    
2021
    
2022
    
2023
    
2024
  
Number of PRSUs granted
    
94,000
      
100,000
      
49,996
      
133,578
       111,321  
PRSUs outstanding at March 31, 2024
    
80,910
      
82,190
      
40,325
      
132,520
       111,321  
Fair value as of grant date
  
$
14.85
    
$
51.75
    
$
30.46
    
$
22.25
     $ 26.52  
Remaining lives
    
0.75
      
1.75
      
2.75
      
1.75
       2.75  

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The Company recorded compensation expense related to the PRSUs of approximately $0.9 million and $0.5 million in the consolidated statements of income for the three months ended March 31, 2024 and 2023, respectively, based on the probability of achieving the performance condition. Total unrecognized compensation expense related to these awards at March 31, 2024, is $6.1 million which will be expensed over the service periods based on the probability of achieving the performance condition.


The Company has granted 325,523 RSUs which are outstanding and vest over one to five years. The following table outlines the RSUs granted and outstanding as of March 31, 2024.


   
March 14,
    
March 14,
    
April 29,
    
May 5,
     May 8,     March 1,     March 11,  
   
2022
    
2022
    
2022
    
2023
     2023     2024     2024  
Number of RSUs granted
    
50,004
      
28,726
      
4,522
       130,873       20,101       105,257    
18,389  
RSUs outstanding at March 31, 2024
    
39,367
      
9,481
      
4,522
       128,406       20,101       105,257       18,389  
Fair value as of grant date
  
$
30.46
    
$
30.46
    
$
31.39
     $ 22.25     $ 21.77     $ 26.52     $
27.19  
Remaining lives
    
2.75
      
0.75
      
2.75
       2.00       0.10       3.00       0.75  



The Company has recorded compensation expense related to the RSUs based on the provisions of ASC 718 under which the fixed portion of such expense is determined as the fair value of the RSUs on the date of grant and amortized over the vesting period. The Company recorded compensation expense related to the RSUs of approximately $0.9 million and $0.3 million for the three months ended March 31, 2024 and 2023. Total unrecognized compensation expense related to RSUs at March 31, 2024, is $5.1 million, which will be expensed over 2.52 years.

Note 14. Contingencies

On October 9, 2020, a purported stockholder of Turning Point Brands, Inc., Paul-Emile Berteau, filed a complaint in the Delaware Court of Chancery relating to the merger of Standard Diversified, Inc. (“SDI”) with a TPB subsidiary (“Merger Sub”)pursuant to the Agreement and Plan of Merger and Reorganization, dated as of April 7, 2020, by and among TPB, SDI and Merger Sub. The parties attended a mediation in late November 2022 where a settlement was reached. On December 12, 2023, the Court approved the settlement and dismissed the action with prejudice. As of December 31, 2023, the Company recorded a $4.0 million receivable in other current assets, and a corresponding gain on settlement in other income on its Consolidated Statement of Income for the year ended December 31, 2023. These funds were received in January 2024.

Other major tobacco companies are defendants in product liability claims. In a number of these cases, the amounts of punitive and compensatory damages sought are significant and, if such a claim were brought against the Company, could have a material adverse effect on our business and results of operations. The Company is subject to several lawsuits alleging personal injuries resulting from malfunctioning vaporizer devices or batteries and may be subject to claims in the future relating to our other Creative Distribution Solutions products. The Company is still evaluating these claims and the potential defenses to them. For example, the Company did not design or manufacture the products at issue; rather, the Company was merely the distributor. Nonetheless, there can be no assurance that the Company will prevail in these cases, and they could have a material adverse effect on the financial position, results of operations or cash flows of the Company.

We have several subsidiaries engaged in making, distributing, and selling liquid nicotine products. As a result of the overall publicity and controversy surrounding the industry generally, many companies have received informational subpoenas from various regulatory bodies and in some jurisdictions regulatory lawsuits have been filed regarding marketing practices and possible underage sales. We expect that our subsidiaries will be subject to some such cases and investigative requests. To the extent that litigation becomes necessary, we believe that the subsidiaries have strong factual and legal defenses against claims that they unfairly marketed products.

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Note 15. Income Per Share

The following is a reconciliation of the numerators and denominators of the basic and diluted EPS computations of net income:

 
Three Months Ended March 31,
  
   
2024
    
2023
  
                Per                 Per  
   
Income
    
Shares
    
Share
    
Income
    
Shares
    
Share
  
Basic EPS:
                                    
Numerator
                                    
Net income attributable to Turning Point Brands, Inc.
  
$
12,010
                
$
7,597
              
                                         
Denominator
                                        
Weighted average
            
17,654,684
    
$
0.68
              
17,531,414
    
$
0.43
  
                                                 
Diluted EPS:
                                                
Numerator
                                                
Net income attributable to Turning Point Brands, Inc.
  
$
12,010
                    
$
7,597
                  
Interest expense related to Convertible Senior Notes, net of tax
    
731
                      
954
                  
Diluted net income attributable to Turning Point Brands. Inc.
  
$
12,741
                    
$
8,551
                  
                                                 
Denominator
                                                
Basic weighted average
            
17,654,684
                      
17,531,414
          
Convertible Senior Notes
            
2,218,018
                      
3,029,699
          
Stock options and restricted stock units
            
297,612
                      
108,039
          
             
20,170,314
    
$
0.63
              
20,669,152
    
$
0.41
  


Note 16. Segment Information


In accordance with ASC 280, Segment Reporting, the Company has three reportable segments, (1) Zig-Zag Products; (2) Stoker’s Products; and (3) Creative Distribution Solutions. The Zig-Zag Products segment markets and distributes (a) rolling papers, tubes, and related products; (b) finished cigars and MYO cigar wraps and (c) CLIPPER reusable lighters and other accessories. The Stoker’s Products segment (a) manufactures and markets moist snuff and (b) contracts for and markets loose-leaf chewing tobacco products. The Creative Distribution Solutions segment (a) markets and distributes liquid nicotine products and certain other products without tobacco and/or nicotine; (b) distributes a wide assortment of products to non-traditional retail outlets via Vapor Beast; and (c) markets and distributes a wide assortment of products to individual consumers via the VaporFi B2C online platform. Products in the Zig-Zag Products and Stoker’s Products segments are distributed primarily through wholesale distributors in the U.S. and Canada while products in the Creative Distribution Solutions segment are distributed primarily through e-commerce to non-traditional retail outlets and direct to consumers in the U.S. Corporate unallocated includes the costs and assets of the Company not assigned to one of the three reportable segments such as intercompany transfers, deferred taxes, deferred financing fees, and investments in subsidiaries.



The accounting policies of these segments are the same as those of the Company. Corporate costs are not directly charged to the three reportable segments in the ordinary course of operations. The Company evaluates the performance of its segments and allocates resources to them based on operating income.


24
Table of Contents

The tables below present financial information about reported segments:


   
Three Months Ended
March 31,
  
   
2024
    
2023
  
Net sales
            
Zig-Zag products
  
$
46,697
    
$
41,887
  
Stoker’s products
    
36,367
      
33,662
  
Total Zig-Zag and Stoker’s products
   $ 83,064     $ 75,549  
Creative Distribution Solutions
    
13,994
      
25,407
  
Total
  
$
97,058
    
$
100,956
  
                 
Gross profit
                
Zig-Zag products
  
$
27,538
    
$
22,390
  
Stoker’s products
    
20,815
      
19,465
  
Total Zig-Zag and Stoker’s products   $ 48,353     $ 41,855  
Creative Distribution Solutions
    
3,559
      
6,762
  
Total
  
$
51,912
    
$
48,617
  
                 
Operating income (loss)
                
Zig-Zag products
  
$
18,000
    
$
13,641
  
Stoker’s products
    
15,396
      
14,563
  
Corporate unallocated (1)(2)
     (14,127 )     (10,623 )
Total Zig-Zag and Stoker’s products   $ 19,269     $ 17,581  
Creative Distribution Solutions
    
(3
)
    
261
  
Total
  
$
19,266
    
$
17,842
  
                 
Interest expense, net
    
3,479
      
4,010
  
Investment (income) loss
    
(119
)
    
4,799
  
Gain on extinguishment of debt
    
–
      
(777
)
                 
Income before income taxes
  
$
15,906
    
$
9,810
  
                 
Capital expenditures
                
Zig-Zag products
  
$
166
    
$
973
  
Stoker’s products
    
200
      
1,462
  
Total Zig-Zag and Stoker’s products   $ 366     $ 2,435  
Creative Distribution Solutions
    
–
      
–
  
Total
  
$
366
    
$
2,435
  
                 
Depreciation and amortization
                
Zig-Zag products
  
$
274
    
$
267
  
Stoker’s products
    
879
      
706
  
Total Zig-Zag and Stoker’s products   $ 1,153     $ 973  
Creative Distribution Solutions
    
570
      
574
  
Total
  
$
1,723
    
$
1,547
  

(1)
Includes corporate costs that are not allocated to any of the three reportable segments.
(2)
Includes costs related to PMTA of $0.8 million in 2024 and $0.1 million in 2023.

25
Table of Contents
   
March 31,
    
December 31,
  

 
2024
    
2023
  
Assets
            
Zig-Zag products
  
$
176,629
    
$
177,135
  
Stoker’s products
    
187,794
      
174,994
  
Corporate unallocated (1)
     194,702       190,223  
Total Zig-Zag and Stoker’s products   $
 559,125     $
 542,352  
Creative Distribution Solutions
    
27,191
      
27,004
  
Total
  
$
586,316
    
$
569,356
  

(1)
Includes assets not assigned to the three reportable segments. All goodwill has been allocated to the reportable segments.



Revenue Disaggregation—Sales Channel


Revenues of the Zig-Zag Products and Stoker’s Products segments are primarily comprised of sales made to wholesalers while Creative Distribution Solutions sales are made business to business and business to consumer, both online and through our corporate retail stores. Creative Distribution Solutions net sales are broken out by sales channel below.

   
Creative Distribution
Solutions Segment
  
    Three Months Ended  
    
March 31,
  
   
2024
    
2023
  
             
Business to Business
  
$
12,585
    
$
22,493
  
Business to Consumer - Online
    
1,380
      
2,810
  
Other
    
29
      
104
  
Total
  
$
13,994
    
$
25,407
  



Net Sales—Domestic vs. Foreign



The following table shows a breakdown of consolidated net sales between domestic and foreign customers.


    Three Months Ended  
    
March 31,
  
   
2024
    
2023
  
Domestic
  
$
89,910
    
$
93,860
  
Foreign
    
7,148
      
7,096
  
Total
  
$
97,058
    
$
100,956
  

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Table of Contents
Note 17. Additional Information with Respect to Unrestricted Subsidiary

Under the terms of the Senior Secured Notes Indenture and Senior Secured Notes, the Company has designated its subsidiaries, South Beach Brands LLC, TPB Beast LLC and Intrepid Brands, LLC as “Unrestricted Subsidiaries”. South Beach Brands LLC is a holding company under which our vape business TPB Beast LLC operating as Creative Distribution Solutions sits. The Company is required under the terms of the Senior Secured Notes Indenture and the Senior Secured Notes to present additional information that reflects the financial condition and results of operations of the Company and its Restricted Subsidiaries separate from the financial condition and results of operations of the Company’s Unrestricted Subsidiaries as of and for the periods presented. This additional information is below.

Income Statement for the Three Months Ended March 31, 2024 and 2023 (unaudited):

    Three Months Ended March 31  
    2024
     2023  
   
Company and
Restricted
Subsidiaries
    
Unrestricted
Subsidiaries
    
Consolidated
    
Company and
Restricted
Subsidiaries
    
Unrestricted
Subsidiaries
     Consolidated  
Net sales
  
$
83,064
    
$
13,994
    
$
97,058
     $ 75,549     $ 25,407     $ 100,956  
Cost of sales
    
34,711
      
10,435
      
45,146
       33,694       18,645       52,339  
Gross profit
    
48,353
      
3,559
      
51,912
       41,855       6,762       48,617  
Selling, general, and administrative expenses
    
29,084
      
3,562
      
32,646
       24,274       6,501       30,775  
Operating income (loss)
    
19,269
      
(3
)
    
19,266
       17,581       261       17,842  
Interest expense, net
    
3,479
      
–
      
3,479
       4,010       –       4,010  
Investment (gain) loss
    
(119
)
    
–
      
(119
)
     4,799       –       4,799  
Gain on extinguishment of debt
    
–
      
–
      
–
       (777 )     –       (777 )
Income (loss) before income taxes
    
15,909
      
(3
)
    
15,906
       9,549       261       9,810  
Income tax expense (benefit)
    
3,728
      
(1
)
    
3,727
       2,402       66       2,468  
Consolidated net income (loss)
    
12,181
      
(2
)
    
12,179
       7,147       195       7,342  
Net income (loss) attributable to non-controlling interest
    
169
      
–
      
169
       (255 )     –       (255 )
Net income (loss) attributable to Turning Point Brands, Inc.
  
$
12,012
    
$
(2
)
  
$
12,010
     $ 7,402     $ 195     $ 7,597  

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Table of Contents
Balance Sheet as of March 31, 2024 (unaudited):

ASSETS
  
Company and
Restricted
Subsidiaries
    
Unrestricted
Subsidiaries
    
Eliminations
    
Consolidated
  
Current assets:
                        
Cash
  
$
126,066
    
$
4,837
     $ –    
$
130,903
  
Accounts receivable, net
    
8,198
      
–
    –      
8,198
  
Inventories, net
    
99,381
      
6,086
       –      
105,467
  
Other current assets
    
32,836
      
1,601
       –      
34,437
  
Total current assets
    
266,481
      
12,524
       –      
279,005
  
Property, plant, and equipment, net
    
24,705
      
85
       –      
24,790
  
Deferred income taxes
    
1,426
      
–
       –      
1,426
  
Right of use assets
    
10,764
      
104
       –      
10,868
  
Deferred financing costs, net
    
2,305
      
–
       –      
2,305
  
Goodwill
    
136,365
      
–
       –      
136,365
  
Other intangible assets, net
    
66,199
      
13,978
       –      
80,177
  
Master Settlement Agreement (MSA) escrow deposits
    
28,427
      
–
       –      
28,427
  
Other assets
    
22,453
      
500
       –      
22,953
  
Investment in unrestricted subsidiaries
     62,732
       –       (62,732 )     –  
Total assets
  
$
621,857
    
$
27,191
     $ (62,732 )  
$
586,316
  
                                 
LIABILITIES AND STOCKHOLDERS’ EQUITY
                                
Current liabilities:
                                
Accounts payable
   $ 18,596     $ 338     $ –     $ 18,934  
Accrued liabilities
    
29,618
      
1,356
       –      
30,974
  
Current portion of long-term debt
     59,397       –       –       59,397  
Total current liabilities
    
107,611
      
1,694
       –      
109,305
  
Notes payable and long-term debt
    
306,496
      
–
       –      
306,496
  
Lease liabilities
    
9,327
      
33
       –      
9,360
  
Total liabilities
    
423,434
      
1,727
       –      
425,161
  
                                 
Commitments and contingencies
                        
                                 
Stockholders’ equity:
                                
Total Turning Point Brands, Inc. Stockholders’ Equity/Net parent investment in unrestricted subsidiaries
    
197,232
      
25,464
       (62,732 )    
159,964
  
Non-controlling interest
    
1,191
      
–
       –      
1,191
  
Total stockholders’ equity
    
198,423
      
25,464
       (62,732 )    
161,155
  
Total liabilities and stockholders’ equity
  
$
621,857
    
$
27,191
     $ (62,732 )  
$
586,316
  

28
Table of Contents
Balance Sheet as of December 31, 2023:

ASSETS
  
Company and
Restricted
Subsidiaries
    
Unrestricted
Subsidiaries
    
Eliminations
    
Consolidated
  
Current assets:
                        
Cash
  
$
116,725
    
$
1,161
     $
–    
$
117,886
  
Accounts receivable, net
    
9,989
      
–
       –      
9,989
  
Inventories, net
    
91,679
      
7,281
       –      
98,960
  
Other current assets
    
36,937
      
3,844
       –      
40,781
  
Total current assets
    
255,330
      
12,286
       –      
267,616
  
Property, plant, and equipment, net
    
25,142
      
158
       –      
25,300
  
Deferred income taxes
    
1,468
      
–
       –      
1,468
  
Right of use assets
    
11,359
      
121
       –      
11,480
  
Deferred financing costs, net
    
2,450
      
–
       –      
2,450
  
Goodwill
    
136,250
      
–
       –      
136,250
  
Other intangible assets, net
    
66,490
      
14,452
       –      
80,942
  
Master Settlement Agreement (MSA) escrow deposits
    
28,684
      
–
       –      
28,684
  
Other assets
    
15,166
      
–
       –      
15,166
  
Investment in unrestricted subsidiaries
     48,229       –       (48,229 )     –  
Total assets
  
$
590,568
    
$
27,017
  $
 (48,229 )  
$
569,356
  
                                 
LIABILITIES AND STOCKHOLDERS’ EQUITY
                                
Current liabilities:
                                
Accounts payable
  
$
7,781
    
$
626
     $
 –    
$
8,407
  
Accrued liabilities
    
32,052
      
1,583
       –      
33,635
  
Current portion of long-term debt
    
58,294
      
–
       –      
58,294
  
Total current liabilities
    
98,127
      
2,209
       –      
100,336
  
Notes payable and long-term debt
    
307,064
      
–
       –      
307,064
  
Lease liabilities
    
9,898
      
52
       –      
9,950
  
Total liabilities
    
415,089
      
2,261
       –      
417,350
  
                                 
Commitments and contingencies
                        
                                 
Stockholders’ equity:
                                
Total Turning Point Brands, Inc. Stockholders’ Equity/Net parent investment in unrestricted subsidiaries
    
174,449
      
24,756
    (48,229 )    
150,976
  
Non-controlling interest
    
1,030
      
–
       –      
1,030
  
Total stockholders’ equity
    
175,479
      
24,756
    (48,229 )    
152,006
  
Total liabilities and stockholders’ equity
  
$
590,568
    
$
27,017
  $
 (48,229 )  
$
569,356
 

Note 18. Dividends and Share Repurchases

A dividend of $0.07 per common share was paid on April 12, 2024, to shareholders of record at the close of business on March 22, 2024.

The Company currently pays a quarterly cash dividend. Dividends are considered restricted payments under the Senior Secured Notes Indenture. The Company is generally permitted to make restricted payments provided that, at the time of payment, or as a result of payment, the Company is not in default on its debt covenants. Additional earnings and market capitalization restrictions limit the aggregate amount of restricted, quarterly dividends during a fiscal year.

On February 25, 2020, the Company’s Board of Directors approved a $50.0 million share repurchase program which is intended for opportunistic execution based upon a variety of factors including market dynamics. The program is subject to the ongoing discretion of the Board of Directors. On October 25, 2021, the Board of Directors increased the approved share repurchase program by $30.7 million and by an additional $24.6 million on February 24, 2022, in each case bringing the aggregate approval back to $50.0 million. In the first quarter of 2024, the Company repurchased $2.1 million of common stock, with $25.1 million remaining available for share repurchases under the program at March 31, 2024.

29
Table of Contents
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

You should read the following discussion of the historical financial conditions and results of operations in conjunction with our consolidated financial statements and accompanying notes, which are included elsewhere in this Quarterly Report on Form 10-Q. In addition, this discussion includes forward-looking statements which are subject to risks and uncertainties that may result in actual results differing from statements we make. See “Cautionary Note Regarding Forward-Looking Statements.” Factors that could cause actual results to differ include those risks and uncertainties discussed in “Risk Factors.”

The following Management’s Discussion and Analysis (“MD&A”) relates to the unaudited financial statements of Turning Point Brands, Inc., included elsewhere in this Quarterly Report on Form 10-Q. The MD&A is intended to enable the reader to understand the Company’s financial condition and results of operations, including any material changes in the Company’s financial condition and results of operations since December 31, 2023, and as compared with the three months ended March 31, 2023.  The MD&A is provided as a supplement to and should be read in conjunction with the unaudited consolidated financial statements and notes thereto included in this Quarterly report on Form 10-Q, as well as “Management’s Discussion and Analysis of Financial Condition and Results of Operations” contained in the Annual Report on Form 10-K for the fiscal year ended December 31, 2023 (the “2023 Annual Report”).

In this MD&A, unless the context requires otherwise, references to “our Company” “we,” “our,” or “us” refer to Turning Point Brands, Inc., and its consolidated subsidiaries. References to “TPB” refer to Turning Point Brands, Inc., without any of its subsidiaries. We were incorporated in 2004 under the name North Atlantic Holding Company, Inc. On November 4, 2015, we changed our name to Turning Point Brands, Inc. Many of the amounts and percentages in this discussion have been rounded for convenience of presentation.

Overview

Turning Point Brands, Inc. is a leading manufacturer, marketer and distributor of branded  consumer products. We sell a wide range of products to adult consumers consisting of staple products with our iconic brands Zig-Zag® and Stoker’s® and our next generation products to fulfill evolving consumer preferences. Among other markets, we compete in the alternative smoking accessories and Other Tobacco Products (“OTP”) industries. The alternative smoking accessories market is a dynamic market experiencing robust secular growth driven by cannabinoid legalization in the U.S. and Canada, and positively evolving consumer perception and acceptance in North America. The OTP industry, which consists of non-cigarette tobacco products, exhibited low-single-digit consumer unit annualized growth over the four-year period ended 2023 as reported by Management Science Associates, Inc. a third-party analytics and information company. Our segments are led by our core proprietary and iconic brands: Zig-Zag® and CLIPPER® in the Zig-Zag Products segment and Stoker’s® along with Beech-Nut® and Trophy® in the Stoker’s Products segment. Our businesses generate solid cash flow which we use to invest in our business, finance acquisitions, increase brand support, expand our distribution infrastructure, and strengthen our capital position. We currently ship to approximately 820 distributors with an additional 650 secondary, indirect wholesalers in the U.S. that carry and sell our products. Under the leadership of a senior management team with extensive experience in the consumer products, alternative smoking accessories and tobacco industries, we have grown and diversified our business through new product launches, category expansions, and acquisitions while concurrently improving operational efficiency.

We believe there are meaningful opportunities to grow through investing in organic growth, acquisitions and joint ventures across all product categories. Our products are currently available in approximately 197,000 U.S. retail locations which, with the addition of retail stores in Canada, brings our total North American retail presence to an estimated 217,000 points of distribution. Our sales team targets widespread distribution to all traditional retail channels, including convenience stores, and we have a growing e-commerce business.

Products

We operate in three segments: Zig-Zag Products, Stoker’s Products and Creative Distribution Solutions. In our Zig-Zag Products segment, we principally market and distribute (i) rolling papers, tubes, and related products; (ii) finished cigars and make-your-own (“MYO”) cigar wraps; and (iii) CLIPPER reusable lighters and other accessories.  In addition, we have a majority stake in Turning Point Brands Canada which is a specialty marketing and distribution firm focused on building brands in the Canadian cannabis accessories, tobacco and alternative products categories. In our Stoker’s Products segment, we (i) manufacture and market moist snuff tobacco (“MST”) and (ii) contract for and market loose leaf chewing tobacco products. In our Creative Distribution Solutions segment, we (i) market and distribute liquid nicotine products and certain other products without tobacco and/or nicotine; (ii) distribute a wide assortment of products to non-traditional retail via VaporBeast; and (iii) market and distribute a wide assortment of products to individual consumers via the VaporFi B2C online platform.

30
Operations

Our core Zig-Zag Products and Stoker’s Products segments primarily generate revenues from the sale of our products to wholesale distributors who, in turn, resell the products to retail operations. Our acquisition of Vapor Beast in 2016 expanded our revenue streams as we began selling directly to non-traditional retail outlets. Our acquisition of IVG in 2018 enhanced our B2C revenue stream with the addition of the Vapor-Fi online platform. Our net sales, which include federal excise taxes, consist of gross sales net of cash discounts, returns, and selling and marketing allowances.

We rely on long-standing relationships with high-quality, established manufacturers to provide the majority of our produced products. Approximately 75% of our production, as measured by net sales, is outsourced to suppliers. The remaining production consists primarily of our moist snuff tobacco operations located in Dresden, Tennessee and Louisville, Kentucky. Our principal operating expenses include the cost of raw materials used to manufacture the limited number of our products which we produce in-house; the cost of finished products, which are generally purchased goods; federal excise taxes; legal expenses; and compensation expenses, including benefits and costs of salaried personnel.

Key Factors Affecting Our Results of Operations

We consider the following to be the key factors affecting our results of operations:

 
●
Our ability to further penetrate markets with our existing products;
  ●
Our ability to introduce new products and product lines that complement our core business;
  ●
Decreasing interest in some tobacco products among consumers;
  ●
Price sensitivity in our end-markets;
  ●
Marketing and promotional initiatives, which cause variability in our results;
  ●
Costs and increasing regulation of promotional and advertising activities;
  ●
General economic conditions, including consumer access to disposable income and other conditions affecting purchasing power such as inflation and the interest rate environment;
  ●
Labor and production costs;
  ●
Cost of complying with regulation, including the “deeming regulation”;
  ●
Increasing and unpredictable regulation and/or marketing order decisions impacting Creative Distribution Solutions products;
  ●
Counterfeit and other illegal products in our end-markets;
  ●
Currency fluctuations;
  ●
Our ability to identify attractive acquisition opportunities; and
  ●
Our ability to successfully integrate acquisitions.

Critical Accounting Policies and Uses of Estimates

There have been no material changes to our critical accounting policies and estimates from the information provided in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our 2023 Annual Report on Form 10-K.

Recent Accounting Pronouncements

There are no recent accounting pronouncements that impact the Company.

Recent Developments

Non-Marketable Equity Investments

In January 2024, the Company invested $0.8 million in Teaza Energy, LLC (“TeaZa”), an innovative brand of flavorful oral pouch products designed as a healthier alternative to high energy drinks and other oral stimulants. The Company’s investment is comprised of $0.5 million in cash and a $0.3 million payable to be offset against the Company’s allocated portion of future profit distributions.

31
Results of Operations

Comparison of the Three Months Ended March 31, 2024, to the Three Months Ended March 31, 2023

The table and discussion set forth below displays our consolidated results of operations (in thousands):

 
  
Three Months Ended March 31,
  
 
  
2024
    
2023
    
% Change
  
Consolidated Results of Operations Data:
                  
Net sales
                  
Zig-Zag products
  
$
46,697
    
$
41,887
      
11.5
%
Stoker’s products
    
36,367
      
33,662
      
8.0
%
Total Zig-Zag and Stoker’s products
    
83,064
      
75,549
      
9.9
%
Creative Distribution Solutions
    
13,994
      
25,407
      
-44.9
%
Total net sales
    
97,058
      
100,956
      
-3.9
%
Cost of sales
    
45,146
      
52,339
      
-13.7
%
Gross profit
                        
Zig-Zag products
    
27,538
      
22,390
      
23.0
%
Stoker’s products
    
20,815
      
19,465
      
6.9
%
Total Zig-Zag and Stoker’s products
    
48,353
      
41,855
      
15.5
%
Creative Distribution Solutions
    
3,559
      
6,762
      
-47.4
%
Total gross profit
    
51,912
      
48,617
      
6.8
%
 
                        
Selling, general, and administrative expenses
    
32,646
      
30,775
      
6.1
%
Operating income
    
19,266
      
17,842
      
8.0
%
Interest expense, net
    
3,479
      
4,010
      
-13.2
%
Investment (gain) loss
    
(119
)
    
4,799
      
-102.5
%
Gain on extinguishment of debt
    
–
      
(777
)
  
NM
  
Income before income taxes
    
15,906
      
9,810
      
62.1
%
Income tax expense
    
3,727
      
2,468
      
51.0
%
Consolidated net income
    
12,179
      
7,342
      
65.9
%
Net income (loss) attributable to non-controlling interest
    
169
      
(255
)
    
-166.3
%
Net income attributable to Turning Point Brands, Inc.
  
$
12,010
    
$
7,597
      
58.1
%

Net Sales:  For the three months ended March 31, 2024, consolidated net sales decreased to $97.1 million from $101.0 million for the three months ended March 31, 2023, a decrease of $3.9 million or 3.9%.

For the three months ended March 31, 2024, net sales in the Zig-Zag Products segment increased to $46.7 million from $41.9 million for the three months ended March 31, 2023, an increase of $4.8 million or 11.5%. The increase in net sales was driven by growth in our U.S. papers and wraps businesses, partially offset by declines in sales in our Clipper business against trade load in prior year.

For the three months ended March 31, 2024, net sales in the Stoker’s Products segment increased to $36.4 million from $33.7 million for the three months ended March 31, 2023, an increase of $2.7 million or 8.0%. For the three months ended March 31, 2024, volume increased 0.1% and price/product mix increased 7.9%. The increase in net sales was driven by mid-single-digit growth of Stoker’s® MST and triple-digit growth of our modern oral product FRE, partially offset by mid-single-digit decline in loose-leaf chewing tobacco.

For the three months ended March 31, 2024, net sales in the Creative Distribution Solutions segment decreased to $14.0 million from $25.4 million for the three months ended March 31, 2023, a decrease of $11.4 million or 44.9%. The decrease in net sales was primarily the result of lower volumes in the liquid nicotine distribution business and our strategic decision to eliminate certain unprofitable brands and to focus on a narrower set of products.

Gross Profit:  For the three months ended March 31, 2024, consolidated gross profit increased to $51.9 million from $48.6 million for the three months ended March 31, 2023, an increase of $3.3 million or 6.8%. Gross profit as a percentage of net sales increased to 53.5% for the three months ended March 31, 2024, compared to 48.2% for the three months ended March 31, 2023 driven by product mix in our Zig-Zag Products segment.

32
For the three months ended March 31, 2024, gross profit in the Zig-Zag Products segment increased to $27.5 million from $22.4 million for the three months ended March 31, 2023, an increase of $5.1 million or 23.0%. Gross profit as a percentage of net sales increased to 59.0% of net sales for the three months ended March 31, 2024, from 53.5% of net sales for the three months ended March 31, 2023, driven primarily by product mix.

For the three months ended March 31, 2024, gross profit in the Stoker’s Products segment increased to $20.8 million from $19.5 million for the three months ended March 31, 2023, an increase of $1.3 million or 6.9%. Gross profit as a percentage of net sales decreased to 57.2% of net sales for the three months ended March 31, 2024, from 57.8% of net sales for the three months ended March 31, 2023, primarily as a result of product mix, as net sales of FRE were higher and have lower margins than other products in the segment.

For the three months ended March 31, 2024, gross profit in the Creative Distribution Solutions segment decreased to $3.6 million from $6.8 million for the three months ended March 31, 2023, a decrease of $3.2 million or 47.4%. Gross profit as a percentage of net sales decreased to 25.4% of net sales for the three months ended March 31, 2024, from 26.6% of net sales for the three months ended March 31, 2023, primarily as a result of channel mix and our strategic decision to eliminate certain unprofitable brands and to focus on a narrower set of products.

Selling, General, and Administrative Expenses:  For the three months ended March 31, 2024, selling, general, and administrative expenses increased to $32.6 million from $30.8 million for the three months ended March 31, 2023, an increase of $1.9 million or 6.1%. Selling, general and administrative expenses in the three months ended March 31, 2024, included $2.1 million of stock options, restricted stock and incentives expense, $0.8 million of expense related to PMTA, $1.3 million of expense related to corporate restructuring, and $0.1 million of expense related to the new ERP and CRM systems. Selling, general and administrative expenses in the three months ended March 31, 2023, included $0.7 million of stock options, restricted stock and incentives expense, $0.2 million of expense related to PMTA and $0.1 million of consulting expense related to the scoping and mobilization of the new ERP and CRM systems.

Interest Expense, net:  For the three months ended March 31, 2024, interest expense, net decreased to $3.5 million from $4.0 million for the three months ended March 31, 2023 as a result of increased interest income on cash deposits as a result of rising interest rates.

Investment (Gain) Loss:  For the three months ended March 31, 2024, we had an investment gain of $0.1 million compared to a $4.8 million loss for the three months ended March 31, 2023. The change is a result of an impairment charge recognized on our investment in Docklight for $4.9 million in the first quarter of 2023.

Gain on Extinguishment of Debt: There was no gain or loss on extinguishment of debt for the three months ended March 31, 2024 compared to a $0.8 million gain for the three months ended March 31, 2023 as a result of repurchasing $13.9 million of Convertible Senior Notes in the first quarter of 2023.

Income Tax Expense:  Our income tax expense of $3.7 million was 23.4% of income before income taxes for the three months ended March 31, 2024. Our effective income tax rate was 25.2% for the three months ended March 31, 2023.

Net Income (Loss) Attributable to Non-Controlling Interest:  Net gain attributable to non-controlling interest was $0.2 million for the three months ended March 31, 2024 compared to $0.3 million net loss for the three months ended March 31, 2023.

Net Income Attributable to Turning Point Brands, Inc.:  Due to the factors described above, net income attributable to Turning Point Brands, Inc. for the three months ended March 31, 2024 and 2023, was $12.0 million and $7.6 million, respectively.

EBITDA and Adjusted EBITDA

To supplement our financial information presented in accordance with generally accepted accounting principles in the United States, or U.S. GAAP, we use non-U.S. GAAP financial measures including EBITDA and Adjusted EBITDA. We believe Adjusted EBITDA provides useful information to management and investors regarding certain financial and business trends relating to our financial condition and results of operations. Adjusted EBITDA is used by management to compare our performance to that of prior periods for trend analyses and planning purposes and is presented to our Board of Directors. We believe that EBITDA and Adjusted EBITDA are appropriate measures of operating performance because they eliminate the impact of expenses that do not relate to operating performance. In addition, our debt instruments contain covenants which use Adjusted EBITDA calculations.

We define “EBITDA” as net income before interest expense, gain (loss) on extinguishment of debt, provision for income taxes, depreciation, and amortization. We define “Adjusted EBITDA” as net income before interest expense, gain (loss) on extinguishment of debt, provision for income taxes, depreciation, amortization, other non-cash items, and other items we do not consider the ordinary course in our evaluation of ongoing operating performance noted in the reconciliation below.

33
Non-U.S. GAAP measures should not be considered a substitute for, or superior to, financial measures calculated in accordance with U.S. GAAP. Adjusted EBITDA excludes significant expenses required to be recorded in our financial statements by U.S. GAAP and is subject to inherent limitations. Other companies in our industry may calculate this non-U.S. GAAP measure differently than we do or may not calculate it at all, limiting its usefulness as a comparative measure. The tables below provide reconciliations between net income and Adjusted EBITDA.

(in thousands)
  
Three Months Ended
March 31,
  
 
  
2024
    
2023
  
Net income attributable to Turning Point Brands, Inc.
  
$
12,010
    
$
7,597
  
Add:
                
Interest expense, net
    
3,479
      
4,010
  
Gain on extinguishment of debt
    
–
      
(777
)
Income tax expense
    
3,727
      
2,468
  
Depreciation expense
    
837
      
776
  
Amortization expense
    
886
      
771
  
EBITDA
  
$
20,939
    
$
14,845
  
Components of Adjusted EBITDA
                
Corporate and CDS restructuring (a)
    
1,261
      
–
  
ERP/CRM (b)
    
138
      
138
  
Stock options, restricted stock, and incentives expense (c)
    
2,062
      
743
  
Transactional expenses and strategic initiatives (d)
    
30
      
4
  
FDA PMTA (e)
    
841
      
158
  
Non-cash asset impairment (f)
    
–
      
4,897
  
Adjusted EBITDA
  
$
25,271
    
$
20,785
  

(a)
Represents costs associated with corporate and CDS restructuring, including severance.
(b)
Represents cost associated with scoping and mobilization of new ERP and CRM systems and cost of duplicative ERP licenses.
(c)
Represents non-cash stock options, restricted stock, incentives expense and Solace performance stock units.
(d)
Represents the fees incurred for transaction expenses.
(e)
Represents costs associated with applications related to FDA premarket tobacco product application (“PMTA”).
(f)
Represents impairment of investment assets.

Liquidity and Capital Resources

As of March 31, 2024, we have $130.9 million of cash on hand and have $59.0 million of availability under the 2023 ABL Facility. Our principal uses for cash are working capital, debt service, and capital expenditures.

Our Convertible Senior Notes, with an outstanding balance of $118.5 million as of March 31, 2024, mature in July 2024. On November 7, 2023, one of our wholly-owned subsidiaries entered into the 2023 ABL Facility to refinance up to $75.0 million of the Convertible Senior Notes at maturity. As a result, we classified $59.0 million (our current availability under the 2023 ABL Facility based on borrowing base calculations) related to the Convertible Senior Notes in long-term liabilities on our March 31, 2024 Consolidated Balance Sheet. With our strong cash balance, free cash flow generation and borrowing availability under the 2023 ABL Facility, we expect to have ample liquidity to address the remaining balance of the Convertible Senior Notes maturing in July, and to satisfy our operating cash requirements for the foreseeable future.

Our working capital, which we define as current assets less cash and current liabilities, decreased to $38.8 million at March 31, 2024, compared with $49.4 million at December 31, 2023. The decrease in working capital is primarily a result of the timing of inventory payments as well as $3.0 million insurance deposits being invested in investments.

 
  
As of
  
(in thousands)
  
March 31,
2024
    
December 31,
2023
  
 
            
Current assets
  
$
148,102
    
$
149,730
  
Current liabilities
    
109,305
      
100,336
  
Working capital
  
$
38,797
    
$
49,394
  

34
Cash Flows from Operating Activities

For the three months ended March 31, 2024, net cash provided by operating activities was $22.6 million compared to net cash provided by operating activities of $15.4 million for the three months ended March 31, 2023, an increase of $7.2 million, primarily due to the timing of changes in other working capital and net income from operations.

Cash Flows from Investing Activities

For the three months ended March 31, 2024, net cash used in investing activities was $8.0 million compared to net cash used in investing activities of $2.4 million for the three months ended March 31, 2023, an increase in cash used in investing activities of $5.6 million, primarily due to an increase in purchases of captive insurance investments.

Cash Flows from Financing Activities

For the three months ended March 31, 2024, net cash used in financing activities was $4.6 million compared to net cash used in financing activities of $14.6 million for the three months ended March 31, 2023, a decrease of $10.0 million, primarily due to an increase in repurchases of common stock of $2.1 million during the period, offset by $13.0 million in repurchases of Convertible Senior Notes during the same period in 2023.

Dividends and Share Repurchase

A dividend of $0.07 per common share was paid on April 12, 2024, to shareholders of record at the close of business on March 22, 2024.

On February 25, 2020, our Board of Directors approved a $50.0 million share repurchase program, which is intended for opportunistic execution based upon a variety of factors including market dynamics. The program is subject to the ongoing discretion of the Board of Directors. On October 25, 2021, the Board of Directors increased the approved share repurchase program by $30.7 million and by an additional $24.6 million on February 24, 2022. In the first quarter of 2024, the Company repurchased $2.1 million of common stock, with $25.1 million remaining available for share repurchases under the program as of March 31, 2024.

Long-Term Debt

Notes payable and long-term debt consisted of the following at March 31, 2024 and December 31, 2023, in order of preference:

 
  
March 31,
2024
    
December 31,
2023
  
Senior Secured Notes
  
$
250,000
    
$
250,000
  
Convertible Senior Notes
    
118,541
      
118,541
  
Gross notes payable and long-term debt
    
368,541
      
368,541
  
Less deferred finance charges
    
(2,648
)
    
(3,183
)
Less current maturities
    
(59,397
)
    
(58,294
)
Notes payable and long-term debt
  
$
306,496
    
$
307,064
  

Senior Secured Notes

On February 11, 2021, we closed a private offering (the “Offering”) of $250 million aggregate principal amount of our 5.625% senior secured notes due 2026 (the “Senior Secured Notes”). The Senior Secured Notes bear interest at a rate of 5.625% and will mature on February 15, 2026. Interest on the Senior Secured Notes is payable semi-annually in arrears on February 15 and August 15 of each year, commencing on August 15, 2021.We used the proceeds from the Offering (i) to repay all obligations under and terminate the 2018 First Lien Credit Facility, (ii) to pay related fees, costs, and expenses and (iii) for general corporate purposes.

Obligations under the Senior Secured Notes are guaranteed by the Company’s existing and future wholly-owned domestic subsidiaries (the “Guarantors”) that guarantee any credit facility (as defined in the indenture governing the Senior Secured Notes or the “Senior Secured Notes Indenture”) or capital markets debt securities of the Company or Guarantors in excess of $15.0 million. The Senior Secured Notes and the related guarantees are secured by first-priority liens on substantially all of the assets of the Company and the Guarantors, subject to certain exceptions.

35
The Company may redeem the Senior Secured Notes, in whole or in part, at any time, at the redemption prices (expressed as a percentage of the principal amount to be redeemed) set forth below, plus accrued and unpaid interest, if any, on the Senior Secured Notes to be redeemed to (but not including) the applicable redemption date if redeemed during the period indicated below:

On or after February 15, 2023
    
102.813
%
On or after February 15, 2024
    
101.406
%
On or after February 15, 2025 and thereafter
    
100.000
%

If we experience a change of control (as defined in the Senior Secured Notes Indenture), we must offer to repurchase the Senior Secured Notes at a repurchase price equal to 101% of the principal amount of the Notes to be repurchased, plus accrued and unpaid interest.

The Senior Secured Notes Indenture contains covenants that, among other things, restrict the ability of the Company and its restricted subsidiaries to: (i) grant or incur liens; (ii) incur, assume or guarantee additional indebtedness; (iii) sell or otherwise dispose of assets, including capital stock of subsidiaries; (iv) make certain investments; (v) pay dividends, make distributions or redeem or repurchase capital stock; (vi) engage in certain transactions with affiliates; and (vii) consolidate or merge with or into, or sell substantially all of our assets to another entity. These covenants are subject to a number of limitations and exceptions set forth in the Senior Secured Notes Indenture. The Senior Secured Notes Indenture provides for customary events of default. We were in compliance with all covenants as of March 31, 2024.

We incurred debt issuance costs attributable to the issuance of the Senior Secured Notes of $6.4 million which are amortized to interest expense using the straight-line method over the expected life of the Senior Secured Notes.

2021 Revolving Credit Facility

In connection with the Offering, we also entered into a $25.0 million senior secured revolving credit facility (the “2021 Revolving Credit Facility”) with the lenders party thereto and Barclays Bank PLC, as administrative agent and collateral agent (in such capacity, the “Agent”).  This facility was terminated in November 2023 in connection with the entry by a subsidiary of the Company in a new asset-backed revolving credit facility. See “2023 ABL Facility” below. We incurred debt issuance costs attributable to the issuance of the 2021 Revolving Credit Facility of $0.5 million, with the remaining $0.2 million written off to gain on debt extinguishment upon termination of the facility.

2023 ABL Facility

On November 7, 2023, TPB Specialty Finance, LLC, a wholly-owned subsidiary of the Company (the “ABL Borrower”), entered into a new $75.0 million  asset-backed revolving credit facility (the “2023 ABL Facility”), with the several lenders thereunder, and Barclays Bank Plc, as administrative agent (the “Administrative Agent”) and as collateral agent (the “Collateral Agent”) and First-Citizens Bank & Trust Company as additional collateral agent (the “Additional Collateral Agent”). Under the 2023 ABL Facility, the ABL Borrower may draw up to $75.0 million under Revolving Credit Loans and Last In Last Out (“LILO”) Loans. The 2023 ABL Facility includes a $40.0 million accordion feature.  In connection with the 2023 ABL Facility, Turning Point Brands contributed certain existing inventory to the ABL Borrower. The 2023 ABL Facility is secured on a first priority basis (subject to customary exceptions) by all assets of the ABL Borrower.

The 2023 ABL Facility contains customary borrowing conditions including a borrowing base equal to the sum of (a) the lesser of (1) 85% of the lower of (A) the market value (on a first in first out basis) of the sum of eligible inventory, plus eligible in-transit inventory of the ABL Borrower and (B) 85% of the cost of the sum of eligible inventory, plus eligible in-transit inventory of the ABL Borrower and (2) 85% of the net orderly liquidation value (“NOLV”) percentage of the lower of (1)(A) or (1)(B); plus (b) 85% of the face value of all eligible accounts of the ABL Borrower minus (c) the amount of all eligible reserves.  The 2023 ABL Facility also includes a LILO borrowing base equal to the sum of (a) the lesser of: (1) 10% of the lower of (A) the market value (on a first in first out basis) of the sum of eligible inventory, plus eligible in-transit inventory of the ABL Borrower and (B) the cost of the sum of eligible inventory, plus eligible in-transit inventory and (2) 10% of the NOLV percentage of the lower of  (1)(A) or (1)(B); plus (b) 10% of the face amount of eligible account; minus (c) the amount of all eligible reserves.

36
Amounts borrowed under the 2023 ABL Facility are subject to an interest rate margin per annum equal to (a) from and after the closing date until the last day of the first full fiscal quarter ended after the closing date, (i) 1.25% per annum, in the case base rate loans, and (ii) 2.25% per annum, in the case of revolving credit loans that are SOFR Loans, (b)(i) 2.25% per annum, in the case of LILO loans that are base rate loans, and (ii) 3.25% per annum, in the case of LILO loans that are SOFR loans, (c) on the first day of each fiscal quarter, the applicable interest rate margins will be determined from the pricing grid below based upon the historical excess availability for the most recent fiscal quarter ended immediately prior to the relevant date, as calculated by the Administrative Agent.

Level
Historical Excess Availability
Applicable Margin
for SOFR Loans
Applicable Margin
for Base Rate Loans
I
Greater than or equal to 66.66%
1.75%
0.75%
II
Less than 66.66%, but greater than or
equal to 33.33%
2.00%
1.00%
III
Less than 33.33%
2.25%
1.25%

The 2023 ABL Facility also requires the Company and its restricted subsidiaries to maintain a fixed charge coverage ratio of at least 1.00 to 1.00 as of the end of any four consecutive fiscal quarters if excess availability shall be less than the greater of (a) 12.5% of the line cap and (b) $9.4 million, at any time and continuing until excess availability is equal to or exceeds the greater of (i) 12.5% of the line and (ii) $9.4 million for thirty (30) consecutive calendar days; provided that such $9.4 million level shall automatically increase in proportion to the amount of any increase in the aggregate revolving credit commitments thereunder in connection with any incremental facility.

The 2023 ABL Facility will mature on the earlier of (x) November 7, 2027 and (y) the date that is 91 days prior to the maturity date of any material debt of the ABL Borrower or the Company or any of its restricted subsidiaries (subject to customary extensions agreed by the lenders thereunder); provided that clause (y) shall not apply to the extent that on any applicable date of determination (on any date prior to the date set forth in clause (y)), (A) the sum of (x) cash that is held in escrow for the repayment of such material debt pursuant to arrangements satisfactory to the Administrative Agent, (y) cash that is held in accounts with the Administrative Agent and/or the Additional Collateral Agent, plus (z) excess availability, is sufficient to repay such material debt and (B) the ABL Borrower has excess availability of at least $15.0 million after giving effect to such repayment of material debt, including any borrowings under the commitments in connection therewith.

The Company has not drawn any borrowings under the 2023 ABL Facility but has letters of credit of approximately $1.2 million outstanding under the facility and has an available balance of $59.0 million based on the borrowing base as of March 31, 2024.

The Company incurred debt issuance costs attributable to the 2023 ABL Facility of $2.6 million which are amortized to interest expense using the straight-line method over the expected life of the 2023 ABL Facility.

Convertible Senior Notes

In July 2019, the Company closed an offering of $172.5 million in aggregate principal amount of its 2.50% Convertible Senior Notes due July 15, 2024 (the “Convertible Senior Notes”). The Convertible Senior Notes bear interest at a rate of 2.50% per year, payable semiannually in arrears on January 15 and July 15 of each year, beginning on January 15, 2020. The Convertible Senior Notes are senior unsecured obligations of the Company.

In 2023, a wholly owned subsidiary of the Company repurchased $44.0 million in aggregate principal amount of the Convertible Senior Notes on the open market resulting in a $1.9 million gain on extinguishment of debt. The repurchased notes continue to be held by our subsidiary and may be resold subject to compliance with applicable securities law. As of March 31, 2024, $118.5 million aggregate principal remains outstanding and held by third parties.

The Convertible Senior Notes held by third parties are convertible into approximately 2,219,704 shares of TPB Common Stock under certain circumstances prior to maturity at a conversion rate of 18.7252 shares per $1,000 principal amount of the Convertible Senior Notes, which represents a conversion price of approximately $53.40 per share, subject to adjustment under certain conditions, but will not be adjusted for any accrued and unpaid interest. The conversion price is adjusted periodically as a result of dividends paid by the Company in excess of pre-determined thresholds of $0.04 per share. Upon conversion, the Company may pay cash, shares of common stock or a combination of cash and stock, as determined by the Company at its discretion. The conditions required to allow the holders to convert their Convertible Senior Notes were not met as of March 31, 2024.

37
As discussed above, on November 7, 2023, a wholly-owned subsidiary of the Company entered into the 2023 ABL Facility to refinance up to $75.0 million of the Convertible Senior notes at maturity. As a result, the Company classified $59.0 million related to the Convertible Senior Notes in Notes payable and long-term debt on the Company’s March 31, 2024 Consolidated Balance Sheets. Based on current liquidity, free cash flow generation and availability under the 2023 ABL Facility, the Company believes it will have sufficient liquidity to address the maturity of the remaining Convertible Senior Notes.

The Company incurred debt issuance costs attributable to the Convertible Senior Notes of $5.9 million which are amortized to interest expense using the straight-line method over the expected life of the Convertible Senior Notes.

In connection with the Convertible Senior Notes offering, the Company entered into privately negotiated capped call transactions with certain financial institutions. The capped call transactions have a strike price of $53.40 per share and a cap price of $82.86 per share, and are exercisable when, and if, the Convertible Senior Notes are converted. The Company paid $20.53 million for these capped calls at the time they were entered into and charged that amount to additional paid-in capital.

Off-balance Sheet Arrangements

During the three months ended March 31, 2024, the Company executed no foreign exchange contracts meeting hedge accounting requirements. At March 31, 2024, we had foreign currency contracts outstanding for the purchase of €9.2 million and sale of €9.2 million, with maturities ranging from April to September 2024. The fair value of the foreign currency contracts were based on quoted market prices and resulted in an asset of $0.0 million included in Other current assets and a liability of $0.1 million included in Accrued liabilities at March 31, 2024. During 2023, we executed various foreign exchange contracts for the purchase of €20.1 million and sale of €15.2 million. At December 31, 2023, we had foreign currency contracts outstanding for the purchase of €15.2 million and sale of €15.2 million. The fair value of the foreign currency contracts were based on quoted market prices and resulted in an asset of $0.3 million included in Other current assets and a liability of $0.1 million included in Accrued liabilities at December 31, 2023.

Inflation

Inflation in general, coupled with increases in gas prices have had a substantial negative effect on the purchasing power of consumers. While historically, we have been able to increase prices at a rate equal to or greater than that of inflation, doing so would be difficult in the current inflationary environment. However, we have implemented price increases in areas where doing so has been feasible. In addition, we have been able to maintain a relatively stable variable cost structure for our products due, in part, to our successful procurement regarding our tobacco products and, in part, to our existing contractual agreement for the purchase of our premium cigarette papers.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

Foreign Currency Sensitivity

During the quarter ended March 31, 2024, there have been no material changes in our exposure to exchange rate fluctuation risk, as reported within our 2023 Annual Report on Form 10-K. Please refer to our ‘Quantitative and Qualitative Disclosures about Market Risk’ included in our 2023 Annual Report on Form 10-K filed with the SEC.

Credit Risk

There have been no material changes in our exposure to credit risk, as reported within our 2023 Annual Report on Form 10-K, during the three months ended March 31, 2024. Please refer to our ‘Quantitative and Qualitative Disclosures about Market Risk’ included in our 2023 Annual Report on Form 10-K filed with the SEC.

Interest Rate Sensitivity

In February 2021, we issued the Senior Secured Notes in an aggregate principal amount of $250 million. In July 2019, we issued Convertible Senior Notes in an aggregate principal amount of $172.5 million. We carry the Senior Secured Notes and Convertible Senior Notes at face value. Since the Senior Secured Notes and Convertible Senior Notes bear interest at a fixed rate, we have no financial statement risk associated with changes in interest rates. However, the fair value of the Convertible Senior Notes changes when the market price of our stock fluctuates, or interest rates change. Our remaining debt instrument is a revolving credit facility, which has no borrowing outstanding.

38
Item 4. Controls and Procedures

We have carried out an evaluation under the supervision, and with the participation of, our management including our Chief Executive Officer (“CEO”), Chief Financial Officer (“CFO”), and Chief Accounting Officer (“CAO”), of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act of 1934), as of March 31, 2024. Based upon the evaluation, our CEO, CFO, and CAO concluded our disclosure controls and procedures are not effective as of such date solely due to material weaknesses in internal controls over financial reporting that were disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023.

As previously described in Part II, Item 9A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2023, during our evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2023, we concluded that our internal control over financial reporting was not effective solely due to the existence of the following material weakness:

We did not design and maintain effective internal controls related to our information technology general controls (“ITGCs”) in the areas of user access and program change-management over certain information technology (“IT”) systems that support the Company’s financial reporting processes. Our business process controls (automated and manual) that are dependent on the affected ITGCs were also deemed ineffective because they could have been adversely impacted. We believe that these control deficiencies were a result of: IT control processes lacking sufficient documentation such that the successful operation of ITGCs was overly dependent upon knowledge and actions of certain individuals with IT expertise and inherent system limitations.

The material weakness did not result in any identified misstatements to our financial statements, and there were no changes to previously released financial results. The material weakness will not be considered remediated until the applicable controls operate for a sufficient period of time, and management has concluded through testing that these controls are operating effectively.

Remediation Plan

While our remediation plan may evolve and expand, management has been implementing and continues to implement measures designed to ensure that control deficiencies contributing to the material weakness are remediated, such that these controls are designed, implemented, and operating effectively. The remediation actions include: (i) implementation of a new ERP system in 2024; (ii)  developing and maintaining documentation underlying ITGCs; (iii) implementing an IT management review and testing plan to monitor ITGCs with a specific focus on systems supporting our financial reporting processes; and (iv) enhanced quarterly reporting on the remediation measures to the Audit Committee of the Board of Directors.

We believe that these actions will remediate the material weakness. The material weakness will not be considered remediated, however, until the applicable controls operate for a sufficient period of time and management has concluded, through testing, that these controls are operating effectively.

39
PART II—OTHER INFORMATION

Item 1.  Legal Proceedings

For a description of our material pending legal proceedings, please see Contingencies in Note 14 to the Notes to the Consolidated Financial Statements in Part I, Item 1 of this Quarterly Report.

See ‘Risk Factors—We are subject to significant product liability litigation’ within our 2023 Annual Report on Form 10-K for additional details.

Item 1A. Risk Factors

In addition to the other information set forth in this report, carefully consider the factors discussed in the ‘Risk Factors’ section contained in our 2023 Annual Report on Form 10-K. There have been no material changes to the Risk Factors set forth in the 2023 Annual Report on Form 10-K.

Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds

On February 25, 2020, the Company’s Board of Directors approved a $50.0 million share repurchase program, which is intended for opportunistic execution based upon a variety of factors including market dynamics. On October 25, 2021, the Board of Directors increased the approved share repurchase program by $30.7 million bringing the authority at the time back to $50.0 million (including approximately $19.3 million available for repurchases under the Board of Directors’ previous authorization). On February 24, 2022, the Board of Directors increased the approved share repurchase program by $24.6 million bringing total authority at that time to $50.0 million. This share repurchase program has no expiration date and is subject to the ongoing discretion of the Board of Directors. All repurchases to date under our stock repurchase programs have been made through open market transactions, but in the future, we may also purchase shares through privately negotiated transactions or 10b5-1 repurchase plans.

The following table includes information regarding purchases of our common stock made by us during the quarter ended March 31, 2024 in connection with the repurchase program described above.

Period
  
Total Number
of Shares
Purchased (1)
    
Average
Price Paid
per Share
    
Total Number of
Shares Purchased
as Part of Publicly
Announced Plans
or Programs
    
Approximate Dollar
Value of Shares
that May Yet Be
Purchased Under the
Plans or Programs
  
January 1 to January 31
    
3,015
    
$
26.32
      
–
    
$
27,197,886
  
February 1 to February 29
    
39,429
    
$
24.84
      
–
    
$
27,197,886
  
March 1 to March 31
    
83,420
    
$
27.94
      
72,545
    
$
25,118,746
  
Total
    
125,864
              
72,545
          

(1)
The total number of shares purchased includes shares withheld by the Company in an amount equal to the statutory withholding taxes for holders who vested in stock-based awards, which totaled 3,015 shares in January, 39,429 shares in February and 10,875 shares in March. Shares withheld by the Company to cover statutory withholdings taxes are repurchased pursuant to the applicable plan and not the authorization under the share repurchase program.

Item 3. Defaults Upon Senior Securities

Not applicable.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

Not applicable.

40
Item 6. Exhibits

Exhibit No.
Description
   
Employment Agreement by and between the Company and Andrew Flynn, dated as of March 6, 2024  (incorporated herein by reference to Exhibit 10.1 of Turning Point Brands, Inc’s Current Report on Form 8-K filed with the Commission on March 12, 2024 (File No. 001-37763)).
   
Employment Agreement by and between the Company and David Glazek, dated as of March 29, 2024.*
   
Rule 13a-14(a)/15d-14(a) Certification of Graham Purdy.*
   
Rule 13a-14(a)/15d-14(a) Certification of Andrew Flynn.*
   
Rule 13a-14(a)/15d-14(a) Certification of Brian Wigginton.*
   
Section 1350 Certifications pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*
   
101
XBRL (eXtensible Business Reporting Language). The following materials from Turning Point Brands, Inc.’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2024, filed on May 2, 2024, formatted in Inline XBRL (iXBRL): (i) consolidated balance sheets, (ii) consolidated statements of income, (iii) consolidated statements of comprehensive income, (iv) consolidated statements of cash flows, and (v) the notes to consolidated financial statements.*
   
104
Cover Page Interactive Data File (formatted in iXBRL and included in Exhibit 101).*

*
Filed or furnished herewith

41
Signatures

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 
TURNING POINT BRANDS, INC.
     
   
By: /s/ Graham Purdy
  
   
Name: Graham Purdy
   
Title:  President and Chief Executive Officer
     
   
By: /s/ Andrew Flynn
  
   
Name:  Andrew Flynn
   
Title: Chief Financial Officer
     
   
By:  /s/ Brian Wigginton
  
   
Name:  Brian Wigginton
   
Title:  Chief Accounting Officer
     
Date:  May 2, 2024
    


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