What changed in this filing

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Item 1. Business

2021-02-19 compared with 2020-03-12 · 323 added, 178 removed, 169 unchanged (75% of the section changed)

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Turning Point Brands, Inc.

(the Company, we, our, or us) is a leading, independent provider of Other Tobacco Products (OTP) in the U.S.

We estimate the OTP industry generated approximately $11.5 billion of manufacturer revenue in 2019.

In contrast to manufactured cigarettes, which have been experiencing declining volumes for decades based on data published by the Alcohol and Tobacco Tax and Trade Bureau (TTB), the OTP industry is demonstrating increased consumer appeal with low to mid-single digit consumer unit growth as reported by Management Science Associates, Inc.

(the “Company,” “we,” “our,” or “us”) 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 ® to 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 double-digit consumer unit growth in 2020 as reported by Management Science Associates, Inc.

(“MSAi”), a third-party analytics and information company.

We were the 6 th largest competitor in terms of total OTP consumer units sold during 2019.

We sell a wide range of products across the OTP spectrum;

however, we do not sell cigarettes.

Our portfolio of brands includes some of the most widely recognized names in the OTP industry, such as Zig-Zag ® , Beech-Nut ® , Stokers ® , Trophy ® , VaporBeast ® , Solace ® , and VaporFi ® .

Our three focus segments are led by our core, proprietary brands:

Zig-Zag ® in the Zig-Zag Products segment;

Stoker’s ® along with Beech-Nut ® and Trophy ® in the Stoker’s Products segment;

and Nu-X TM , Solace ® along with our distribution platforms ( Vapor Beast ® , VaporFi ® and Direct Vapor ® ) in the NewGen Products segment.

Our businesses generate solid cash flow which we use to finance acquisitions, increase brand support, expand our distribution infrastructure, and strengthen our capital position.

We currently ship to approximately 800 distributors with an additional 200 secondary, indirect wholesalers in the U.S.

that carry and sell our products.

We operate in three segments:

(i) Smokeless products, (ii) Smoking products, and (iii) NewGen 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 have identified additional growth opportunities in the emerging alternatives market.

In January 2019, we established our subsidiary, Nu-X Ventures (Nu-X), a new company and wholly owned subsidiary dedicated to the development, production and sale of alternative products and acquisitions in related spaces.

In January 2019, we established our subsidiary, Nu-X Ventures LLC (“Nu-X”), a new wholly owned subsidiary dedicated to the development, production and sale of alternative products and acquisitions in related spaces.

The creation of Nu-X allows us to leverage our expertise in traditional OTP management to alternative products.

The TPB management team has over 100 years of experience navigating federal, state and local regulations that are directly applicable to the growing alternatives market.

Our management team has extensive experience navigating federal, state and local regulations that are directly applicable to the growing alternatives market.

In July 2019, we acquired the assets of Solace Technology (“Solace”).

Solace is an innovative product development company which established one of the top e-liquid brands and has since grown into a leader in alternative products.

Solaces legacy and innovation will enhance Nu-Xs strong and nimble development engine.

In July 2019, we acquired a 30% stake in ReCreation Marketing (ReCreation).

ReCreation is a specialty marketing and distribution firm focused on building brands in the Canadian smoking and alternative products categories.

The investment will leverage ReCreations significant expertise in marketing and distributing tobacco and cannabis products throughout Canada.

We plan to make additional investments, partnerships and acquisitions to drive the business of Nu-X.

These endeavors will enable us to continue to identify unmet customer needs and provide quality products that we believe will result in genuine customer satisfaction and foster the growth of revenue.

Solace’s legacy and innovation enhanced Nu-X’s strong and nimble development engine.

We believe there are meaningful opportunities to grow through acquisitions and joint ventures across all product categories.

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retail locations which, with the addition of retail stores in Canada, brings our total North American retail presence to an estimated 210,000 points of distribution.

Our sales team targets widespread distribution to all traditional retail channels, including convenience stores.

Smokeless Segment

Our Smokeless segment includes both loose leaf chewing tobacco and moist snuff tobacco (MST).

Our Smokeless focus brand is Stoker’s in both chewing tobacco and MST.

Stoker’s ® chewing tobacco has grown considerable share over the last several years and is presently the #1 discount brand and the second largest brand in the industry, with approximately a 20% market share.

Our status in the chew market is further strengthened by Beech-Nut ® , the #3 premium brand and #7 overall, as well as Trophy ® , Durango ® , and the five Wind River Brands we acquired in 2016.

Collectively, the company is the #2 marketer of chewing tobacco with approximately 29% market share.

Our chewing tobacco operations are facilitated through our long-standing relationship with Swedish Match, the manufacturer of our loose-leaf chewing tobaccos.

Our sales team targets widespread distribution to all traditional retail channels, including convenience stores, and we have a growing e-commerce business.

To better align with Turning Point Brands, Inc.’s positioning as a branded consumer products company and to highlight the strength of its focus brands, the company has renamed its core business segments from Smoking Products to Zig-Zag Products and Smokeless Products to Stoker’s Products.

Historical financial results are not impacted by the segment name change.

Zig-Zag Products

Our Zig-Zag Products (“Zig-Zag”) segment principally includes rolling papers and MYO cigar wraps used as smoking accessories.

The strength of the Zig-Zag ® brand drives our leadership position in both the rolling papers and MYO cigar wrap markets.

Zig-Zag ® , is the #1 premium and overall rolling paper in the U.S.

with approximately 34% total market share.

Management estimates also indicate that Zig-Zag ® is the #1 brand in the promising Canadian market.

Rolling paper operations are aided by our sourcing relationship with Republic Technology International SAS (“RTI”).

See the “Distribution and Supply Agreements” section for our discussion of the Zig-Zag ® distribution agreement.

In MYO cigar wraps, the Zig-Zag ® brand commands a majority of the market and continues to innovate in novel ways through further product introductions including our introduction of Zig-Zag ® ‘Rillo sized wraps, which are similar in size to cigarillos, the most popular and fastest growing type of machine-made cigars.

In June 2020, we purchased certain assets from our long-term commercial partner Durfort Holdings S.R.L (‘‘Durfort’’) which included the co-ownership in the intellectual property rights for all of our MYO HTL cigar wraps products.

Along with the transaction, we entered into an exclusive Master Distribution Agreement to market and sell the original Blunt Wrap ® cigar wraps within the USA which was effective October 9, 2020.

In July 2019, we acquired a 30% stake in ReCreation Marketing (“ReCreation”).

ReCreation is a specialty marketing and distribution firm focused on building brands in the Canadian cannabis accessories, tobacco and alternative products categories.

The investment leverages ReCreation’s significant expertise in marketing and distributing cannabis accessories and tobacco products throughout Canada.

In November 2020, we acquired an additional stake that brought our total ownership to 50%.

1 Brand rankings and market share percentages obtained from MSAi for the 52-week period ended December 26, 2020.

In mid-2019 we repositioned the business with growth initiatives focused on new product introductions and new channel expansions that were better aligned with the growing market trends.

We are still in the early stages of realizing the benefits from these initiatives, but have already begun to change the growth profile of our Zig-Zag Products segment.

The Zig-Zag Products segment accounts for the majority of our operating profit and is now our fastest growing segment.

Stoker’s Products

Our Stoker’s Products (“Stoker’s”) segment includes both moist snuff tobacco (“MST”) and loose leaf chewing tobacco.

Stoker’s ® is our focus brand in both MST and chewing tobacco.

In MST, Stoker’s ® remains among the fastest growing brands and holds an 8.0% share in the stores with distribution and a 5.2% share of the total U.S.

Stoker’s ® pioneered the large 12 oz.

tub packaging format and is manufactured using a proprietary process that we think results in a superior product.

tub packaging format and is manufactured using a proprietary process that we believe results in a superior product.

In late 2015, we extended the Stoker’s ® MST franchise to include traditional 1.2 oz.

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Our proprietary manufacturing process is conducted at our Dresden, Tennessee, plant and packaged in both our Dresden, Tennessee, and Louisville, Kentucky, facilities.

1 Brand rankings and market share percentages obtained from MSAi as of December 31, 2019.

Smoking Segment

Our Smoking segment principally includes cigarette papers and Make-Your-Own (MYO) cigar wraps.

The iconic strength of the Zig-Zag ® brand drives our leadership position in both the cigarette papers and MYO cigar wrap markets.

In cigarette papers, Zig-Zag ® is the #1 premium cigarette paper in the U.S.

with approximately 35% total market share.

Management estimates also indicate that Zig-Zag ® is the #1 brand in the promising Canadian market.

Cigarette paper operations are aided by our sourcing relationships with Bolloré.

In MYO cigar wraps, the Zig-Zag ® brand commands about three-quarters of the market and continues to innovate in novel ways, including our recent introduction of Zig-Zag ® ‘Rillo sized wraps which are similar in size to cigarillos, the most popular and fastest growing type of machine-made cigars.

MYO cigar wraps operations are facilitated by our long-standing commercial relationship with the patent holder, Durfort.

NewGen Segment

Our NewGen segment includes our Nu-X subsidiary dedicated to the development, production and sale of alternative products as well as our various acquisitions in the vape space.

Nu-X is dedicated to the development, production and sale of alternative products, which was enhanced by the acquisition of Solace in July 2019.

VaporBeast is a leading distributor of vapor products servicing the non-traditional retail channel.

International Vapor Group and its subsidiaries (collectively, IVG), operate a strong B2C eCommerce business with direct sales to consumers nationwide and abroad through the Direct-Vapor and VaporFi brands.

Refer to Note 3 of our Notes to Consolidated Financial Statements for further details regarding these acquisitions.

In late summer 2019, the vapor market experienced a significant disruption due to consumer illnesses and, thereafter, the FDA flavor regulation announcement.

As a result, on November 1, 2019, we announced our intention to evaluate strategic alternatives as they relate to the vapor business and implemented a restructuring effort to right-size the business including a company-wide workforce reduction of ten percent and the consolidation of warehouses, elimination of unprofitable platforms and store closures.

Coinciding with our restructuring announcement, we communicated our intention to pivot from the third-party vaping business and to focus sales and marketing resources on our proprietary brands.

Our status in the chew market is further strengthened by Beech-Nut ® , the #3 premium brand and #7 overall, as well as Trophy ® , Durango ® , and the five Wind River Brands we acquired in 2016.

Collectively, the company is the #2 marketer of chewing tobacco with approximately 32% market share.

Our chewing tobacco operations are facilitated through our long-standing relationship with Swedish Match, the manufacturer of our loose-leaf chewing tobaccos.

NewGen Products

Our NewGen Products (“NewGen”) segment includes our Nu-X subsidiary dedicated to the development, production and sale of alternative products as well as our various acquisitions in the vape distribution space.

Nu-X, which was formed in January 2019, is dedicated to the development, production and sale of innovative, alternative products.

Nu-X was enhanced by the acquisition of the assets and integration of Solace in July 2019.

Solace is an innovative product development company which established one of the top e-liquid brands and has since grown into a leader in alternative products.

Nu-X markets a wide assortment of offerings including CBD and nutraceutical products under the Nu-X TM brand, and nicotine e-liquid products and a nicotine chew product under the Solace ® brand.

Within our vape distribution business, Vapor Beast ® is a leading distributor of vapor products servicing the non-traditional retail channel.

International Vapor Group (“IVG”) operates a strong B2C eCommerce business with direct sales to consumers nationwide and abroad through the Direct Vapor ® and VaporFi ® brands.

We are leveraging our vape distribution business to increase sales of our proprietary brands.

In October of 2020, we made investments that gave us exposure to large and growing addressable markets.

We acquired a minority stake in Wild Hempettes, a leading manufacturer of hemp cigarettes under the WildHemp ™ and Hempettes ™ brands as our entry into the smokable CBD category.

In addition, the Company invested $15.0 million in dosist™, a global cannabinoid company, with an option to invest an additional $15.0 million at pre-determined terms over the next 12 months.

The Company received a warrant to receive preferred shares of dosist™ that will automatically be exercised upon the changing of federal laws in the United States, rescheduling cannabis and/or permitting the general cultivation, distribution and possession of cannabis.

Competitive Strengths

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We have built a portfolio of leading brands with significant scale that are well recognized by consumers, retailers, and wholesalers.

Our Stokers ® and Zig-Zag ® brands are each well established and date back 80 and 120 years, respectively.

The NewGen segment has been built primarily through the acquisitions of Solace, VaporBeast, and IVG, leading sellers of e-liquids, devices, and accessories.

• Stoker’s ® is the #2 loose leaf chewing tobacco brand and among the fastest growing MST brands in the industry.

We manufacture Stoker’s ® MST using only 100% American Leaf, utilizing a proprietary process to produce what we believe is a superior product.

• Zig-Zag ® is the #1 premium cigarette paper brand in the U.S., with significant distribution in Canada.

Our Zig-Zag ® and Stoker’s ® brands are each well established and date back 120 and 80 years, respectively.

The NewGen Products segment has been built primarily through the acquisitions of Solace, VaporBeast, and IVG, leading sellers of e-liquids, devices, and accessories .

Zig-Zag ® is the #1 premium and overall rolling paper brand in the U.S., with significant distribution in Canada.

Zig-Zag ® is also the #1 MYO cigar wrap brand in the U.S., as measured by MSAi.

We believe the Stokers ® brand is seen as an innovator in both the loose-leaf chewing tobacco and moist snuff markets.

We acquired North American rolling papers distribution rights for Zig-Zag ® in 1997.

More importantly, we own the Zig-Zag ® tobacco trademark in the U.S.

which we leverage for our MYO cigar wraps product.

More than 50% of our total 2020 Zig-Zag ® branded net sales are under our own Zig-Zag ® marks rather than those we license from under the Distribution and Licensing Agreements described below .

1 Brand rankings and market share percentages obtained from MSAi for the 52-week period ended December 26, 2020.

Stoker’s ® is among the fastest growing MST brands in the industry and is the #2 loose leaf chewing tobacco brand.

We manufacture Stoker’s ® MST using only 100% American Leaf, utilizing a proprietary process to produce what we believe is a superior product.

Zig-Zag ® is an iconic brand and has strong, enduring brand recognition among a wide audience of consumers.

We believe the Stoker’s ® brand is seen as an innovator in both the moist snuff and loose-leaf chewing tobacco markets.

The Solace acquisition provides us with a proven line of e-liquid and a strong new product development platform from which we intend to launch additional novel products, including a variety of actives.

VaporBeast is a powerful distribution engine that allows us to further penetrate non-traditional retail outlets.

IVG provides us direct access to the highly attractive, high margin B2C segment via the flagship VaporFi ® brand.

IVG provides us direct access to the highly attractive, high margin B2C segment via the flagship Direct Vapor ® and VaporFi ® brands.

Our Nu-X business has developed a line of innovative products that give us exposure to nascent but growing product categories.

Exposure to Growing Cannabinoid Consumption Trends

We believe that the cannabinoid market will expand over the coming years as it becomes increasingly accepted by the public in the U.S.

Our product offerings, particularly those in our Zig-Zag Products and NewGen Products segments, are ideally positioned to benefit from continued growth in consumer consumption.

In addition, the legal cannabis market in the U.S.

is projected to grow from $16 billion in 2020 to $34 billion by 2025, representing a 16% compounded annual growth rate, according to an August 2020 report of Arcview Market Research and BDS Analytics, Inc.

A recent Gallup poll showed nearly seven in ten Americans now support legalizing cannabis nationwide, approximately double the level of twenty years ago.

As of the end of 2020, 15 U.S.

states and the District of Columbia had legalized cannabis for adults and a majority of states now allow for comprehensive public medical cannabis programs.

Successful Track Record of New Product Launches and Category Expansions

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We have been successful in entering new product categories by extending existing products and brands in addition to introducing new products:

In 2009, we extended the Zig-Zag ® tobacco brand into the MYO cigar wraps market and captured a 50% market share within the first two years.

We are now the market share leader for MYO cigar wraps with approximately a 63% share.

We believe our success was driven by the Zig-Zag ® tobacco branding, which we feel is widely understood by consumers to represent a favorable, customizable experience ideally suited to MYO products.

We extended the Zig-Zag ® brand into hemp rolling papers in 2018 and followed that with the launch of paper cones in 2019 with both products quickly establishing leading positions in their respective categories.

We leveraged the proud legacy and value of the Stoker’s ® brand to introduce a 12 oz.

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Stoker’s ® MST has been among the fastest growing moist snuff brands in the industry in terms of pounds sold.

While competitors have introduced larger format tub packaging, the early entry and differentiation of the Stoker’s ® product have firmly established us as the market leader with over 50% of the Tub market.

In third quarter 2015, we introduced Stoker’s ® MST in 1.2 oz.

In 2015, we introduced Stoker’s ® MST in 1.2 oz.

cans to further expand retail penetration, particularly in convenience stores.

• In 2009, we extended the Zig-Zag ® tobacco brand into the MYO cigar wraps market and captured a 50% market share within the first two years.

We are now the market share leader for MYO cigar wraps with approximately a 75% share.

We believe our success was driven by the Zig-Zag ® tobacco branding, which we feel is widely understood by consumers to represent a favorable, customizable experience ideally suited to MYO products.

• In 2019 we launched the Nu-X brand focused on product development in the alternative market including cannabidiol isolate (CBD).

VaporBeast quickly established itself as a leading marketer and distributor of liquid vapor products to the non-traditional retail universe.

With its national footprint, VaporBeast is leveraging its regional consumer preference insights to further accelerate sales advances.

• The IVG acquisition, and specifically the VaporFi B2C marketing engine, offers us the opportunity to leverage the marketing competencies and processes to sell novel proprietary products across multiple channels and platforms.

• The Solace acquisition in 2019 provided us with a leading line of liquids and a powerful new product development platform.

In 2019, the IVG acquisition, and specifically the VaporFi B2C marketing engine, offered us the opportunity to leverage the marketing competencies and processes to sell novel proprietary products across multiple channels and platforms.

In 2019, we launched the Nu-X brand focused on product development in the alternative market including CBD and extended the brand into a line of nutraceutical products in 2020.

In 2019, the Solace acquisition provided us with a leading line of liquids and a powerful new product development platform.

We extended the brand with the launch of a nicotine chew.

We strategically target product categories that we believe demonstrate significant growth potential and for which the value of our brands is likely to have a meaningful impact.

We believe that our track record and existing portfolio of brands provide growth advantages as we continue to evaluate opportunities to extend our product lines and expand into new categories.

1 Brand rankings and market share percentages obtained from MSAi for the 52-week period ended December 26, 2020.

E-Commerce Capabilities

With the acquisition of VaporBeast and IVG, we established scaled B2B and B2C e-commerce presence to service the vape market.

Our e-commerce capabilities were enhanced by the acquisition and integration of Solace in 2019.

In 2020, we leveraged those capabilities to build a meaningful B2B and B2C e-commerce business for Zig-Zag ® .

Extensive Distribution Network and Data Driven Sales Organization

We have taken important steps to enhance our selling and distribution network and consumer marketing capabilities while keeping our capital expense requirements relatively low.

We have taken important steps to enhance our selling and distribution network and consumer marketing capabilities that allow us to grow our business while keeping our capital expense requirements relatively low.

We have long-standing relationships in the core convenience store channel and wholesale distribution network with access to more than 210,000, retail outlets in North America.

Our NewGen Products B2B business reaches thousands of vape stores and our B2C business has approximately 1.5 million unique customers.

We are also increasing brand presence through non-traditional channels including headshops, dispensaries, and B2B e-commerce.

In e-commerce, we have added brand dedicated platforms including ZigZag.com, Nu-X.com, and SolaceVapor.com.

We service our traditional tobacco and vapor customer bases with an experienced sales and marketing organization of approximately 180 professionals who possess in-depth knowledge of the OTP market.

We extensively use data supported by leading technology to enable our salesforce to analyze changing trends and effectively identify evolving consumer preferences at the store level.

Our market analytics allow us to efficiently and effectively address evolving consumer and market demands.

We subscribe to a sales tracking system provided by MSAi that measures all OTP product shipments by all market participants, on a weekly basis, from approximately 900 wholesalers to over 250,000 traditional retail stores in the U.S.

This system enables us to understand share and volume trends across multiple categories at the individual store level, allowing us to allocate field salesforce coverage to the highest opportunity stores, thereby enhancing the value of new store placements and sales activity.

Within our Stokers product categories, we have seen a positive correlation between the frequency of store calls by our salesforce and our retail market share.

As the initial sales effort is critical to the success of a product launch, we believe our experienced salesforce, expansive distribution network, and leading market analytics put us in a strong position to swiftly execute new product launches in response to evolving consumer and market preferences.

Long-standing, Strong Relationships with an Established Set of Producers

As part of our asset-light operating model we built long-standing and extensive relationships with leading, high-quality producers.

In 2019, our three most important suppliers were:

• Swedish Match, which manufactures our loose-leaf chewing tobacco;

• Bolloré, which provides us with exclusive access to the Zig-Zag ® cigarette paper and accessories brand for the U.S.

• Durfort, from which we source our MYO cigar wraps.

By outsourcing the production of products that represent more than 80% of our net sales to a select group of suppliers with whom we have strong relationships, we are able to maintain low overhead costs and minimal capital expenditures, which together drive our margins.

Within our Stoker’s segment product categories, we have seen a positive correlation between the frequency of store calls by our salesforce and our retail market share.

Asset-light Business Model that Generates Resilient Free Cash Flow

We have a lean, asset-light manufacturing and sourcing model which leverages outsourced supplier relationships and requires low capital expenditures.

We believe our asset-light model provides marketplace flexibility, allows us to achieve favorable margins and generates high free cash flow conversion.

As part of our asset-light operating model we built long-standing and extensive relationships with leading, high-quality producers from whom we source products including loose-leaf chewing tobacco and cigarette paper, among others.

We do not outsource our MST production as a result of our proprietary manufacturing processes which are substantively different than those of our competitors.

By outsourcing the production of products to a select group of suppliers with whom we have strong relationships, we are able to maintain low overhead costs and minimal capital expenditures.

Our supplier relationships allow us to increase the breadth of our product offerings and quickly enter new markets as management is able to focus on brand building and innovation.

In 2020, over 80% of our net sales were derived from outsourced production operations and our capital expenditures have ranged between $2.0 million and $6.1 million per year over the previous 5 years.

The stability of our cash flows is enhanced by the resilience of our Zig-Zag Products and Stoker’s Products business segments which we believe have recession-resistant end-markets.

Their products are primarily staple products that are small ticket purchases for repeat consumers.

In addition, we believe the secular shift to the value category in the Stoker’s Products segment will benefit the long-term resilience of our brands.

Expertise to Succeed in Dynamic Regulatory Environments

We operate in a highly regulated environment involving many different government agencies.

In 2009, the FDA was given a mandate over cigarettes and smokeless tobacco, which expanded in 2016 to include all other tobacco products including vaping and cigars.

We believe we have a competitive advantage in this environment with our experienced management team and our increased investments in teams of professionals comprising regulatory lawyers, scientists, and quality assurance processes.

The FDA is currently implementing a process called the PMTA, or the Pre Market Tobacco Authorization, which required all vape products introduced since 2007 to submit an application to the FDA by September 2020.

This is a very expensive and resource-intensive process and there are currently hundreds of competitors in the market but very few have the capability and or the resources, to get their products successfully through this process.

We spent approximately $17 million to file applications covering 250 products, and we believe our application was one of the most extensive portfolios for open tank vaping products that was submitted.

By developing and submitting a deep suite of products and leveraging our distribution platform we believe that we have the opportunity to grow substantial market share with our proprietary products as our competitors navigate this process.

We believe this is a transformational event for the industry with potential to reap substantial benefits over time as the FDA enforcement accelerates and thereby, creating significant barriers for new entrants.

Experienced Management Team

With an average of approximately 26 years of consumer products experience, including an average of 24 years in the tobacco industry, our senior management team has enabled us to grow and diversify our business while improving operational efficiency.

With extensive experience in consumer products, alternative smoking accessories and tobacco markets, our senior management team has enabled us to grow and diversify our business while improving operational efficiency.

Members of management have previous experience at other leading tobacco companies, including Altria Group, Inc.

(formerly Philip Morris);

Liggett & Myers Tobacco Company (now Liggett Group, a subsidiary of Vector Group ltd);

Swedish Match;

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Grow Share of Existing Product Lines, Domestically and Internationally

We intend to remain a consumer centric organization with an innovative view and understanding of the OTP market.

We believe there are meaningful opportunities for growth within the OTP market and in the emerging alternatives market which includes CBD.

We expect to continue to identify unmet consumer needs and provide quality products that we believe will result in genuine consumer satisfaction and foster the growth of revenue.

We maintain a robust product pipeline and plan to strategically introduce new products in attractive, growing OTP segments, both domestically and internationally.

For example, in addition to our successful launch of Stokers ® smaller 1.2 oz.

MST cans, we believe there are opportunities for new products in the MST pouch and MYO cigar wrap markets.

CBD products in the NewGen products segment are currently in our pipeline.

We believe we have successfully built strong, powerful brands possessing significant potential.

We intend to remain a consumer centric organization with an innovative view and understanding of the alternative smoking accessories and OTP markets.

We believe we have strong tailwinds for growth within our existing product lines.

Within our Zig-Zag Products segment, we are benefitting from secular growth trends in the industry, driving market share gains in our traditional convenience store channel and expanding our presence into non-traditional channels including headshops, dispensaries and e-commerce to drive growth.

Within our Stoker’s Products segment, there is ample runway for growth driven by same store sales growth and further distribution gains as Stoker’s ® MST continues to be one of the fastest growing brands in the category.

In 2020, less than 5% of our revenues were generated outside of the U.S.

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Our goals include expanding our presence in the worldwide OTP industry on a targeted basis.

For example, we are selling our Stokers ® MST products in South America and expanding Zig-Zags retail penetration and product assortment in Canada.

For example, we are expanding Zig-Zag ® ’s retail penetration and product assortment in Canada, and selling our Stoker’s ® MST products in South America, Europe, Asia and Africa.

Expand into Adjacent Categories through Innovation and New Partnerships

We continually evaluate opportunities to expand into adjacent product categories by leveraging our current portfolio or through new partnerships.

In 2009, we leveraged the Zig-Zag ® tobacco brand and introduced Zig-Zag ® MYO cigar wraps with favorable results.

We now command the #1 market share position for that segment.

We are currently expanding our MYO cigar wraps business through the expansion of hemp cigar wraps which are similar to traditional cigar wraps, but are made of fine quality hemp, lack any tobacco or nicotine and, therefore, are not subject to federal excise tax.

Additionally, we leveraged the big value equity in Stokers to launch a highly

differentiated and proprietary MST product that remains among the fastest growing brands in the category.

We believe there are meaningful opportunities for growth within the alternative smoking accessories and OTP markets.

We maintain a robust product pipeline and plan to strategically introduce new products in attractive, growing markets, both domestically and internationally.

In particular, the strength of the Zig-Zag ® brand provides a great platform to introduce a suite of complementary products similar to our launch and expansion of hemp papers and paper cones.

We have an exciting pipeline of new products and SKUs we plan on introducing over the coming years in both our papers and MYO wraps businesses.

As we have done successfully in the past, we will leverage our existing sales infrastructure to drive distribution of these new products.

We have identified a number of new adjacencies and we intend to leverage our existing brands and partnerships to continue the process of commercializing winning products that satisfy consumer needs.

Continue to Grow a Strong NewGen Platform

The OTP category is continually evolving as consumers actively seek out new products and product forms.

Given this market demand, we have developed a NewGen product platform which we believe will serve new and evolving consumer demands across multiple product categories.

Moving forward, we have identified additional opportunities in both CBD and other actives which we intend to take to market under Nu-X.

Through our partnership with Canadian American Standard Hemp Inc.

(CASH) and the keen insights we have attained in the alternative channel space over the last several years, we intend to fully leverage the total TPB infrastructure to place novel Nu-X products at retail and online via our B2C expertise.

We believe the categories within our NewGen segment are poised to be the key industry growth drivers in the future, and we are well-positioned to capitalize on this growth.

We intend to continue to pursue growth of our NewGen product platform by offering unique and innovative products to address evolving consumer demands.

Within Nu-X, we launched a lineup of products in the CBD and nutraceutical category.

We maintain a robust product pipeline and plan to strategically introduce new products in attractive and growing segments.

Increase our Mix of Proprietary Products in Vape Distribution

Our vape distribution business comprises a majority of our revenue with the NewGen Products segment.

It generates the highest share of our revenues but the lowest share of profits with a sales mix of mostly lower gross margin third-party products.

We aim to improve the profitability of the segment by generating increased sales from higher gross margin proprietary products within our vape distribution platform and growing our sales of Nu-X products.

Accelerate Growth Through National Distribution Network

Our business is built around a powerful sales and distribution infrastructure that currently reaches over 210,000 retail outlets in North America.

We have strong presence in independent convenience stores and now service most of the leading chain accounts.

Through our Nu-X Ventures e-commerce platforms and our B2B and B2C vape distribution platforms we have alternative avenues through which to sell third-party products and an increasing mix of our proprietary products.

This allows new products to be tested with lower risk before we plug them into our wider brick and mortar distribution system.

Combining our different platforms, we have an expansive multi-channel distribution infrastructure that gives us a big competitive advantage when we introduce new products or acquire companies that we can integrate into our network.

We believe our experienced salesforce, expansive distribution network, and leading market analytics put us in a strong position to swiftly execute new product launches in response to evolving consumer and market preferences.

Strategically Pursue Acquisitions

We believe there are meaningful acquisition opportunities in the fragmented OTP space.

We regularly evaluate acquisition opportunities across the OTP landscape.

In evaluating acquisition opportunities, our focus is on identifying acquisitions that strengthen our current distribution platform and product offerings or enable category expansion in areas with high growth potential.

We believe there are meaningful acquisition opportunities in our fragmented markets.

We regularly evaluate acquisition opportunities across our industries.

In evaluating acquisition opportunities, our focus is on identifying acquisitions that leverage our distribution platform and product offerings or enable category expansion in areas with high growth potential.

Substantially all of our 2020 U.S.

gross profit was derived from sales of products currently regulated by the U.S.

Food and Drug Administration (FDA) Center for Tobacco Products.

gross profit was derived from sales of products currently regulated by FDA Center for Tobacco Products.

We have significant experience in complying with the FDA regulatory regime with a compliance infrastructure composed of legal and scientific professionals.

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We have a strong track record of enhancing our OTP business with strategic and accretive acquisitions.

For example, our acquisition of the North American Zig-Zag ® cigarette papers distribution rights in 1997 has made us the #1 premium cigarette paper brand in the U.S., as measured by MSAi.

Perhaps more importantly, we own the Zig-Zag ® tobacco trademark in the U.S.

and have leveraged this asset effectively with approximately 52% of our total 2019 Zig-Zag branded net sales under our own Zig-Zag ® marks rather than those we license from Bolloré.

The company itself was built through acquisitions that were subsequently grown through distribution gains, market share growth and brand extensions into new product categories.

This is a playbook that we have drawn on over time with a consistent track record of success.

We acquired the U.S.

and Canadian rolling papers distribution rights for Zig-Zag ® in 1997 and extended our product offerings including our entry into the MYO cigar wraps category in 2009.

Today, Zig-Zag ® is the #1 premium and overall rolling paper and MYO cigar wrap brand in the U.S., as measured by MSAi.

In 2003, we acquired the Stoker’s ® brand.

We have since built the brand to a strong #2 position in the chewing tobacco industry while successfully leveraging the brand’s value through our MST expansion where it remains among the fastest growing MST brands in the industry.

More recently, we have completed a series of acquisitions since our IPO in 2016 including (i) smokeless tobacco brands from Wind River, (ii) VaporBeast, (iii) IVG, and (iv) Solace.

Our strategic minority interest in CASH gives us access to a pipeline of novel CBD products that we believe will be a dynamic force in the industry.

Additionally, our investment in ReCreation Marketing in Canada is expected to accelerate Zig-Zags growth through alternative channel penetration.

Maintain Lean, Low-Cost Operating Model

We have a lean, asset-light manufacturing and sourcing model which requires low capital expenditures and utilizes outsourced supplier relationships.

We believe our asset-light model provides marketplace flexibility and allows us to achieve favorable margins.

Our market analytics allow us to efficiently and effectively address evolving consumer and market demands.

Our supplier relationships allow us to increase the breadth of our product offerings and quickly enter new OTP markets as management is able to focus on brand building and innovation.

We intend to continue to optimize our asset-light operating model as we grow in order to maintain a low cost of operations and healthy margins.

In 2019, over 80% of our net sales were derived from outsourced production operations.

Our capital expenditures have ranged between $1.6 million and $4.8 million per year over the previous 5 years.

We do not intend to outsource our MST production as a result of our proprietary manufacturing processes which are substantively different than those of our competitors.

Subsequent to our initial public offering (“IPO”) in 2016, we completed a series of acquisitions that built the foundation of our NewGen Products segment through (i) VaporBeast, (ii) IVG, and (iii) Solace.

Our investment in ReCreation Marketing in Canada in 2019 is accelerating Zig-Zag ® ’s growth through alternative channel penetration and introducing our proprietary NewGen products into Canada.

In 2020, we acquired certain assets from Durfort including co-ownership of the intellectual property rights for our MYO cigar wraps products.

The transaction increased our share of the economics in a MYO cigar wraps business that was benefitting from secular growth tailwinds and gave us access to a complimentary product in Blunt Wrap ® through an exclusive distribution agreement.

Our investment in Wild Hempettes provided us entry into the growing smokable CBD category.

Most recently, our investment in dosist™, a global cannabinoid company, gives us increased exposure to the large and growing cannabinoid market.

Raw Materials, Product Supply, and Inventory Management

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Raw materials and work in process

Finished goods - Smokeless products

Finished goods - Smoking products

Finished goods - Zig-Zag Products

Finished goods - Stoker’s Products

Finished goods - NewGen Products

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Net Inventory

Smokeless Products

Our loose-leaf chewing and moist snuff tobaccos are produced from air-cured and fire-cured leaf tobacco, respectively.

Zig-Zag Products

Pursuant to the Zig-Zag ® distribution agreements, we are required to purchase from RTI all cigarette papers, cigarette tubes, and cigarette injecting machines that we sell, subject to RTI fulfilling its obligations under the Zig-Zag ® distribution agreements.

See the “Distribution and Supply Agreements” section for our discussion of the Zig-Zag ® distribution agreements.

If RTI is unable or unwilling to perform its obligations or ceases its cigarette paper manufacturing operations, in each case, as set forth in the Distribution Agreements, we may seek third-party suppliers and continue the use of the Zig-Zag ® trademark to market these products.

To ensure we have a steady supply of premium cigarette paper products, as well as cigarette tubes and injectors, RTI is required to maintain, at its expense, a two-month supply of inventory in a bonded, public warehouse in the U.S.

We obtain our MYO cigar wraps from our supplier in the Dominican Republic.

We also obtain our Zig-Zag ® branded cigar products from the Dominican Republic.

Stoker’s Products

Our moist snuff and loose-leaf chewing tobaccos are produced from air-cured and fire-cured leaf tobacco, respectively.

We utilize recognized suppliers that generally maintain 12- to 24-month supplies of our various types of tobacco at their facilities.

We do not believe we are dependent on any single country or supplier source for tobacco.

We generally maintain up to a two-month supply of finished, loose leaf chewing tobacco and moist snuff.

We generally maintain up to a two-month supply of finished, moist snuff and loose leaf chewing tobacco.

This supply is maintained at our Louisville, Kentucky, facility and in two regional public warehouses to facilitate distribution.

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The additives that we use are food-grade, generally accepted ingredients.

All of our loose-leaf chewing tobacco production is fulfilled through our agreement with Swedish Match.

See the Distribution and Supply Agreements section for our discussion of the Swedish Match Manufacturing Agreement.

All of our moist snuff products are manufactured at our facility in Dresden, Tennessee.

Packaging occurs at the Dresden, Tennessee, location in addition to the facility in Louisville, Kentucky.

Smoking Products

Pursuant to our distribution agreements with Bolloré (discussed in more detail, below, under the heading Distribution and Supply Agreements), we are required to purchase from Bolloré all cigarette papers, cigarette tubes, and cigarette injecting machines that we sell, subject to Bolloré fulfilling its obligations under these distribution agreements.

If Bolloré is unable or unwilling to perform its obligations or ceases its cigarette paper manufacturing operations, in each case, as set forth in the Distribution Agreements, we may seek third-party suppliers and continue the use of the Zig-Zag ® trademark to market these products.

To ensure we have a steady supply of premium cigarette paper products, as well as cigarette tubes and injectors, Bolloré is required to maintain, at its expense, a two-month supply of inventory in a bonded, public warehouse in the U.S.

We obtain our MYO cigar wraps from the patent holder under our agreement with Durfort in the Dominican Republic.

We also obtain our Zig-Zag branded cigar products from the Dominican Republic.

All of our loose-leaf chewing tobacco production is fulfilled through our agreement with Swedish Match.

See the “Distribution and Supply Agreements” section for our discussion of the Swedish Match Manufacturing Agreement.

NewGen Products

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and (iii) established best-in-class distribution and B2C platforms combining eCommerce selling skills with a national retail salesforce.

We believe the VaporBeast B2B competency coupled with the IVG B2C selling strengths and our national retail salesforce is a

genuine competitive advantage and one that we intend to leverage on behalf of Nu-X CBD and other actives products.

We believe the VaporBeast B2B competency coupled with the IVG B2C selling strengths and our national retail salesforce is a genuine competitive advantage and one that we intend to leverage on behalf of Nu-X CBD and other actives products.

Furthermore, we have established a sourcing group in Asia to ensure timely and cost-effective access to marketplace winners and new product launches, while also maximizing margin through thoughtful logistics strategies.

Distribution and Supply Agreements

Bolloré Distribution and License Agreements

We are party to two long-term distribution and license agreements with Bolloré with respect to sales of cigarette papers, cigarette tubes, and cigarette injector machines—one with respect to distribution in the U.S.

and one with respect to distribution in Canada (collectively, the Distribution Agreements).

Under the Distribution Agreements, Bolloré granted us the exclusive right to purchase products bearing the Zig-Zag ® brand name from Bolloré for resale in the U.S.

We have the sole right to determine pricing and other terms upon which we may resell any products purchased from Bolloré, including the right to determine the ultimate distributors of such products within these countries.

Furthermore, on March 19, 2013, we entered into an additional License and Distribution Agreement with Bolloré (the Bolloré License Agreement), which permits us the exclusive use of the Zig-Zag ® brand name in the U.S.

for e-cigarettes and any related accessories, including vaporizers and e-liquids.

The Bolloré License Agreement terminates upon termination of the Distribution Agreements.

We also entered into a License and Distribution Agreement with Bolloré permitting us the exclusive use of the Zig-Zag brand in the U.S.

and Canada for paper cone products.

This agreement also terminates upon termination of the Distribution Agreements.

Each of the Distribution Agreements were entered into on November 30, 1992, by a predecessor in interest for an initial twenty-year term.

The Distribution Agreements automatically renewed in November 2012 for a second twenty-year term and will automatically renew for successive twenty-year terms unless terminated in accordance with the provisions of such agreement.

The Distribution Agreements provide that, in order to assure each of the parties receives commercially reasonable profits in light of inflationary trends and currency fluctuation factors, 120 days prior to December 31, 2004, and each fifth-year anniversary from such date thereafter, the parties are required to enter into good faith negotiations to agree on an index and currency adjustment formula to replace the index and formula currently in effect.

If the parties are unable to agree, the dispute is to be submitted to binding arbitration.

Pursuant to the Distribution Agreements, if at any time the price received by Bolloré fails to cover its costs, Bolloré may give us notice of this deficiency, and the parties must promptly negotiate in good faith to adjust prices.

If the parties cannot agree on new prices, we may purchase products from an alternative supplier reasonably acceptable to Bolloré until the next price adjustment period (subject to certain price-matching rights available to Bolloré and other terms and conditions).

Further, Bolloré sources its needs for our orders from an affiliate of one of our competitors.

The Zig-Zag Distribution and License Agreements

In 1992 we entered into two long-term exclusive distribution agreements with respect to sales of Zig-Zag® cigarette papers, cigarette tubes, and cigarette injector machines in the U.S.

and Canada (collectively, the “Distribution Agreements”).

The Distribution Agreements had an initial twenty-year term, which automatically renews for successive twenty-year terms unless terminated in accordance with the terms of the Distribution Agreements.

The Distribution Agreements renewed for their second twenty-year term in November 2012.

Under the Distribution Agreements, we are required to purchase cigarette papers, cigarette tubes, and cigarette injector machines from the licensor;

however, our licensor must provide us with sufficient quantities consistent with specific order-to-delivery timelines outlined in the Distribution Agreements.

Our product supply is further protected by additional safeguards, including the right to seek third-party suppliers in certain circumstances and a two-month safety stock inventory to be kept in the U.S.

at the licensor’s expense.

The Distribution Agreements also provide shared responsibility for duties, insurance, shipping, and taxes.

The import duties and taxes in the U.S.

and Canada are our responsibility, while the licensor is responsible for insurance, export duties, and shipping costs.

Each of the Distribution Agreements contains customary termination provisions, including failure to meet performance obligations, the assignment of the agreement or the consummation of a change of control, in each case, without consent of the licensor, upon certain material breaches, including our agreement not to promote, directly or indirectly, cigarette paper or cigarette paper booklets of a competitor, or upon our bankruptcy, insolvency, liquidation, or other similar event.

The licensor also may terminate the Distribution Agreements if a competitor acquires a significant amount of our common stock or if one of our significant stockholders acquires a significant amount of one of our competitors.

In the event of a termination, we have agreed that for a period of five years after the termination we will not engage, directly or indirectly, in the manufacturing, selling, distributing, marketing, or otherwise promoting, in the U.S.

and Canada, of cigarette paper or cigarette paper booklets of a competitor without consent.

There are certain de minimis exceptions to these provisions.

For further details, see ‘‘Risk Factors – We depend on a small number of key third-party suppliers and producers for our products’’.

Pursuant to the Distribution Agreements, export duties, insurance, and shipping costs are the responsibility of Bolloré.

Import duties and taxes in the U.S.

and Canada are our responsibility.

Under the Distribution Agreements, we must purchase cigarette papers, cigarette tubes, and cigarette injector machines from Bolloré, subject to Bolloré fulfilling its obligations under these agreements.

Bolloré is required to provide us with the quantities of the products that we order consistent with specific order-to-delivery timelines detailed in the agreement.

The Distribution Agreements provide us with certain safeguards to ensure that we will be able to secure a steady supply of product, including (i) granting us the right to seek third-party suppliers with continued use of the Zig-Zag ® trademark if Bolloré is unable to perform its obligations or ceases its cigarette paper manufacturing operation, in each case as set forth in the Distribution Agreements, and (ii) maintaining a two-month supply of safety stock inventory of the premium papers, tubes, and injector machines in the U.S.

at Bollorés expense.

Under the Distribution Agreements, we have agreed that for a period of five years after the termination of the agreements we will not engage, directly or indirectly, in the manufacturing, selling, distributing, marketing, or otherwise promoting, in the U.S.

and Canada, of cigarette paper or cigarette paper booklets of a competitor without Bollorés consent, except for certain de minimis acquisitions of debt or equity securities of such a competitor and certain activities with respect to an alternative supplier used by us as permitted under the Distribution Agreements.

Each of the Distribution Agreements permits Bolloré to terminate such agreement (i) if certain minimum purchases (which, in the case of both Distribution Agreements, have been significantly exceeded in recent years) of cigarette paper booklets have not been made by us for resale in the jurisdiction covered by such agreement within a calendar year, (ii) if we assign such agreement without the consent of Bolloré, (iii) upon a change of control without the consent of Bolloré, (iv) upon certain acquisitions of our equity securities by one of our competitors or certain

investments by our significant stockholders in one of our competitors, (v) upon certain material breaches, including our agreement not to promote, directly or indirectly, cigarette paper or cigarette paper booklets of a competitor, or (vi) upon our bankruptcy, insolvency, liquidation, or other similar event.

Additionally, the Canada Distribution Agreement is terminable by either us or Bolloré upon the termination of the U.S.

Distribution Agreement.

In subsequent years, we entered into two licensing agreements, giving us the exclusive use of the Zig-Zag® brand name for e-cigarettes and related accessories in the U.S.

and for paper cone products in the U.S.

and Canada (collectively, the “License Agreements”).

Each of the License Agreements terminates if the Distribution Agreements are terminated.

The Distribution Agreements and the License Agreements were initially entered into with Bolloré.

In November of 2020, Bolloré assigned the Distribution Agreements and the License Agreements to RTI.

For a number of years, RTI has been the outsourced manufacturer of cigarette papers, cigarette tubes, cigarette injector machines and certain other products bearing the Zig-Zag ® name.

We do not expect the assignment of the Distribution Agreements or the License Agreements to have a material effect on our business.

Swedish Match Manufacturing Agreement

On September 4, 2008, we entered into a manufacturing and distribution agreement with Swedish Match whereby Swedish Match became the exclusive manufacturer of our loose-leaf chewing tobacco.

Under the agreement, production of our loose-leaf chewing tobacco products was completely transitioned to Swedish Matchs plant located in Owensboro, Kentucky, on September 18, 2009.

In 2008, we entered into a manufacturing and distribution agreement with Swedish Match whereby Swedish Match became the exclusive manufacturer of our loose-leaf chewing tobacco.

Under the agreement, production of our loose-leaf chewing tobacco products was completely transitioned to Swedish Match’s plant located in Owensboro, Kentucky, in 2009.

We source all of the tobacco Swedish Match uses to manufacture our products along with certain proprietary flavorings and retain all marketing, design, formula, and trademark rights over our loose-leaf products.

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We also hold a right of first refusal to acquire the manufacturing plant as well as Swedish Match’s chewing tobacco unit.

The agreement was automatically renewed for the first of five 10-year renewal periods on September 4, 2018.

The agreement was automatically renewed for the first of five 10-year renewal periods in September 2018.

Production and Quality Control

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Our in-house manufacturing operations are principally limited to (i) the manufacturing of our moist snuff products, which occurs at our facility in Dresden, Tennessee;

(ii) the packaging of our moist snuff products at our facilities in Dresden, Tennessee, and Louisville, Kentucky;

and (iii) the manufacturing of e-liquids at our Louisville, Kentucky, facility.

and (ii) the packaging of our moist snuff products at our facilities in Dresden, Tennessee, and Louisville, Kentucky.

Our MST products are processed in-house, rather than outsourced, as a result of our proprietary manufacturing processes which are substantively different than those of our competitors.

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Our sales and marketing group focuses on priority markets and sales channels and seeks to operate with a high level of efficiency.

In 2019, our tobacco-related sales and marketing efforts enabled our products to reach an estimated 210,000 retail doors in North America and over 800 direct wholesale customers with an additional 100 secondary, indirect wholesalers in the U.S.

Our tobacco sales efforts are focused on wholesale distributors and retail merchants in the independent and chain convenience store, tobacco outlet, food store, mass merchandising, drug store, and non-traditional retail channels.

In 2020, our Zig-Zag and Stoker’s Products sales and marketing efforts enabled our products to reach an estimated 210,000 retail doors in North America and over 800 direct wholesale customers with an additional 200 secondary, indirect wholesalers in the U.S.

Our Zig-Zag and Stoker’s Products sales efforts are focused on wholesale distributors and retail merchants in the independent and chain convenience store, tobacco outlet, food store, mass merchandising, drug store, and non-traditional retail channels.

For Zig-Zag Products, we have also developed a growing e-commerce business.

Our NewGen sales efforts are focused on alternative channels and winning new stores, increasing store share of requirements and growing the B2C engine to capture a greater share of online sales direct to the consumer.

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Given the decreasing prevalence of cigarette consumption, the “big tobacco” companies continue to demonstrate an increased interest and participation in a number of OTP markets.

Smokeless Products

Our three principal competitors in the loose-leaf chewing tobacco market are Swedish Match, the American Snuff Company, LLC (a unit of British American Tobacco p.l.c.), and Swisher International Group, Inc.

We believe moist snuff products are used interchangeably with loose leaf products by many consumers.

In the moist snuff category, we face the same competitors with the addition of U.S.

Smokeless Tobacco Company (a division of Altria Group, Inc.).

Smoking Products

Our principle competitors for premium cigarette paper sales are Republic Tobacco, L.P.

Zig-Zag Products

Our principle competitors for premium rolling paper sales are Republic Tobacco, L.P.

and HBI International.

Our two major competitors for MYO cigar wraps are New Image Global, Inc., and Blunt Wrap USA.

Our major competitors in MYO cigar wraps are Good Times USA, LLC and New Image Global, Inc.

We believe MYO cigar wrap products are used interchangeably with both rolling papers and finished cigar products by many consumers.

Stoker’s Products

Our four principal competitors in the moist snuff category are Swedish Match, the American Snuff Company, LLC (a unit of British American Tobacco p.l.c.), Swisher International Group, Inc.

Smokeless Tobacco Company (a division of Altria Group, Inc.).

In the loose-leaf chewing tobacco market, our three principal competitors are Swedish Match, the American Snuff Company, LLC (a unit of British American Tobacco p.l.c.), and Swisher International Group, Inc.

We believe moist snuff products are used interchangeably with loose leaf products by many consumers.

NewGen Products

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We have numerous registered trademarks relating to our products, including:

Beech-Nut ® , Trophy ® , Havana Blossom ® , Durango ® , Stokers ® , Tequila Sunrise ® , Freds Choice ® , Old Hillside ® , Our Pride ® , Red Cap ® , Tennessee Chew ® , Big Mountain ® , Springfield Standard ® , Snake River ® , VaporBeast ® , Vapor Shark ® , DirectVapor ® , VaporFi ® , SouthBeachSmoke ® , and Nu-X Ventures ® .

Beech-Nut ® , Trophy ® , Havana Blossom ® , Durango ® , Stoker’s ® , Tequila Sunrise ® , Fred’s Choice ® , Old Hillside ® , Our Pride ® , Red Cap ® , Tennessee Chew ® , Big Mountain ® , Springfield Standard ® , Snake River ® , Vapor Beast ® , Vapor Shark ® , DirectVapor ® , VaporFi ® and South Beach Smoke ® .

The registered trademarks, which are significant to our business, expire periodically and are renewable for additional 10-year terms upon expiration.

Flavor and blend formula trade secrets relating to our tobacco products, which are key assets of our businesses, are maintained under strict secrecy.

The Zig-Zag ® trade dress trademark for premium cigarette papers and related products are owned by Bolloré and have been exclusively licensed to us in the U.S.

The Zig-Zag ® trademark for e-cigarettes is also owned by Bolloré and has been exclusively licensed to us in the U.S.

The Zig-Zag ® trade dress trademark for premium cigarette papers and related products are owned by RTI and have been exclusively licensed to us in the U.S.

The Zig-Zag ® trademark for e-cigarettes is also owned by RTI and has been exclusively licensed to us in the U.S.

We own the Zig-Zag ® trademark with respect to its use in connection with products made with tobacco including, without limitation, cigarettes, cigars, and MYO cigar wraps in the U.S.

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We spent approximately $1.3 million, $2.5 million, and $2.5 million dollars on research and development and quality control efforts for the years ended December 31, 2020, 2019, and 2018, respectively.

Human Capital

As of February 15, 2021, we employed 408 full-time and part-time employees.

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We believe we have a positive relationship with our employees.

We believe that our success is driven by our employees.

Our human capital strategy, which is developed and overseen by our COO, focuses on the health and safety of our employees as well as the attraction, development and retention of employees.

Our COO is also responsible for our diversity and inclusion strategies.

The CEO, CFO and COO regularly update the board of directors and its committees on the human capital management, as well as the implementation of new initiatives.

Health and Safety:

Our health and safety programs are designed to address applicable regulations as well as the specific hazards and work environments of each of our facilities.

We regularly conduct safety reviews at each of our locations to ensure compliance with applicable regulations and all policies and procedures.

We maintain safety committees that meet regularly to discuss and address any potential issues in our warehouse and manufacturing facilities.

In addition, we conduct quarterly Motor Vehicle Safety trainings and annual Motor Vehicle Records checks for those assigned to company vehicles or who are daily drivers.

We utilize a number of metrics to assess the performance of our health and safety policies, procedures and initiatives, including lost workdays and any recordable or reportable incidents.

Since the onset of the COVID-19 pandemic, the health and safety of our employees has been our highest priority.

We immediately implemented several changes to enhance COVID-19 safety and mitigate related health risks in our work environment.

For our warehouse and operations, these included split shifts for our fulfillment employees, temperature scans, additional contactless hand sanitizing stations, protective equipment, social distancing guidelines, and increased cleaning and sanitization.

For other employees this included enhancing remote working capabilities as well as other arrangements.

Employee Engagement:

To assess and improve employee retention and engagement, we have surveyed employees, with the assistance of third-party consultants, and use the results of and feedback from the survey to address employee concerns.

Our most recent survey was conducted in November 2020 and included participation by over two-thirds of our employees.

Diversity and Inclusion:

We place a high value on diversity and inclusion.

As of December 31, 2020, approximately 35% of our workforce was female and 22% of our employees in managerial roles were female.

As of the same date, underrepresented minorities made up approximately 27% of our workforce, with 16% of our managerial roles held by underrepresented minorities.

Training and Talent Development:

We provide technical and leadership training to employees at both the officer and non-officer levels.

The Company has also launched a learning management system for tracking training hours for its employees.

We believe that encouraging continual development for our employees is essential for it to maintain the strength and profitability of Company, generally, and brands, specifically.

The Company posts its openings internally to allow current employees to apply.

In 2020, we had 11 promotions within the organization.

Retaining Talent:

D uring the year ended December 31, 2020, our employee turnover rate was 20.7%.

To retain our employees, we believe it is critical to continually focus on ensuring employees are highly engaged and feel valued.

We address these retention efforts in a number of ways, from formal surveys and quarterly business updates, to regular informal discussions with employees that enable us to listen to, understand and address their concerns.

Employee Benefits :

We offer comprehensive benefit programs to our employees that provides them with, among other things, medical, dental, and vision healthcare;

401K matching contributions;

paid parental leave;

tuition assistance;

and paid vacation time.

Environmental, Social and Governance (“ESG”)

We believe that focusing on our consumers and customers, while proactively and productively addressing the environment, our employees, our community, and society at large, is the key to driving value for all stakeholders.

We recognize that incorporating ESG into our business strategy enhances our operating principles of winning with accountability, integrity, and responsibility, and will position our company for greater success in the future.

We believe that our Company will maximize its return to shareholders by implementing strategies and establishing goals to address public health, mitigating environmental risks, seeking and integrating a diverse range of viewpoints, and displaying responsible behaviors to suppliers, customers, members of the organization and most of all to its consumers.

Public Health

One key aspect of our ESG program, is our distinct focus on TPB’s role in public health.

We market and sell products intended for adult use only, many containing nicotine.

As a result, public health plays a central role in all of our product initiatives.

We believe in, and work diligently to apply, harm reduction principles to all of our products, from development through distribution and marketing.

Turning Point Brands’ vision is built upon the idea that adult consumers, when presented with responsibly marketed and high-quality options, will in large part prefer products with a lower risk profile than others.

This idea of moving adult consumers down the continuum of risk is a key driver of our Company’s future for sustainable growth.

We intend to accomplish this by developing low-risk alternatives according to good product stewardship and manufacturing principles in order to increase adult consumer availability of and access to high-quality products that deliver satisfaction but at a lower risk to the user.

We will continue to focus our R&D, scientific, policy, and product resources to increase the number of consumers choosing products that are lower risk.

In September of 2020, Turning Point Brands submitted to the U.S.

Food and Drug Administration Premarket Tobacco Applications (“PMTAs”) covering 250 products.

This is an important and necessary step for TPB to offer adult consumers an extensive portfolio of products that serve as alternatives to combustible cigarettes and satisfy a wide variety of consumer preferences.

The filings provide detailed scientific data that we believe demonstrates that the products are “appropriate for the protection of public health,” as required by law.

Studies to support the applications were performed and included pharmacokinetics studies, a likelihood of use study, and a patterns of use study, in addition to a toxicological review.

TPB also provided a detailed marketing plan to illustrate how it will continue to prevent youth exposure to the products.

Prevention of Youth Access

Our vision is a world where only adult consumers purchase and use products that are not intended for youth.

As a seller of products intended for adult-use only, society demands a higher burden of responsibility from us, and we are committed to proactively preventing the underage appeal and access to those products.

We are dedicated to the responsible marketing of our adult use products and are fully committed to complying with all applicable laws and regulations governing them.

TPB targets its marketing activities to both male and female current nicotine, cannabinoid, and other active consumers that are 21 years of age and older.

The marketing of our adult use products does not include content directed toward minors, and prohibited marketing content includes childish images, cartoons, characters, mascots, juvenile designs, or other themes or imagery known to resonate with minors.

The Company plans to continue to engage in appropriately targeted marketing activity, consistent with all legal requirements, industry standards, and best practices.

Preventing youth access and use of our adult-use products is a key to our continued success.

All of our adult-use products are intended to be sold to and used by adults 21 years of age and older, and we are proactive in implementing programs to prevent youth access.

For TPB’s own online retail (B2C) sales, TPB utilizes a robust third-party age verification process for all online purchases by consumers.

On its business-to-business (B2B) website section, TPB offers suggestions of resources for its downstream customers related to prevention of youth access.

These resources include information related to retailer-focused FDA Guidance, third-party age verification software available to both brick-and-mortar and online sellers, and helpful websites that offer compliance tools, e.g., WeCard.

Environmental Stewardship

Being good stewards of the planet will support our business success.

We will achieve this by transitioning our fleet to lower emissions vehicles, implementing energy saving initiatives in all of our locations, using renewable energy, and investing in Renewable Energy Credits (RECs) and Verified Emissions Reductions (VERs).

We are also focused on reducing our water consumption and lowering our waste streams with increased recycling efforts.

Within each of these categories we will continue to define and update our metrics to measure our environmental impact based on Sustainability Accounting Standards Board (SASB), Carbon Disclosure Project (CDP), Task Force on Climate-related Financial Disclosures (TCFD), and the United Nations Sustainable Development Goals (SDGs).

Social Impact

We mobilized our internal resources during the COVID-19 crises to ensure the continuity of supply of our products to our customers and consumers while devoting company resources to assist the community at large, including:

Implementing processes to keep our team members safe with plantwide safety and cleanliness protocols, split shifts for fulfillment personnel, isolating work units where possible, and providing work from home opportunities.

Leveraging our IT strength and implementing videoconferencing to minimize contact and travel.

Communicating regularly with our customers and suppliers to understand their challenges and ways to assist them.

Providing lunches for our employees from local restaurants that were impacted by the pandemic.

Recognizing the commitment of our employees by providing worker incentives for our team members who could not work remotely.

Our Social program focuses on the safety of our people and the diversity of our workforce.

Our goals are to provide an injury-free and diverse workforce in order to provide a winning culture and be the employer of choice.

We actively monitor and train against our safety program and have safety committees dedicated to implementing best practices and improving our safe working environment.

We have established meaningful measures for our Social program and our targets and actions will allow us to achieve our goals in this area.

Corporate Governance

Good corporate governance is critical to our operating principles of winning with accountability, integrity, and responsibility.

Acting with accountability, integrity and responsibility is at the core of our business conduct policy.

We train all employees on our business conduct policies.

In addition, our Governance program measures the diversity of our Board.

We believe that Board diversity is critical to having a winning culture and strategy.

We have established meaningful measures for our Governance program and our targets and actions will allow us to achieve our goals in this area.

2020 Highlights

Key highlights from our 2020 ESG metrics include:

A year over year reduction in water usage at our manufacturing plants;

Recycling more solid waste than solid waste sent to landfills;

A year over year reduction in carbon emissions from our fleet;

In the area of safety, a year over year reduction in our lost time incident rate, and an incident rate well below industry average;

Greater than 30% female representation in our workforce, and 18% or more representation in all categories of management;

Underrepresented minorities made up 18% of our senior management;

Underrepresented minorities made up 43% of our Board, and women represented 29% of our Board;

Implemented expanded policies related to restricting youth access and exposure.

We are committed to defining meaningful targets and strive to achieve these targets in each of these areas.

Further information on our program can be found on our website.

Internet Address and Company SEC Filings

Our primary Internet address is www.turningpointbrands.com.

The SEC maintains a website at https://www.sec.gov that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC.

On the investor relations portion of our website, www.turningpointbrands.com/investor-relations, we provide a link to our electronic filings with the U.S.

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What changed 10-K

Item 1. Business