What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2023-03-15 compared with 2022-03-11 · 638 added, 801 removed, 859 unchanged (63% of the section changed)

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Consolidated Statements of Income for the years ended December 31, 2022, 2021, and 2020

Consolidated Statements of Comprehensive Income for the years ended December 31, 2021, 2020, and 2019

Consolidated Statements of Comprehensive Income for the years ended December 31, 2022, 2021,

Consolidated Statements of Cash Flows for the years ended December 31, 2022, 2021, and 2020

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Notes to Consolidated Financial Statements

Report of Independent Registered Public Accounting Firm

Report of Independent Registered Public Accounting

To the Stockholders and the Board of Directors of Turning Point Brands, Inc.

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and its subsidiaries (the Company) as of

December 31, 2021 and 2020, the related consolidated statements of income, comprehensive income, changes in stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2021, and

the related notes to the consolidated financial statements (collectively, the financial statements).

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021

and 2020, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2021, in conformity with accounting principles generally accepted in the United States of America.

December 31, 2022 and 2021, the related consolidated statements of income, comprehensive income, changes in stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2022, and the related notes to the

consolidated financial statements (collectively, the financial statements).

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and 2021, and the results

of its operations and its cash flows for each of the three years in the period ended December 31, 2022, in conformity with accounting principles generally accepted in the United States of America.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the

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We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that were

communicated or required to be communicated to the audit committee and that:

(1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments.

communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing a separate opinion on the critical audit

matters or on the accounts or disclosures to which they relate.

(1) relate to accounts or disclosures that are material to the financial statements and (2) involved especially challenging, subjective, or complex judgments.

communication of a critical audit matter does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit

matter or on the accounts or disclosures to which they relate.

Goodwill Impairment Analysis for the NewGen Reporting Unit

As described in Note 10 to the financial statements, the Company’s goodwill balance in the NewGen segment, which is also a reporting

unit, was $25.6 million at December 31, 2021, and as described in Note 2 to the financial statements, goodwill is tested for impairment, at the reporting unit level, at least annually on December 31 or more frequently if indicators of impairment

require the performance of an interim impairment assessment.

To test goodwill for impairment, management compares the estimated fair value of the reporting unit, which is determined using a discounted cash flow method, with the carrying value of

the reporting unit, including goodwill.

We identified the goodwill impairment assessment for the NewGen reporting unit as a critical audit matter because of the

significant estimates and assumptions used by management when estimating the fair value of this reporting unit, including management’s forecasts of expected

revenue growth rates, managements selection of the discount rate, and management’s estimate of the terminal value .

Auditing management’s estimates and

assumptions involved a high degree of auditor judgment and increased audit effort, including the use of our valuation specialists, due to the impact these assumptions have on the estimated fair value of the NewGen reporting unit for goodwill

impairment testing.

As described in Note 10 to the financial statements, the Company impaired the goodwill balance of its NewGen reporting unit, and reported an

impairment loss of $25.6 million for the year ended December 31, 2022, and as described in Note 2 to the financial statements, goodwill is tested for impairment, at the reporting unit level, at least annually on December 31 or more frequently

if indicators of impairment require the performance of an interim impairment assessment.

To test goodwill for impairment, management compared the estimated fair value of the reporting unit, which was determined using a combination of an income

approach, the discounted cash flow method, and a market approach, the guideline public company, with the carrying value of the reporting unit, including goodwill.

Based on the amount by which the carrying value of the NewGen reporting unit

exceeded its estimated fair value, the reporting unit’s goodwill balance was determined to be fully impaired.

We identified the goodwill impairment assessment for the NewGen reporting unit as a critical audit matter because of the significant

estimates and assumptions used by management when estimating the fair value of this reporting unit, including management’s forecasts of expected revenue growth rates, management’s selection of the discount rate, management’s estimate of the

terminal value, and management’s selection of guideline public companies.

Auditing management’s estimates and assumptions involved a high degree of auditor judgment and increased audit effort, including the use of our valuation specialists,

due to the impact these assumptions have on the estimated fair value of the NewGen reporting unit for goodwill impairment testing.

Our audit procedures related to the assessment of goodwill impairment for the NewGen reporting unit included the following,

among others:

Evaluating the reasonableness of

management’s forecasts of revenue growth rates by comparing the projections to historical results and to publicly available market data.

Evaluated the reasonableness of management’s forecasts of revenue growth rates by comparing the projections to

historical results and to publicly available market data.

Tested the accuracy of management’s estimation process by comparing current year results to prior year estimates .

We utilized valuation specialists to assist in the following, among others:

Evaluating the appropriateness of the valuation method used by management and testing its mathematical accuracy.

Evaluating the appropriateness of the methodology used by management to estimate the terminal value, comparing the

inputs used by management to estimate the terminal value to market data, and testing its mathematical accuracy.

Evaluating the reasonableness of the discount rate by comparing the underlying source information to publicly

available market data and testing the accuracy of the calculation.

Fair Value of dosist TM Investment

As described in Note 11 to the financial statements, at December 31, 2021 the Company estimated the fair value of its investment

in warrants for preferred shares of dosist TM to be $7.9 million, which resulted in the Company recording an impairment loss of $7.1 million for the year ended December 31, 2021.

Because the Company’s investment in dosist TM

does not have a readily determinable fair value, the Company has elected a practical expedient to record this investment at the original cost , as adjusted for

impairment and observable price changes.

Under the practical expedient, if a qualitative analysis indicates impairment exists, the fair value of the investment is required to be estimated and any excess of the carrying value over the estimated

fair value is recognized as an impairment loss.

At December 31, 2021, the Company’s qualitative assessment of its investment in dosist TM identified significant deterioration in economic performance and adverse cannabinoid market

conditions as indicators of impairment.

Consequently, the Company estimated the fair value of its investment in dosist TM using a probability weighted

average of market approaches, including a valuation derived from changes in a relevant market index and a valuation derived from adjusted market multiples.

The Company then compared its estimated fair value to the carrying value of the

investment and recorded an impairment loss equal to the difference.

We identified the estimate of the fair value of the dosist TM investment as a critical audit matter because of the complexity and judgment involved in estimating the fair value of an investment without a readily determinable fair value.

Auditing management’s estimate of fair value of the dosist TM investment, which included the use of our

valuation specialists, involved a high degree of auditor judgment , increased audit effort, and subjectivity to evaluate the audit evidence obtained.

Our audit procedures related to the estimated fair value of the dosist TM investment included the following,

among others:

Evaluating the relevance and reliability of the underlying business-related data by comparing it to the investee’s historical financial

Comparing the rights and preferences of the various dosist TM equity classes to the governance

documents of dosist TM .

Utilizing valuation specialists to

assist in developing a range of independent estimates of the fair value of the dosist TM investment through the use of market data, including guideline public

companies and guideline transactions.

Comparing the range of the independent estimate of fair value developed by our valuation specialists to management’s estimate of fair

Evaluating the appropriateness of the valuation methods used by management and testing the mathematical accuracy of

the calculations.

Evaluating the appropriateness of the methodology used by management to estimate the terminal value, comparing the inputs used by management to

estimate the terminal value to market data, and testing the mathematical accuracy of the calculation.

Evaluating the reasonableness of the discount rate by comparing the underlying source information to publicly available market data and testing the

mathematical accuracy of the calculation.

/s/ RSM US LLP

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We have audited Turning Point Brands, Inc.’s (the Company) internal control over financial reporting as of December 31, 2022, based on

criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in

In our opinion, because of the effect of the material weakness described below on the achievement of the objectives of the control criteria, the Company has not maintained effective internal control over financial reporting as of December

31, 2021, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the

Treadway Commission in 2013.

criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway

Commission in 2013.

In our opinion, because of the effect of the material weaknesses described below on the achievement of the objectives of the control criteria, the Company has not maintained effective internal control over financial reporting

as of December 31, 2022, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring

Organizations of the Treadway Commission in 2013.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the

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there is a reasonable possibility that a material misstatement of the company’s annual or interim financial statements will not be prevented or detected on a timely basis.

The following material weakness has been identified and included in

The following material weaknesses have been identified and included in

management’s assessment:

There were deficiencies in the design and operation of 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.

This material weakness was considered in determining the nature, timing and extent of audit tests applied in our audit of the 2021 financial statements, and this report does not affect our

report dated March 11, 2022 on those financial statements.

There were deficiencies in the design and operation of 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.

The business process

controls (automated and manual) that are dependent on the affected ITGCs were also deemed ineffective because they could have been adversely impacted .

There were deficiencies in the design and operation of controls associated with the risk assessment component of the Company’s

internal control framework, specifically as it relates to identifying risks around segregation of duties within the financial reporting function, and the identification of all risks relating to the financial statements and controls that would

address such risks.

This impacts business process controls (automated and manual) throughout financial reporting and the business transaction cycles.

These material weaknesses were considered in determining the nature, timing and extent of audit tests applied in our audit of the

2022 financial statements, and this report does not affect our report dated March 15, 2023 on those financial statements.

Basis for Opinion

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Lease liabilities

Other long-term liabilities

Total liabilities

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Interest expense, net

Investment loss (income)

(Gain) loss on extinguishment of debt

Net periodic benefit cost (income), excluding service cost

Investment loss (gain)

Goodwill and intangible impairment loss

Gain on extinguishment of debt

Net periodic benefit cost, excluding service cost

Income before income taxes

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Adjustments to reconcile net income to net cash provided by operating activities:

(Gain) loss on extinguishment of debt

Gain on extinguishment of debt

Pension settlement and curtailment loss

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Impairment loss

Gain on postretirement plan termination

Loss (gain) on investments

Loss on goodwill impairment

Loss on intangible asset impairment

Loss on investments

Depreciation expense

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Proceeds on sale of property, plant and equipment

Net cash (used in) provided by investing activities

Net cash used in investing activities

Turning Point Brands, Inc.

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Settlement of interest rate swaps

Payments of 2018 second lien term loan

Payments of 2018 revolving credit facility

Proceeds from Convertible Senior Notes

Payments of Convertible Senior Notes

Proceeds from call options

Payment of promissory note

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reorganization, net of cash acquired

Payments for call options

Payment of dividends

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Unrecognized pension and postretirement cost adjustment, net of tax of $ 57

Unrealized gain on MSA investments, net of tax of $ 351

Unrealized loss on derivative instruments, net of tax of $ 233

Stock compensation expense

Restricted stock forfeitures

Exercise of options

Redemption of options

Purchase of call options, net of tax of $ 5,195

Fair value of earn-out

Ending balance December 31, 2019

Unrecognized pension and postretirement cost adjustment, net of tax of $ 57

Unrealized loss on derivative instruments, net of tax of $ 233

Stock compensation expense

Exercise of options

Redemption of options

Cost of repurchased common stock

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Ending balance December 31, 2021

Unrealized loss on MSA investments, net of tax of $ 860

Unrealized gain on derivative instruments, net of tax of $ 273

Foreign currency translation, net of tax of $ 0

Stock compensation expense

Exercise of options

Redemption of options

Issuance of performance based restricted stock units

Redemption of performance based restricted stock units

Issuance of restricted stock units

Redemption of restricted stock units

Cost of repurchased common stock

Settlement of call options, net of tax of $ 12

Ending balance December 31, 2022

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

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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.

products to satisfy evolving consumer preferences.

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

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

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

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

along with our distribution platforms ( Vapor

Beast ® , VaporFi ® and Direct Vapor ® ) and Solace ® in the NewGen Products segment.

along with our distribution

platforms ( Vapor Beast ® , VaporFi ® and Direct Vapor ® ) in the NewGen Products segment.

The Company’s products are available in more than 217 ,000 retail outlets in North America.

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Basis of Presentation

The accompanying consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts of assets and liabilities, disclosure of contingent assets and liabilities as of the dates of the

financial statements, and the reported amounts of revenues and expenses during the reporting periods.

The accompanying consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the U.S.

preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts of assets and liabilities, disclosure of contingent assets and liabilities as of the dates of the financial

statements, and the reported amounts of revenues and expenses during the reporting periods.

Actual results could differ from those estimates.

The Company’s significant estimates include those affecting the valuation of goodwill and other

intangible assets, deferred income tax valuation allowances, the valuation of investments and the valuation of inventory, including reserves.

The Company’s significant estimates include those affecting the valuation of goodwill and other intangible

assets, deferred income tax valuation allowances, the valuation of investments and the valuation of inventory, including reserves.

Certain prior year amounts have been reclassified to conform to the current year’s presentation.

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Consolidation

The consolidated financial statements include the accounts of the Company, its subsidiaries, all of which are wholly owned, and variable interest

entities (“VIEs”) for which the Company is considered the primary beneficiary.

The consolidated financial statements include the accounts of the Company, its subsidiaries, all of which are wholly owned, and variable interest entities (“VIEs”) for

which the Company is considered the primary beneficiary.

All significant intercompany transactions have been eliminated.

GAAP requires the Company to identify entities for which control is achieved through means other than voting rights and to determine whether the Company

is the primary beneficiary of VIEs.

GAAP requires the Company to identify entities for which control is achieved through means other than voting rights and to determine whether the Company is the primary

beneficiary of VIEs.

A VIE is broadly defined as an entity with one or more of the following characteristics:

(a) the total equity investment at risk is insufficient to finance the entity’s activities without additional subordinated

financial support;

(b) as a group, the holders of the equity investment at risk lack (i) the ability to make decisions about the entity’s activities through voting or similar rights, (ii) the obligation to absorb the expected losses of the entity,

or (iii) the right to receive the expected residual returns of the entity;

and (c) the equity investors have voting rights that are not proportional to their economic interests, and substantially all of the entity’s activities either involve, or

are conducted on behalf of, an investor that has disproportionately few voting rights.

(a) the total equity investment at risk is insufficient to finance the entity’s activities without additional subordinated financial

the right to receive the expected residual returns of the entity;

and (c) the equity investors have voting rights that are not proportional to their economic interests, and substantially all of the entity’s activities either involve, or are

conducted on behalf of, an investor that has disproportionately few voting rights.

The Company consolidates its investment in a VIE when it determines that it is the VIE’s primary beneficiary.

The Company may change its original assessment of a

VIE upon subsequent events such as the modification of contractual arrangements that affects the characteristics or adequacy of the entity’s equity investments at risk and the disposition of all or a portion of an interest held by the primary

The primary beneficiary of a VIE as the entity that has both:

(i) the power to direct the activities of the VIE that most significantly impact the

entity’s economic performance;

The Company may change its original assessment of a VIE

upon subsequent events such as the modification of contractual arrangements that affects the characteristics or adequacy of the entity’s equity investments at risk and the disposition of all or a portion of an interest held by the primary

The primary beneficiary of a VIE is the entity that has both:

(i) the power to direct the activities of the VIE that most significantly impact the entity’s economic

and (ii) the obligation to absorb losses or the right to receive benefits of the VIE that could be significant to the entity.

The Company performs this analysis on an ongoing basis.

Management of the Company has determined that Turning Point Brands Canada (formerly ReCreation Marketing) is a VIE for which the Company

is considered the primary beneficiary due to the power the Company has over the activities that most significantly impact the economic performance of Turning Point Brands Canada and the right to receive benefits and the obligation to absorb

losses of Turning Point Brands Canada through the Company’s 65 % equity interest, additional subordinated financing provided by the Company to Turning Point Brands Canada and the distribution agreement with Turning Point Brands Canada for the sale of the Company’s products that makes up substantially all of Turning Point Brands Canada’s business activities.

“Acquisitions” for further details regarding the consolidation of Turning Point Brands Canada .

Management of the Company has determined that Turning Point Brands Canada (formerly ReCreation Marketing) is a VIE for which the Company is considered the primary beneficiary due to the power the Company has

over the activities that most significantly impact the economic performance of Turning Point Brands Canada and the right to receive benefits and the obligation to absorb losses of Turning Point Brands Canada through the Company’s 65 % equity interest, additional subordinated financing provided by the Company to Turning Point Brands Canada and the distribution agreement with Turning Point Brands Canada for the sale of the

Company’s products that makes up a significant portion of Turning Point Brands Canada’s business activities.

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 sales 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

(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 vaping products billed to

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 as being due to wholesalers,

retailers and consumers at the end of the period) based principally on historical volume and utilization rates.

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 sales 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 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.

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.

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.

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.

Company 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 21, “Segment Information”.

An additional disaggregation of contract revenue by sales channel can be

found within Note 21 as well.

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 20, “Segment Information”.

An additional disaggregation of contract revenue by sales channel can be found within

Note 20 as well.

Derivative Instruments

Foreign Currency Forward Contracts:

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 ninety percent of its non-inventory purchases 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 transferred 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.

Interest Rate Swap Agreements:

The Company enters

into interest rate swap contracts to manage interest rate risk and reduce the volatility of future cash flows.

The Company accounts for its interest rate swap contracts under the provisions of ASC 815, Derivatives and Hedging.

Swap 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 swap

contracts are transferred from other comprehensive income into net income upon settlement of the derivative position or at maturity of the interest rate swap contract.

The Company enters into foreign currency

contracts to hedge a portion of its exposure to changes in foreign currency exchange rates on inventory purchase commitments.

The Company accounts for its foreign currency contracts under the provisions of ASC 815, Derivatives and Hedging.

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 in the denominated invoice currency.

Foreign currency contracts that qualify as hedges are adjusted to their fair value through other

comprehensive income as determined by market prices on the measurement date.

Gains and losses on these foreign currency contracts are transferred 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.

Interest Rate Swap Agreements:

The Company enters into interest rate swap

contracts to manage interest rate risk and reduce the volatility of future cash flows.

The Company accounts for its interest rate swap contracts under the provisions of ASC 815, Derivatives and Hedging.

Swap contracts that qualify as hedges are

adjusted to their fair value through other comprehensive income as determined by market prices on the measurement date.

Gains and losses on these swap contracts are transferred from other comprehensive income into net income upon settlement of the

derivative position or at maturity of the interest rate swap contract.

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.

Shipping Costs

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Research and development and quality assurance costs are expensed as incurred.

These expenses, classified as selling, general and administrative expenses,

were approximately $ 1.1 million, $ 1.3

These expenses, classified as selling, general and administrative expenses, were

approximately $ 0.6 million, $ 1.1

million, and $ 1.3 million in 2022, 2021, and 2020, respectively.

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Cost was determined using the first-in, first-out (“FIFO”) 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.

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.

Property, Plant and Equipment

Property, Plant and Equipment are stated at cost less accumulated depreciation and impairment.

Depreciation is provided using the straight-line method over

the lesser of the estimated useful lives of the assets or the life of the leases for leasehold improvements ( 4 to 7 years for machinery, equipment and furniture, 10

Depreciation is provided using the straight-line method over the lesser of

the estimated useful lives of the assets or the life of the leases for leasehold improvements ( 4 to 7 years for machinery, equipment and furniture, 10

to 15 years for leasehold improvements, and up to 15 years for buildings and building improvements).

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Goodwill and Other Intangible Assets

The Company follows the provisions of ASC 350, Intangibles – Goodwill and Other in accounting for goodwill and other intangible assets.

indefinite-lived intangible assets are reviewed for impairment annually on December 31, or more frequently if certain indicators are present, in accordance with ASC 350-20-35 and ASC 350-30-35, respectively.

If the carrying value of a reporting unit

including goodwill exceeds its fair value, which is determined using the discounted cash flows, goodwill is considered impaired.

The amount of impairment loss is measured as the difference between the carrying value and the fair value of the

reporting unit but is limited to the total goodwill allocated to the reporting unit.

If the carrying value of an indefinite-life intangible asset exceeds its fair value, which is determined using discontinued cash flows or relief-from-royalty, the

intangible asset is considered impaired and is reduced to fair value.

For goodwill, the determination of a reporting unit’s fair value involves, among other things, the Company’s market capitalization and application of the income approach, which

includes developing forecasts of future cash flows and determining an appropriate discount rate.

Based on the Company’s annual goodwill impairment testing, the estimated fair values of each of our reporting units were in excess of the respective

carrying values at December 31, 2021.

The Company had no such impairment of goodwill or other intangible assets during the year ended

December 31, 2021.

However, there could be an impairment of the goodwill of the NewGen reporting unit if future revenues do not achieve our expected future cash flows or if macroeconomic conditions result in future increases in the weighted average

cost of capital used to estimate fair value.

See Note 10, “Goodwill and Other Intangible Assets”, for further details regarding the Company’s goodwill and other intangible assets as of December 31, 2021.

The Company follows the provisions of ASC 350, Intangibles –

Goodwill and Other in accounting for goodwill and other intangible assets.

Goodwill is tested for impairment annually on December 31, or more frequently if certain indicators are present, in accordance with ASC 350-20-35 and ASC 350-30-35,

respectively.

When testing goodwill for impairment, the Company has the option to first perform qualitative testing to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying value.

If the Company chooses not to complete a qualitative assessment for a given reporting unit or if the initial assessment indicates that it is more likely than not that the carrying value of a reporting unit exceeds its estimated fair value,

additional quantitative testing is required.

If the carrying value of a reporting unit exceeds its fair value, an impairment loss is recognized in the amount by which the carrying value of the reporting unit exceeds its fair value, limited to the

amount of goodwill at the reporting unit.

The Company determines fair values for each of the reporting units using a combination of the income approach and/or market approach.

Under the income approach, fair value is determined based on the

present value of estimated future cash flows, discounted at an appropriate risk-adjusted rate.

Under the market approach, the Company selects peer sets based on close competitors and reviews the Revenue and EBITDA multiples to determine the fair

See Note 10, “Goodwill and Other Intangible Assets” for further information on goodwill.

Indefinite-lived intangible assets are tested for impairment

at least annually;

however, these tests are performed more frequently when events or changes in circumstances indicate that the asset may be impaired.

Impairment exists when carrying value exceeds fair value.

The Company’s fair value methodology is

primarily based on the relief from royalty approach.

Definite-lived intangible assets are amortized over their

estimated useful lives, generally on a straight-line basis for periods ranging primarily from 3.5 to 15 years .

The Company continually evaluates the reasonableness of the useful lives of these assets.

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.

That framework provides a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure

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).

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quoted prices for similar assets or liabilities in active markets;

quoted prices for identical or similar assets

or liabilities in inactive 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;

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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.

Retirement Plans

The Company follows the provisions of ASC 715, Compensation – Retirement Benefits.

ASC 715-30, Defined Benefit Plans – Pensions, which requires an employer

to (a) recognize in its statement of financial position the funded status of a benefit plan, measured as the difference between the fair value of plan assets and benefit obligations, (b) recognize net of tax, the gains or losses and prior service

costs or credits that arise during the period but are not recognized as components of net periodic benefit cost, and (c) measure defined benefit plan assets and obligations as of the date of the employer’s statement of financial position.

Deferred Financing Costs

Deferred financing costs are amortized over the terms of the related debt obligations using the effective interest method.

Unamortized amounts are expensed

upon extinguishment of the related borrowings.

Deferred financing costs are presented as a direct deduction from the carrying amount of that debt liability except for deferred financing costs relating to our revolving credit facility, which are

presented as an asset.

The Company records the effects of income taxes under the liability method in which deferred income tax assets and liabilities are recognized based on the

difference between the financial and tax basis of assets and liabilities using the enacted tax rates in effect for the years in which the differences are expected to reverse.

The Company assesses its ability to realize future benefits of deferred tax

assets by determining if they meet the “more likely than not” criteria in ASC 740, Income Taxes.

Unamortized amounts are expensed upon

extinguishment of the related borrowings.

Deferred financing costs are presented as a direct deduction from the carrying amount of that debt liability except for deferred financing costs relating to our revolving credit facility, which are presented

The Company records the effects of income taxes under the liability method in which deferred income tax assets and liabilities are recognized based on the difference

between the financial and tax basis of assets and liabilities using the enacted tax rates in effect for the years in which the differences are expected to reverse.

The Company assesses its ability to realize future benefits of deferred tax assets by

determining if they meet the “more likely than not” criteria in ASC 740, Income Taxes.

If the Company determines that future benefits do not meet the “more likely than not” criteria, a valuation allowance is recorded.

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Stock-Based Compensation

The Company measures stock-based compensation costs related to its stock options on the fair value-based method under the provisions of ASC 718,

Compensation – Stock Compensation.

The Company measures stock-based compensation costs related to its stock options on the fair value-based method under the provisions of ASC 718, Compensation – Stock

Compensation.

The fair value-based method requires compensation cost for stock options to be recognized over the requisite service period based on the fair value of stock options granted.

The Company determined the fair value of

these awards using the Black-Scholes option pricing model.

The Company determined the fair value of these awards using

the Black-Scholes option pricing model.

The Company grants performance-based restricted stock units (“PRSU”) subject to both performance-based and service-based vesting conditions.

The fair value

of each PRSU is the Company’s stock price on the date of grant.

For purposes of recognizing compensation expense as services are rendered in accordance with ASC 718, the Company assumes all employees involved in the PRSU grant will provide service

through the end of the performance period.

The fair value of each PRSU

is the Company’s stock price on the date of grant.

For purposes of recognizing compensation expense as services are rendered in accordance with ASC 718, the Company assumes all employees involved in the PRSU grant will provide service through the end

of the performance period.

Stock compensation expense is recorded based on the probability of achievement of the performance conditions specified in the PRSU grant.

The Company grants restricted stock units (“RSU”)

subject to service-based vesting conditions.

The fair value of each RSU is the Company’s

stock price on the date of grant.

The Company recognizes compensation expense as services are rendered in accordance with ASC 718.

compensation expense is recorded over the service period in the RSU grant.

The Company grants restricted stock units (“RSU”) subject to service-based vesting conditions.

The fair value of each RSU is the Company’s stock price on the date of grant.

Company recognizes compensation expense as services are rendered in accordance with ASC 718.

Stock compensation expense is recorded over the service

period in the RSU grant.

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.

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.

Food and Drug Administration (“FDA”) continues to consider various

restrictive regulations around our products, including targeted flavor bans;

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

In a number of states targeted flavor bans have been proposed or enacted legislatively or through 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.

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.

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.

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 NewGen 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

Additionally, several lawsuits have been brought against manufacturers and distributors of NewGen products due to malfunctioning

Master Settlement Agreement (MSA):

Forty-six states, certain U.S.

territories, and the District of Columbia are parties to the Master Settlement Agreement (“MSA”) and the Smokeless Tobacco

Master Settlement Agreement (“STMSA”).

To the Company’s knowledge, signatories to the MSA include 49 cigarette manufacturers and/or

distributors.

The only signatory to the STMSA is US Smokeless Tobacco Company.

In the Company’s opinion, the fundamental basis for each agreement is the states’ consents to withdraw all claims for monetary, equitable, and injunctive relief against

certain tobacco products manufacturers and others and, in return, the signatories have agreed to certain marketing restrictions and regulations as well as certain payment obligations.

Pursuant to the MSA and subsequent states’ statutes, a “cigarette manufacturer” (which is defined to also include MYO cigarette tobacco) has the option of

either becoming a signatory to the MSA or opening, funding, and maintaining an escrow account, with sub-accounts on behalf of each settling state.

territories, and the District of Columbia are parties to the Master Settlement Agreement (“MSA”) and the Smokeless Tobacco Master Settlement

Agreement (“STMSA”).

To the Company’s knowledge, signatories to the MSA include 49 cigarette manufacturers and/or distributors.

signatory to the STMSA is US Smokeless Tobacco Company.

In the Company’s opinion, the fundamental basis for each agreement is the states’ consents to withdraw all claims for monetary, equitable, and injunctive relief against certain tobacco products

manufacturers and others and, in return, the signatories have agreed to certain marketing restrictions and regulations as well as certain payment obligations.

Pursuant to the MSA and subsequent states’ statutes, a “cigarette manufacturer” (which is defined to also include MYO cigarette tobacco) has the option of either

becoming a signatory to the MSA or opening, funding, and maintaining an escrow account, with sub-accounts on behalf of each settling state.

The STMSA has no similar provisions.

The MSA escrow accounts are governed by states’ statutes that

expressly give the manufacturers the option of opening, funding, and maintaining an escrow account in lieu of becoming a signatory to the MSA.

The statutes require companies who are not signatories to the MSA to deposit, on an annual basis, into

qualified banks, escrow funds based on the number of cigarettes or cigarette equivalents, i.e., the pounds of MYO tobacco, sold.

The purpose of these statutes is expressly stated to be to eliminate the cost disadvantage the settling manufacturers

have as a result of entering into the MSA.

The MSA escrow accounts are governed by states’ statutes that expressly

give the manufacturers the option of opening, funding, and maintaining an escrow account in lieu of becoming a signatory to the MSA.

The statutes require companies who are not signatories to the MSA to deposit, on an annual basis, into qualified

banks, escrow funds based on the number of cigarettes or cigarette equivalents, i.e., the pounds of MYO tobacco, sold.

The purpose of these statutes is expressly stated to be to eliminate the cost disadvantage the settling manufacturers have as a

result of entering into the MSA.

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 judgment to that state’s plaintiffs

2 unchanged sentences

The Company chose to open and fund an MSA escrow account as its means of compliance.

It is management’s opinion, due to the possibility of future federal

or state regulations, though none have to date been enacted, that entering into one or both of the settlement agreements or establishing and maintaining an escrow account would not necessarily prevent future regulations from having a material adverse

effect on the results of operations, financial position, and cash flows of the Company.

Various states have enacted or proposed complementary legislation intended to curb the activity of certain manufacturers and importers of cigarettes that

are selling into MSA states without signing the MSA or who have failed to properly establish and fund a qualifying escrow account.

To the best of the Company’s knowledge, no such statute has been enacted which could inadvertently and negatively

impact the Company, which has been, and is currently, fully compliant with all applicable laws, regulations, and statutes.

However, there can be no assurance that the enactment of any such complementary legislation in the future will not have a

material adverse effect on the results of operations, financial position, or cash flows of the Company.

Pursuant to the MSA escrow account statutes, in order to be compliant with the MSA escrow requirements, companies selling products covered by the MSA are

required to deposit such funds for each calendar year into a qualifying escrow account by April 15 of the following year.

It is management’s opinion, due to the possibility of future federal or state

regulations, though none have to date been enacted, that entering into one or both of the settlement agreements or establishing and maintaining an escrow account would not necessarily prevent future regulations from having a material adverse effect

on the results of operations, financial position, and cash flows of the Company.

Various states have enacted or proposed complementary legislation intended to curb the activity of certain manufacturers and importers of cigarettes that are selling

into MSA states without signing the MSA or who have failed to properly establish and fund a qualifying escrow account.

To the best of the Company’s knowledge, no such statute has been enacted which could inadvertently and negatively impact the

Company, which has been, and is currently, fully compliant with all applicable laws, regulations, and statutes.

However, there can be no assurance that the enactment of any such complementary legislation in the future will not have a material adverse

effect on the results of operations, financial position, or cash flows of the Company.

Pursuant to the MSA escrow account statutes, in order to be compliant with the MSA escrow requirements, companies selling products covered by the MSA are required to

deposit such funds for each calendar year into a qualifying escrow account by April 15 of the following year.

At December 31, 2022, the Company had on deposit approximately $ 32.1 million, the fair value of which was approximately $ 28.0

At December 31, 2021, the Company had on deposit approximately $ 32.1 million, the fair value of which was approximately $ 31.7 million.

Inputs to the valuation methodology of the MSA escrow deposits when

funds are invested include unadjusted quoted prices for identical assets or liabilities in active markets at the measurement date.

During 2021, no

monies were deposited into this qualifying escrow account.

The investment vehicles available to the Company are specified in the state escrow agreements and are limited to low-risk government securities.

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 drop in fair value was due to increasing interest rates affecting the fair value of US government securities held in the MSA escrow

Inputs to the valuation methodology of the MSA escrow deposits when funds are invested include unadjusted quoted prices for identical assets or liabilities in active

markets at the measurement date.

During 2022, no monies were deposited into this qualifying escrow account.

The investment vehicles

available to the Company are specified in the state escrow agreements and are limited to low-risk government securities.

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

These investments are classified as available-for-sale and carried at fair value.

Government securities including TIPS, Treasury notes, and Treasury bonds.

investments are classified as available-for-sale and carried at fair value.

Realized losses are prohibited under the MSA;

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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.

Government al agency

obligations held in such account for the periods indicated.

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 December 31, 2022

As of December 31, 2021

Cost and Estimated

Cash and cash equivalents

Governmental agency obligations

(unrealized gain position < 12 months)

Governmental agency

obligations (unrealized position < 12 months)

Governmental agency obligations (unrealized position > 12 months)

December 31, 2022

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Greater than ten years

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

The following shows the amount of deposits by sales year for the

MSA escrow account:

Deposits as of December 31,

Federal Excise Taxes:

Tobacco products, cigarette

papers, and cigarette tubes are subject to federal excise taxes.

Any future increases in federal excise taxes on the Company’s products could have a material adverse effect on the results of operations or financial

condition of the Company.

Tobacco products, cigarette papers, and cigarette tubes

are subject to federal excise taxes.

Any future increases in federal excise taxes on the Company’s products could have a material adverse effect on the results of operations or financial condition of the

The Company is unable to predict the likelihood of passage of future increases in federal excise taxes.

As of December 31, 2021, federal excise taxes are not assessed on e-cigarettes and related products.

As of December 31, 2021, approximately half of the states and certain localities impose excise taxes on electronic cigarettes and/or liquid vapor.

addition, there are several local taxing jurisdictions with an excise tax on e-cigarettes.

Several states have also implemented additional measures on e-cigarettes, such as licensing requirements.

On June 22, 2009, the Family Smoking

Prevention and Tobacco Control Act (“FSPTCA”) authorized the FDA to immediately regulate the manufacture, sale, and marketing of four

categories of tobacco products – cigarettes, cigarette tobacco, roll-your-own tobacco, and smokeless tobacco.

As of December 31, 2022, federal excise taxes are not assessed on certain novel nicotine products, including nicotine pouches,

e-cigarettes and related products.

As of December 31, 2022, approximately half of the states and

certain localities impose excise taxes on electronic cigarettes and/or liquid vapor.

In addition, there are several local taxing jurisdictions with an excise tax on e-cigarettes.

A number of states have begun to enact taxes on other novel nicotine

products, such as nicotine pouches, as well.

We expect the number of states implementing taxes on new and novel nicotine products to increase.

Several states have also implemented additional regulations on new and novel nicotine products, such as

licensing requirements.

On June 22, 2009, the Family Smoking Prevention and Tobacco Control Act

(“FSPTCA”) authorized the FDA to immediately regulate the manufacture, sale, and marketing of four categories of tobacco products –

cigarettes, cigarette tobacco, roll-your-own tobacco, and smokeless tobacco.

On August 8, 2016, the FDA deeming regulation became effective.

The deeming regulation gave the FDA the authority to also regulate cigars,

pipe tobacco, e-cigarettes, vaporizers, and e-liquids as “deemed” tobacco products under the FSPTCA.

The FDA assesses tobacco product user fees on six

classes of regulated tobacco products and computes user fees using a methodology similar to the methodology used by the U.S Department of Agriculture to compute the Tobacco Transition Payment Program (“TTPP,” also known as the “Tobacco Buyout”)

The deeming regulation gave the FDA the authority to also regulate cigars, pipe tobacco, e-cigarettes,

vaporizers, e-liquids, and other nicotine-containing tobacco-derived products as “deemed” tobacco products under the FSPTCA.

The FDA assesses tobacco product user fees on six classes

of regulated tobacco products and computes user fees using a methodology similar to the methodology used by the U.S Department of Agriculture to compute the Tobacco Transition Payment Program (“TTPP,” also known as the “Tobacco Buyout”) assessment.

First, the total, annual, congressionally established user fee assessment is allocated among the various classes of tobacco products using the federal excise tax weighted market share of tobacco products subject to regulation.

assessment for each class of tobacco products is divided among individual manufacturers and importers.

In August 2016, the FDA’s regulatory authority under the Tobacco Control Act (the “TCA”) was extended to all tobacco products not previously covered,

(i) certain NewGen products (such as electronic cigarettes, vaporizers and e-liquids) and their components or parts (such as tanks, coils and batteries); (ii) cigars and their components or parts (such as cigar tobacco); (iii) pipe

tobacco; (iv) hookah products; and (v) any other tobacco product “newly deemed” by the FDA.

These “deeming regulations” apply to all products made or derived from tobacco intended for human consumption, but excluding accessories of tobacco products

(such as lighters).

Accordingly, the FDA has since regulated our cigar and cigar wrap products as well as our vapor products containing tobacco-derived nicotine and products intended or reasonably expected to be used to consume such e-liquids.

Under the deeming regulations, the FDA has responsibility for conducting premarket review of “new tobacco products”—defined as those products not

commercially marketed in the United States as of February 15, 2007.

There are three pathways for obtaining premarket authorization,

including submission of a premarket tobacco product application (“PMTA”).

We submitted premarket filings prior to the September 9, 2020 deadline for certain of our products and have continued to supplement these

applications with additional information.

A successful PMTA must demonstrate that the subject product is “appropriate for the protection of public health,” taking into account the effect of the marketing of the product on all sub-populations while a

Substantial Equivalence Report must demonstrate that a new product either has the same characteristics as its predicate product or different characteristics, but does not raise different questions of public health.

The FDA has indicated its

enforcement priority is those applicants who have received negative action on their application, such as a Marketing Denial Order or Refuse to File notification and who continue to illegally sell those unauthorized products, as well as products for

which manufacturers failed to submit a marketing application.

The FDA has issued a number of rules related to premarket filings;

however, those rules were not finalized prior to the September 9, 2020,

On October 5, 2021, the FDA finalized two rules related to the Substantial Equivalence process and the Premarket Tobacco Product

Application process, respectively, which both became effective November 4, 2021.

Both Final Rules indicate that any new or additional requirements will not retroactively apply to currently pending PMTAs;

however, the information outlined in the rule

remains important to the FDA’s substantive review of an application.

Then, the assessment

for each class of tobacco products is divided among individual manufacturers and importers.

In August 2016, the FDA’s regulatory authority under the Tobacco Control Act was extended to all tobacco products not previously covered, including:

(i) certain NewGen

products (such as electronic cigarettes, vaporizers and e-liquids) and their components or parts (such as tanks, coils and batteries); (ii) cigars and their components or parts (such as cigar tobacco); (iii) pipe tobacco; (iv) hookah products; and

(v) any other tobacco product “newly deemed” by the FDA.

These “deeming regulations” apply to all products made or derived from tobacco intended for human consumption but excluding accessories of tobacco products (such as lighters).

Accordingly, the

FDA has since regulated our cigar and cigar wrap products as well as our vapor products containing tobacco-derived nicotine and products intended or reasonably expected to be used to consume such e-liquids.

Subsequently, on April 14, 2022, the FDA Center for Tobacco

Products also obtained jurisdiction over non-tobacco nicotine products (“NTN Products”), including synthetic nicotine.

That law subjects NTN Products to the same requirements as tobacco-derived products, including not selling these products to

persons under 21 years of age, not marketing these products as modified risk tobacco products without authorization, and not distributing free samples of these products.

Additionally, NTN Products became subject to premarket filing requirements.

Under the new law, manufacturers were required to file a PMTA by May 14, 2022, in order to continue selling products currently on the market.

NTN Products subject of a timely-filed PMTA, and not in receipt of a negative action, were allowed to

remain on the market until July 13, 2022, at which time these products became subject to enforcement, similar to tobacco-derived products remaining under review.

A successful PMTA must demonstrate that the subject product

is “appropriate for the protection of public health,” taking into account the effect of the marketing of the product on all sub-populations while a Substantial Equivalence Report must demonstrate that a new product either has the same

characteristics as its predicate product or different characteristics but does not raise different questions of public health.

We submitted premarket filings prior to the September 9, 2020 deadline for certain of our tobacco and tobacco-derived

products, all of which remain under review.

We likewise filed premarket submissions for certain of our NTN Products ahead of the May 14, 2022 deadline.

We have continued to supplement these applications with additional information;

however, there

can be no guarantee that the FDA will accept such amendments or that the applications will meet the standard of “appropriate for the protection of public health.” The FDA has indicated its enforcement priority is those applicants who have

received negative action on their application, such as a Marketing Denial Order or Refuse to File notification and who continue to illegally sell those unauthorized products, as well as products for which manufacturers failed to submit a

marketing application.

Despite these stated enforcement priorities, given the FDA’s limited resources we expect that for a period of time there may be a lack of enforcement, which may adversely impact our ability to compete in the marketplace

against those who continue to sell unauthorized products.

There can be no guarantee that the FDA will not shift its enforcement priorities or that it will increase in ability to enforce against unauthorized products over time.

The FDA has issued a number of rules related to premarket

however, those rules were not finalized prior to the September 9, 2020, deadline.

On October 5, 2021, the FDA finalized two

rules related to the Substantial Equivalence process and the Premarket Tobacco Product Application process, respectively, which both became effective November 4, 2021.

Both final rules (collectively, the “Rules”) indicate that any new or

additional requirements will not retroactively apply to currently pending PMTAs for tobacco and tobacco-derived products;

however, the information outlined in the rule remains important to the FDA’s substantive review of an application.

has yet to indicate how it might apply these Rules to NTN Product filings.

We believe we have products that meet the Rules and have filed premarket filings supporting a showing of the respective required standards.

However, there is no assurance that the

FDA’s guidance or regulations will not change, or that the FDA will not prioritize its enforcement in a manner that negatively affects our pending applications, or that unforeseen circumstances will not arise that prevent us from sufficiently

supplementing or completing our applications or otherwise increases the amount of time and money we are required to spend to receive all necessary marketing orders.

On September 14, 2021, the FDA issued a Marketing Denial Order (“MDO”) for certain of

the Company’s proprietary e-liquid products subject of these PMTAs.

The Company filed a Petition for Review in the Sixth Circuit Court of Appeals on September 23, 2021, followed by an Emergency Motion for a Stay Pending Review on September 30, 2021.

On October 7, 2021, we were informed that the FDA had rescinded its September 14, 2021, MDO.

We therefore withdrew both the Petition and Emergency Stay on October 8, 2021.

The Rescission Letter indicated that FDA had found additional relevant

information that was not adequately assessed.

Although we filed many premarket applications in a timely manner, no assurance can be given that the applications will ultimately be successful.

This may result in the prioritization of supplementing or

completing applications for high priority SKUs in our inventory position, which could adversely impact future revenues.

At the time of receipt of the MDO, the Company quarantined approximately $ 0.7 million in aggregate inventories of the affected products or materials subject to the MDO, which were subsequently released, once the FDA rescinded the MDO.

In addition, we currently distribute many third-party manufactured vapor products for which we are completely dependent on the manufacturer

complying with the premarket filing requirements.

There can be no assurance that these third-party products will receive a marketing order or otherwise remain in compliance with relevant legal requirements.

While we will take measures to pursue

regulatory compliance for our own privately-branded or proprietary vape products that compete with these third-party products, there is no assurance that such proprietary products would be as successful in the marketplace or can fully displace

third-party products that are currently being distributed by us, which could adversely affect our results of operations and liquidity.

For a period of time after the filing deadline, we expect there to be a lack of enforcement, which may adversely

affect our ability to compete in the marketplace against those who continue to sell unauthorized products.

On April 29, 2021, the FDA announced plans to propose two tobacco product standards related to combusted tobacco products:

However, there is no assurance

that the FDA’s guidance or regulations will not change, or that the FDA will not prioritize its enforcement in a manner that negatively affects our pending applications, or that unforeseen circumstances will not arise that prevent us from

sufficiently supplementing or completing our applications or otherwise increases the amount of time and money we are required to spend to receive all necessary marketing orders.

Although we filed many premarket applications in a timely manner, no

assurance can be given that the applications will ultimately be successful.

This may result in the prioritization of supplementing or completing applications for high priority SKUs in our inventory position, which could adversely impact future

revenues generated by lower priority SKUs.

In addition, we currently distribute many third-party

manufactured vapor products for which we are completely dependent on the manufacturer complying with the premarket filing requirements.

There can be no assurance that these third-party products will receive a marketing order or otherwise remain

in compliance with relevant legal requirements.

While we will take measures to pursue regulatory compliance for our own privately-branded or proprietary vape products that compete with these third-party products, there is no assurance that such

proprietary products would be as successful in the marketplace or can fully displace third-party products that are currently being distributed by us, which could adversely affect our results of operations and liquidity.

For a period of time after

the filing deadline, we expect there to be a lack of enforcement, which may adversely affect our ability to compete in the marketplace against those who continue to sell unauthorized products.

On May 4, 2022, the FDA proposed two tobacco product standards related to combusted tobacco products:

(1) a ban on menthol as a characterizing flavor in cigarettes;

and (2) a ban on all characterizing flavors (including menthol) in cigars.

product standards are required to go through the formal rulemaking process where we would have the opportunity to comment on the proposed rule with regard to any impact on any of our products.

The FDA’s policy on these and other regulated products

may change or expand over time in ways not yet known and may significantly impact our products or our premarket filings.

and (2) a ban on

all characterizing flavors (including menthol) in cigars.

On June 21, 2022, the FDA also issued a proposed product standard related to restricting the level of nicotine in traditional cigarettes.

These product standards are required to go through

the formal rulemaking process where we have the opportunity to comment on the proposed rule with regard to any impact on any of our products.

The FDA’s policy on these and other regulated products may change or expand over time in ways not yet

known and may significantly impact our products or our premarket filings.

Prevent All Cigarette Trafficking Act (“PACT Act”):

On December 27, 2020, President Trump signed the Further Consolidated Appropriations Act, 2021, into law.

This law included an amendment to the Jenkins Act expanding the

definition of “cigarette” to include “electronic nicotine delivery systems,” or ENDS, and required that the United States Postal Service (USPS) promulgate regulations clarifying the applicability of the prohibition on delivery sales of cigarettes

On December 27, 2020, the PACT Act as part of the Further

Consolidated Appropriations Act, 2021, was signed into law.

This law included an amendment to the Jenkins Act expanding the definition of “cigarette” to include “electronic nicotine delivery systems,” or ENDS, and required that the U.S.

Service ( “ USPS ” ) promulgate regulations clarifying

the applicability of the prohibition on delivery sales of cigarettes to ENDS.

USPS issued its final rule on October 21, 2021.

We have received appropriate shipping exemptions from carrier services we use to carry the affected freight.

Failure to comply with the PACT Act could result in significant financial

or criminal penalties.

To the extent we are unable to respond to, or comply with, these new requirements, we could lose our shipping exemptions, be subject to civil or criminal penalties, or there could be a material adverse effect on our business,

results of operations and financial condition.

Failure to comply with the PACT Act could

result in significant financial or criminal penalties.

To the extent we are unable to respond to, or comply with, these new requirements, we could lose our shipping exemptions, be subject to civil or criminal penalties, or there could be a

material adverse effect on our business, results of operations and financial condition.

Concentration of Credit Risk:

At December 31, 2021 and 2020, the Company had bank deposits, including MSA escrow accounts, in excess of federally insured limits of approximately $ 137.2 million and $ 69.7 million,

respectively.

During 2021, the Company invested a portion of the MSA escrow accounts in U.S.

At December 31, 2022 and 2021, the Company had bank deposits, including MSA escrow accounts, in excess of federally insured limits of approximately $ 105.2 million and $ 137.2 million, respectively.

During 2022 and 2021, the Company

invested a portion of the MSA escrow accounts in U.S.

Government securities including TIPS, Treasury notes, and Treasury bonds.

The Company sells its products to distributors, retail establishments, and consumers throughout the United States and also sells Zig-Zag ® premium cigarette papers in Canada and some smaller quantities in other countries.

The Company sells its products to distributors, retail establishments, and consumers throughout the U.S.

and also sells Zig-Zag ® premium cigarette papers in Canada and some smaller quantities in other countries.

The Company had no customers that accounted for more than 10% of net sales for 2022, 2021, or 2020.

The Company performs periodic credit evaluations of its customers and generally does not

require collateral on trade receivables.

The Company performs periodic credit evaluations of its customers and generally does not require collateral

on trade receivables.

Historically, the Company has not experienced significant credit losses.

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Accounts receivable are recognized at their net realizable value.

All accounts receivable are trade related, recorded at the invoiced amount, and do not

bear interest.

All accounts receivable are trade related, recorded at the invoiced amount, and do not bear interest.

The Company maintains allowances for doubtful accounts receivable for estimated uncollectible invoices resulting from a customer’s inability to pay (bankruptcy, out of business, etc., i.e.

“bad debt” which results in write-offs).

activity of allowance for doubtful accounts during 2021 and 2020 is as follows:

The activity of

allowance for doubtful accounts during 2022 and 2021 is as follows:

Balance at beginning of period

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Balance at end of period

Recent Accounting Pronouncements Adopted

In December 2019, the FASB issued Accounting Standards Update (“ASU”) 2019-12 to simplify the accounting in

ASC 740, Income Taxes.

This guidance removes certain exceptions related to the approach for intra-period tax allocation, the methodology for calculating income taxes in an interim period, and the recognition of deferred tax liabilities for outside

basis differences.

This guidance also clarifies and simplifies other areas of ASC 740.

This ASU became effective beginning in the first quarter of the Company’s fiscal year 2021.

Certain amendments in this update must be applied on a prospective

basis, certain amendments must be applied on a retrospective basis, and certain amendments must be applied on a modified retrospective basis through a cumulative-effect adjustment to retained earnings/(deficit) in the period of adoption.

effective for the Company beginning in the first quarter of 2021.

The ASU did not have an impact to the Company’s financial statements and related disclosures.

In August 2020, the FASB issued ASU

2020-06, Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity’s Own Equity (Subtopic 815-40) (“ASU 2020-06”).

This guidance simplifies the accounting for convertible debt instruments by

reducing the number of accounting models and the number of embedded conversion features that could be recognized separately from the convertible instrument.

This guidance also enhances transparency and improves disclosures for convertible

instruments and earnings per share guidance.

This ASU is effective for annual reporting periods beginning after December 15, 2021, including interim periods within those fiscal years.

Early adoption is permitted, but no earlier than fiscal years

beginning after December 15, 2020.

This update permits the use of either the modified retrospective or fully retrospective method of transition.

The Company early adopted this ASU effective January 1, 2021 using the full retrospective method of

The adoption resulted in a $ 7.1 million increase in Accumulated earnings, a $ 24.2 million increase in Notes payable and long-term debt, a $ 6.3

million decrease in deferred income taxes and a $ 24.9 million decrease in Additional paid-in capital as of December 31, 2020, and a $ 2.2 million decrease in Accumulated deficit and a $ 24.9

million decrease in Additional paid-in capital as of December 31, 2019.

Interest expense decreased by $ 6.7 million annually and weighted

average diluted common shares outstanding increased by approximately 3.2 million shares.

Change in Accounting Principle

Effective January 1, 2021, the Company changed its method of accounting for inventory from the LIFO method to the FIFO method.

Costs determined

using the LIFO method would have been utilized on approximately 45.1 % and 49.4 % of inventories at December 31, 2020 and 2019, respectively, prior to this change in method, and consisted primarily of tobacco inventory.

The Company believes the FIFO method is

preferable because it:

(i) conforms the accounting for all inventory with the method utilized for the majority of its inventory;

(ii) better represents how management assesses and reports on the performance of the tobacco and other LIFO product lines

as LIFO is excluded from management’s economic decision making;

(iii) better aligns the accounting with the physical flow of that inventory;

and (iv) better reflects inventory at more current costs.

The Company applied this change retrospectively to

all prior periods presented.

This change resulted in a $ 6.1 million increase in inventories, a $ 1.6 million decrease in deferred taxes and a $ 4.5 million increase

in Accumulated earnings as of December 31, 2020, and a $ 5.8 million increase in inventories, a $ 1.5 million decrease in deferred taxes and a $ 4.3 million decrease

in Accumulated deficit as of December 31, 2019.

All prior periods presented in the consolidated financial statements

have previously been retrospectively adjusted to apply the effects of the change in accounting principle from the LIFO method to the FIFO method of accounting and the adoption of ASU 2020-06 .

In July 2021, the Company acquired certain assets of Unitabac, a marketer of mass-market cigars, for $ 10.7 million in total consideration, comprised of $ 9.6 million in

cash and $ 1.1 million of capitalized transaction costs.

The acquisition is comprised of a portfolio of cigarillo products and all related

intellectual property, including Cigarillo Non-Tip (NT) Homogenized Tobacco Leaf (HTL) products and Rolled Leaf and Natural Leaf Cigarillo Products.

The acquired assets are comprised of a portfolio of cigarillo products and all

related intellectual property, including Cigarillo Non-Tip (“NT”) Homogenized Tobacco Leaf (“HTL”) products and Rolled Leaf and Natural Leaf Cigarillo Products.

The transaction was accounted for as an asset purchase with $ 10.0 million assigned to intellectual property, which has an indefinite life, and $ 0.7 million assigned to inventory.

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Direct Value Wholesale

In April 2021, Turning Point Brands Canada, a VIE for which the Company

is considered the primary beneficiary, purchased 100 % of the equity interests of Westhem Ventures LTD d/b/a Direct Value Wholesale

(“DVW”) for $ 3.9 million, net of cash acquired, with $ 3.5 million paid in cash at closing and $ 0.5 million in accrued consideration

paid during 2021.

In April 2021, Turning Point Brands Canada, a VIE for which the Company is considered the primary beneficiary, purchased 100 % of the equity interests of Westhem Ventures LTD d/b/a Direct Value Wholesale (“DVW”) for $ 3.9

million, net of cash acquired, with $ 3.5 million paid in cash at closing and $ 0.5 million in accrued consideration paid during 2021.

DVW is a Canadian distribution entity that operates in markets not primarily served by Turning Point Brands Canada.

The acquisition expands Turning Point Brands Canada’s markets in Canada.

On April 13, 2021, in connection with

the acquisition of DVW, the Company provided a $ 3.7 million unsecured loan to Turning Point Brands Canada bearing interest at 8 % per annum and maturing April 13, 2023.

The unsecured loan is eliminated in the consolidation of Turning Point Brands Canada.

As of December 31,

2021, Turning Point Brands Canada had not completed the accounting for the acquisition.

The following table summarizes the consideration transferred and calculation of goodwill based on excess of the acquisition price over the estimated fair

value of the identifiable net assets acquired and are based on management’s preliminary estimates:

Total consideration transferred

Adjustments to consideration transferred:

Cash acquired

Accrued consideration

Adjusted consideration transferred

Assets acquired:

Working capital (primarily AR and inventory)

Fixed assets and Other long term assets

acquisition expands Turning Point Brands Canada’s markets in Canada.

On April 13, 2021, in connection with the acquisition of DVW, the Company provided a $ 3.7

million unsecured loan to Turning Point Brands Canada bearing interest at 8 % per annum and maturing April 13, 2023.

The unsecured loan

is eliminated in the consolidation of Turning Point Brands Canada.

The following table summarizes the consideration transferred and calculation of goodwill based on excess of the acquisition price over the estimated fair value of the identifiable

net assets acquired:

goodwill of $ 2.5 million consists of the synergies expected from combining the operations and is deductible for tax purposes.

Turning Point Brands Canada (formerly ReCreation Marketing)

In July 2019, the Company obtained a 30 %

stake in a Canadian distribution entity, Turning Point Brands Canada for $ 1 million paid at closing.

In November 2020, the Company invested

an additional $ 1 million related to our 30 %

In November 2020, the Company also invested an additional $ 2 million increasing its ownership interest to 50 %.

The Company received board seats aligned with our ownership position.

The Company also provided a $ 2.0 million unsecured loan to Turning Point Brands Canada bearing interest at 8 %

per annum and maturing November 19, 2022.

As discussed in Note 2, the Company has determined that Turning Point Brands Canada is a VIE due its required subordinated financial support.

The Company has determined it is the primary beneficiary due its 50 % equity interest, additional subordinated financing and distribution agreement with Turning Point Brands Canada for the sale of the Company’s products.

As a result, the Company began consolidating Turning Point Brands Canada effective November 2020.

The Company completed the accounting for the acquisition during the fourth quarter of 2021.

The following table summarizes the consideration transferred

and calculation of goodwill based on excess of the acquisition price over the estimated fair value of the identifiable net assets acquired:

Total consideration transferred

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Cash acquired

Working capital

Debt eliminated in consolidation

Accrued consideration

Adjusted consideration transferred

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Fixed assets and Other long term assets

Other liabilities

Non-controlling interest

Net assets acquired

The goodwill of $ 5.3 million consists of the

synergies expected from combining the operations and is currently not deductible for tax purposes.

In July 2021,

the Company invested an additional $ 2.3 million in Turning Point Brands Canada increasing its ownership interest to 65 %.

The goodwill of $ 2.5 million consists of the synergies expected from combining the operations and is deductible for tax purposes.

Turning Point Brands Canada

In July 2021, the Company invested an

additional $ 2.3 million in Turning Point Brands Canada increasing its ownership interest to 65 %.

The Company received board seats aligned with its ownership position.

The Company has determined that Turning Point Brands Canada continues to be a

VIE due to its required subordinated financial support.

The Company has determined it remains the primary beneficiary due to its 65% equity interest, additional subordinated financing and distribution agreement with Turning Point Brands Canada for

the sale of the Company’s products.

As a result of the Company remaining the primary beneficiary, the increase in ownership interest resulted in a decrease in Non-controlling interest of $ 1.1 million and a decrease in Additional paid-in capital of $ 1.1 million.

Standard Diversified Inc.

(“SDI”) Reorganization

On July 16, 2020, the Company completed its merger with SDI, whereby SDI was merged into a wholly-owned subsidiary of the Company in a tax-free downstream

Under the terms of the merger, the holders of SDI’s Class A Common Stock and SDI’s Class B Common Stock (collectively, “SDI Common Stock”) received in the aggregate, in return for their SDI Common Stock, TPB Voting Common Stock (“TPB Common

Stock”) at a ratio of 0.52095 shares of TPB Common Stock for each share of SDI Common Stock at the time of the merger.

SDI divested its

assets, other than SDI’s TPB Common Stock, prior to close such that the net liabilities at closing were minimal and the only assets that SDI retained were the remaining TPB Common Stock holdings.

The transaction was accounted for as an asset purchase

for $ 236.0 million in consideration, comprised of 7,934,704 shares of TPB Common Stock valued at $ 234.3 million plus transaction costs and assumed net

The $ 236.0 million was assigned to the 8,178,918 shares of TPB Common Stock acquired.

The 244,214 shares of TPB Common Stock acquired in excess

of the shares issued were retired resulting in a charge of $ 1.7 million recorded in Accumulated earnings.

The Company no longer has a

controlling shareholder

Durfort Holdings

In June 2020, the Company purchased certain tobacco assets and distribution rights from Durfort Holdings S.R.L.

(“Durfort”) and Blunt Wrap USA for $ 47.7 million in total consideration, comprised of $ 37.7

million in cash, including $ 1.7 million of capitalized transaction costs, and a $ 10.0 million unsecured subordinated promissory note (“Promissory Note”).

With this transaction, the Company acquired co-ownership in the intellectual property rights of all of

Durfort’s and Blunt Wrap USA’s Homogenized Tobacco Leaf (“HTL”) cigar wraps and cones.

The Company also 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.

Durfort is an industry leader in alternative cigar and cigar wrap manufacturing and distribution.

Blunt Wrap USA has been

an innovator of new products in the smoking alternative market since 1997 and has secured patents in the USA and internationally for novel smoking wrappers and cones.

The transaction was accounted for as an asset purchase with $ 42.2 million assigned to intellectual property, which has an indefinite life, and $ 5.5 million assigned to the Master Distribution Agreement, which has a 15 year

Both assets are currently deductible for tax purposes.

The Company has determined that Turning Point Brands Canada continues to be a VIE due to its required

subordinated financial support.

The Company has determined it remains the primary beneficiary due to its 65% equity interest, additional subordinated financing and distribution agreement with Turning Point Brands Canada for the sale of the

Company’s products.

Derivative Instruments

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The Company’s policy is to manage the risks associated with foreign exchange rate movements.

The policy allows hedging up to 100 % of its anticipated purchases of inventory over a forward period that will not exceed 12 rolling and consecutive months.

The policy allows hedging up to 100 % of its anticipated purchases of inventory over a forward period that will not exceed 12

rolling and consecutive months.

The Company may, from time to time, hedge currency for non-inventory purchases, e.g., production equipment, not to exceed 90 % of the purchase price.

The Company did no t

execute any forward contracts during 2021.

During 2020, the Company executed various forward contracts, which met hedge accounting requirements, for the purchase of € 19.7 million and sale of € 21.4 million with maturity dates ranging from December

2020 to November 2021.

During 2022, the Company executed various foreign exchange contracts, which met hedge accounting requirements for the purchase of € 28.9 million and sale of € 28.9 million.

The Company did no t execute any foreign exchange contracts during 2021.

At December 31, 2022, the Company had foreign currency contracts for the purchase of € 18.5 million and sale of € 18.5 million.

The foreign currency contracts’ fair

value at December 31, 2022, resulted in an asset of $ 1.2 million included in Other current assets and a liability of $ 0.0 million included in Accrued liabilities.

At December 31, 2021, the Company had no forward contracts.

At December 31, 2020, the Company had forward contracts

for the purchase of € 18.0 million and sale of € 19.6

The foreign currency contracts’ fair value at December 31, 2020, resulted in an asset of $ 0.4 million included in Other current

assets and a liability of $ 0.0 million included in Accrued liabilities.

Losses of $ 0.1 million were reclassified from Accumulated

other comprehensive loss to Cost of sales for the years ended December 31, 2022.

There were no amounts reclassified from Accumulated other comprehensive loss in 2021 or 2020.

Interest Rate Swaps

The Company’s policy is to manage interest rate risk by reducing the volatility of future cash flows associated with debt instruments bearing interest at

variable rates.

In March 2018, the Company executed various interest rate swap agreements for a notional amount of $ 70 million with an

expiration of December 2022.

The swap agreements fix LIBOR at 2.755 %.

The Company’s policy is

to manage interest rate risk by reducing the volatility of future cash flows associated with debt instruments bearing interest at variable rates.

In 2018, the Company executed various interest rate swap agreements for a notional amount of $ 70 million with an expiration of December 2022.

The swap agreements fixed LIBOR at 2.755 %.

The swap agreements met the hedge accounting requirements;

change in fair value is recorded to other comprehensive income.

The Company uses the Shortcut Method to account for the swap agreements.

thus, any change in fair value was recorded to other comprehensive income.

The Company uses the Shortcut Method to account

for the swap agreements.

The Shortcut Method assumes the hedge to be perfectly effective.

thus, there is no ineffectiveness to be recorded

The swap agreements’ fair values at December 31, 2020, resulted in a liability of $ 3.7 million included in other long-term

Losses of $ 0.1 million, $ 1.5

million and $ 0.3 million were reclassified into interest expense for the year ending December 31, 2021, 2020 and 2019 respectively.

The Company terminated the interest rate swap agreements in conjunction with the prepayment of all

outstanding amounts under the 2018 First Lien Credit Facility (as defined below) in the first quarter of 2021 with the early termination payment made by the Company in the amount of $ 3.6 million which was reclassified out of accumulated other comprehensive loss into loss on extinguishment of debt.

Losses of $ 0.1 million and $ 1.5 million were reclassified into interest expense

for the years ended December 31, 2021 and 2020, respectively.

The Company terminated the interest rate swap agreements in conjunction with the prepayment of all outstanding amounts under the 2018 First Lien Credit Facility (as defined below) in the

first quarter of 2021 with an early termination payment made by the Company in the amount of $ 3.6 million which was reclassified out of

accumulated other comprehensive loss into loss on extinguishment of debt.

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.

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.

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

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

Note Payable – Promissory Note

The Company’s Promissory Note bore interest at a rate of 7.5 % per year.

The fair value of the Promissory Note approximated its carrying value of $ 10.0 million at December 31, 2020, due to the recency of the note’s issuance, related to the year ended December

The Company prepaid all outstanding amounts under the Promissory Note in the third quarter of 2021.

Note Payable – Unsecured Loan

The Company ’ s Unsecured Note bore interest at a rate of 1.0 % per year.

The fair value of the Unsecured Note approximated

its carrying value of $ 7.5 million at December 31,

2020, due to the recency of the note’s issuance, related to the year ended December 31, 2020.

The Unsecured Note was forgiven in the fourth quarter of 2021.

Long-Term Debt

The Company’s

Senior Secured Notes (as defined below) bear interest at a rate of 5.625 % per year and the fair value of the Senior Secured Notes

approximate its carrying value of $ 250 million due to the recency of the notes’ issuance, related to the year ended December 31, 2021.

The Company’s 2018 Credit Facility bore interest at variable rates that fluctuated with market rates.

The carrying values of the 2018 Credit Facility approximated its respective fair

As of December 31, 2020, the fair value of the 2018 First Lien Term Loan approximated $ 130.0 million.

The Company prepaid all

outstanding amounts under the 2018 First Lien Credit Facility in the first quarter of 2021.

The Convertible Senior Notes bear interest at a rate of 2.50 % per year.

The Company’s Senior

Secured Notes (as defined below) bear interest at a rate of 5.625 % per year.

As of December 31, 2022, the fair value approximated $ 226.4 million, with a carrying value of $ 250

As of December 31, 2021, the fair value approximated $ 250 million with a carrying value of $ 250 million.

The Convertible Senior

Notes bear interest at a rate of 2.50 % per year.

As of December 31, 2022, the fair value approximated $ 139.2 million, with a carrying value of $ 162.5

As of December 31, 2021, the fair value approximated $ 159.8 million, with a carrying value of $ 172.5 million.

See Note 13, “Notes Payable and Long-Term Debt”, for further information regarding the Company’s long-term debt.

Foreign Exchange

At December 31, 2021, the Company had no forward contracts.

were no open contracts as of December 31, 2021, there is no resulting balance sheet position related to the fair value.

At December 31, 2020, the Company had forward contracts for the purchase of € 18.0 million and sale of € 19.6 million.

At December 31, 2022, the Company had foreign currency contracts for the purchase of € 18.5 million and sale of € 18.5 million.

The fair value of the foreign exchange

contracts are based upon quoted market prices for similar instruments, thus leading to a level 2 distinction within the fair value hierarchy, and resulted in an asset of $ 0.4 million and a liability of $ 0.0 million as of December 31, 2020.

Interest Rate Swaps

The Company had swap contracts for a total notional amount of $ 70

million at December 31, 2020.

The fair values of the swap contracts were based upon quoted market prices for similar instruments, thus leading to a level 2 distinction within the fair value hierarchy, and resulted in a liability of $ 3.7 million as of December 31, 2020.

The Company terminated the swap contracts in conjunction with the prepayment of all outstanding amounts under the

2018 First Lien Credit Facility in the first quarter of 2021.

contracts are based upon quoted market prices for similar instruments, thus leading to a Level 2 classification within the fair value hierarchy, and resulted in an asset of $ 1.2 million and a liability of $ 0.0 million as of December 31, 2022.

At December 31, 2021, the Company had no

foreign currency contracts.

As there were no open contracts as of December 31, 2021, there is no resulting balance sheet position related to the fair value.

The components of inventories are as follows:

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Prepaid taxes

Property, Plant and Equipment

Property, Plant and Equipment, Net

Property, plant and equipment consists of:

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Net property, plant and equipment

Deferred Financing Costs

Deferred financing costs relating to the 2018 Revolving Credit Facility (which was terminated in February 2021) and the 2021 Revolving Credit Facility consist

Deferred Financing Costs, Net

Deferred financing costs relating to the 2021 Revolving Credit Facility consist of:

Deferred financing costs, net of accumulated amortization of $ 200 and $ 94 , respectively

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Balance as of December 31, 2020

Cumulative translation adjustment

Balance as of December 31, 2021

1 unchanged sentence

Balance as of December 31, 2022

The following tables summarize information about the Company’s allocation of other intangible assets.

Gross carrying amounts of unamortized, indefinite

life intangible assets are shown below:

The Company tests goodwill for impairment annually during the fourth quarter, or more frequently when events or changes in circumstances indicate that the fair value

is below its carrying value.

The Company performed quantitative testing on its NewGen reporting unit as of December 31, 2022, using a combination of the income approach utilizing Level 3

unobservable inputs and the market approach.

Based on the analysis performed the Company concluded that the carrying amount of the reporting unit exceeded its fair value resulting in a non-cash goodwill impairment charge of $ 25.6 million included in Goodwill and intangible impairment loss for the year ended December 31, 2022.

Continued regulatory uncertainty in the vape

industry, along with revised views of recovery in the vape industry based on a leadership change in the fourth quarter 2022, resulted in the impairment.

The Company performed quantitative testing on its two remaining reporting units as part of its annual impairment test and determined that no further goodwill

impairments existed.

For the quantitative assessment, the Company used a combination of discounted cash flow models (income approach) utilizing Level 3 unobservable inputs and the Guideline Public Company Method (market approach).

The Company’s

significant assumptions in these analyses include, but are not limited to, projected revenue, the weighted average cost of capital, the terminal growth rate, derived multiples from comparable market transactions and other market data.

The Company’s goodwill impairment analysis referenced above used the discounted cash flow model (income approach) utilizing Level 3 unobservable inputs.

The Company’s

significant assumptions in this analysis included, but were not limited to, future cash flow projections, the weighted average cost of capital, the terminal growth rate, and the tax rate.

The Company’s estimates of future cash flows are based on

current regulatory and economic climates, recent operating results, and planned business strategies.

These estimates could be negatively affected by changes in federal, state, or local regulations or economic downturns.

Future cash flow estimates

are, by their nature, subjective and actual results may differ materially from the Company’s estimates.

If the Company’s ongoing estimates of future cash flows are not met or if discount rates change, the Company may have to record additional

impairment charges in future periods.

The Company also used the Guideline Public Company Method (market approach).

The significant assumptions used in this analysis include, but are not limited to, the derived multiples from comparable market

transactions and other market data.

The selection of comparable businesses is based on the markets in which the reporting unit operates giving consideration to risk profiles, size, geography, and diversity of products.

probability-weighted scenarios for both the income and market approaches and also applied an overall probability-weighting to the income and market approaches to determine the concluded fair value of the reporting unit given the uncertainty in the

current economic environment to determine the concluded fair value of the reporting unit.

The Company believes the current assumptions and estimates utilized in the income and market approaches are both reasonable and appropriate.

The following tables summarize information about the Company’s other intangible assets.

Gross carrying amounts of unamortized, indefinite-lived intangible

assets are shown below:

December 31, 2022

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Unamortized, indefinite life intangible assets:

Amortized intangible assets included within the NewGen segment consists of:

In the fourth quarter 2022, based on its annual impairment testing the fair value of the trade name in the NewGen segment was less than its carrying amount resulting

in an impairment of $ 1.6 million included in Goodwill and intangible impairment loss for the year ended December 31, 2022.

circumstances giving rise to this impairment are consistent with those resulting in the NewGen goodwill impairment discussed above.

As a result of such circumstance, as of January 1, 2023 the Company will begin to amortize this trade name over its

estimated useful life of 15 years and transferred the asset to amortized intangible assets consistent with its other trade names.

Amortized intangible assets consists of:

December 31, 2022

December 31, 2021

December 31, 2022

December 31, 2021

December 31, 2022

December 31, 2021

Amortized intangible assets:

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Non-compete agreements (useful life of 3.5 years)

During 2020, $ 2.4 million in trade names

related to Wind River Brands in the Stoker’s Product segment were determined to no longer be indefinite lived and began to be amortized.

Annual amortization expense for each of the next five years is estimated to be approximately $ 1.9 million for 2022 through 2024 and $ 1.2

million for 2025 through 2026, assuming no additional transactions occur that require the amortization of intangible assets.

In the fourth quarter 2022, the Company recorded an asset impairment charge of $ 0.3 million related to the franchise agreements intangible asset within the NewGen segment included in Goodwill and intangible impairment loss for the year ended December 31, 2022.

The Company exited the franchise

business and determined that the intangible asset was fully impaired.

Annual amortization expense for the next five years is estimated to be approximately $ 2.2 million for 2023 and 2024 and $ 1.6 million for 2025

through 2027, assuming no additional transactions occur that require the amortization of intangible assets.

Other assets consists of:

3 unchanged sentences

adjustments for impairment and observable price changes.

In July 2021, the Company invested $ 8 million in Old Pal Holding Company LLC (“Old Pal”).

The Company invested in the form of a convertible note which includes additional follow-on investment rights.

Old Pal is a leading brand

in the cannabis lifestyle space that operates a non-plant touching licensing model.

The Company’s investment will enable Old Pal to expand product offerings in existing states, which include California, Nevada, Michigan, Oklahoma, Ohio,

Washington and Massachusetts, and will help create the infrastructure necessary to support continued territory and product expansion.

The convertible note bears an interest rate of 3.0 % per year and matures July 31, 2026.

Interest and principal 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 sales levels of Old Pal meeting certain thresholds.

The weighted average interest rate was 3.0 % for the year ended December 31, 2021.

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 December 31, 2021.

Additionally, the Company has the right to convert the note into shares at any time after January 1, 2022.

The Company has classified the debt security with Old Pal as available for sale.

records the debt security at fair value and includes unrealized gains and losses recorded in stockholders’ equity as a component of accumulated other comprehensive income on our Consolidated Balance Sheets.

The Company reports interest income on

available for sale debt securities, in interest income in our Consolidated Statements of Income.

The fair value of the debt security approximated its carrying value of $ 8.0 million at December 31, 2021, due to the recency of the debt security’s purchase, related to the year ended December 31, 2021.

The Company has recorded accrued interest receivable

of $ 0.1 million at December 31, 2021, in other current assets on our Consolidated Balance

Equity Investments

In April 2022, the Company invested $ 8.7 million in Docklight Brands, Inc., a pioneering consumer products company with celebrated brands including Marley Natural ® cannabis and Marley ™ CBD.

3 unchanged sentences

Purchases of inventory from Docklight Brands, Inc.

were $ 0.0 million in 2021.

There was $ 0.0 million outstanding at December 31, 2021.

were $ 0.1 million and $ 0.0 million in 2022 and 2021, respectively.

There were no amounts payable to Docklight Brands,

at December 31, 2022 and 2021.

In October 2020, the Company acquired a 20 % stake in Wild Hempettes LLC (“Wild Hempettes”), a leading manufacturer of

6 unchanged sentences

The Company accounts for its investment in Wild Hempettes as an equity method investment.

recorded investment income of $ 0.1 million and $ 0.1 million for years ended December 31, 2021 and 2020, respectively.

The Company recorded investment loss of $ 0.1 million

and income $ 0.1 million for years ended December 31, 2022 and 2021, respectively.

Purchases of inventory from Wild Hempettes was $ 0.4 million and $ 2.1 million in 2022 and 2021, respectively.

There were no amounts outstanding at December 31, 2021 and 2020.

In October 2020, the Company invested $ 15.0 million in dosist TM , a global cannabinoid company, with an option

to invest an additional $ 15.0 million on pre-determined terms over the 12 month period ending October 2021.

The Company received a warrant exercisable for preferred shares of dosist TM

that will automatically be exercised upon the changing of certain federal cannabis laws in the United States, rescheduling cannabis and/or permitting the general cultivation, distribution and possession of cannabis.

In the fourth quarter 2021,

based on the financial results of dosist TM and the overall cannabinoid market, the Company deemed our investment was impaired resulting in the fair value of our

investment decreasing to $ 7.9

There were no amounts payable to Wild Hempettes at December 31, 2022 and 2021.

In October 2020, the Company invested $ 15.0 million in dosist TM , a global cannabinoid company.

received a warrant exercisable for preferred shares of dosist TM that will automatically be exercised upon the changing of certain federal cannabis laws in the U.S.,

rescheduling cannabis and/or permitting the general cultivation, distribution and possession of cannabis in the U.S..

In the fourth quarter 2021, based on the financial results of dosist TM and the overall cannabinoid market, the Company deemed our investment was impaired resulting in the fair value of our investment decreasing to $ 7.9 million resulting in a loss of $ 7.1 million which was recorded in investment loss for the year ended December 31, 2021.

In the second and fourth quarters of 2022, based on contemplated sales of the assets of dosist TM ,

the Company deemed its investment was impaired resulting in decreasing of the fair value of the investment to $ 1.6 million and $ 0.0 , respectively.

These impairments resulted in a loss of $ 7.9

million which is recorded in investment loss for the year ended December 31, 2022.

Fair value was determined using a valuation derived from a relevant market index (Level 2) and relevant revenue multiples (Level 3).

The valuations were probability weighted based on anticipated outcomes.

Given the significance of Level 3

input to the valuation, we have determined that the non-recurring valuation resulted in Level 3 classification within the fair value hierarchy.

This resulted in a loss of $ 7.1 million

which is recorded in investment loss for the

year ended December 31, 2021.

The valuations were probability

weighted based on anticipated outcomes.

Given the significance of the Level 3 input to the valuation, the Company has determined that the non-recurring valuation resulted in a Level 3 classification within the fair value hierarchy.

There were no purchases of inventory from dosist TM in 2022 or 2021.

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manufactures cannabidiol isolate (“CBD”) developed through highly efficient and proprietary processes.

The investment in CASH positions the Company to participate in the market for hemp-derived products.

In the fourth quarter 2019, CASH completed a

fundraising round, resulting in the fair value of our investment increasing to $ 4.0 million.

This resulted in a gain of $ 2 million which is recorded in investment income for 2019.

2020, CASH merged with Real Brands, Inc.

(“Real Brands”), an over the counter traded shell company.

CASH will continue business under the Real Brands name.

In October 2020, CASH merged with Real Brands, Inc.

Brands”), an over the counter traded shell company.

CASH continued business under the Real Brands name.

The Company maintained its ownership position in Real Brands subsequent to the merger.

were no purchases of inventory from CASH in 2021 or 2020.

There were no amounts outstanding at December 31, 2021 and 2020.

In the fourth quarter 2022, as a result of a

significant decline in the enterprise value, the Company determined that the fair value of the investment was $ 0.0 and fully impaired the

The impairment resulted in a loss of $ 4.3 million which is recorded in investment loss for the year ended December 31, 2022.

There were no purchases of inventory from Real Brands in 2022 or 2021.

There were no amounts payable to Real Brands at December 31, 2022 and 2021.

In December 2018, the Company acquired a minority ownership position in General Wireless Operations, Inc.

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“RadioShack”) from 5G gaming

LLC, which is owned by Standard General LP, for $ 0.4 million.

Standard General LP has a controlling interest in the Company and qualifies

as a related party.

There were no amounts outstanding at December 31, 2021 and 2020.

LLC for $ 0.4 million.

There were no

amounts payable to General Wireless Operations, Inc.

at December 31, 2022 and 2021.

Debt Security Investment

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 was rolled

into the 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,

Interest and principal 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 sales levels of Old Pal meeting certain thresholds.

The weighted average interest rate was 3.0 %

for the year ended December 31, 2022.

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 December 31, 2022.

Additionally, the Company has the right to convert the note into shares at any time after January 1, 2022.

The Company has classified the debt security with Old Pal as

available for sale.

The Company records the debt security at fair value and includes unrealized gains and losses recorded in stockholders’ equity as a component of accumulated other comprehensive income on our Consolidated Balance

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.

The fourth quarter 2022 qualitative assessment determined that the fair value of the investment could be less than the amortized cost basis and therefore the Company performed a quantitative assessment of

the fair value of the investment.

The fair value as of December 31, 2022 was determined to be $ 7.9 million based on a Monte Carlo

simulation (Level 3).

The Company determined that the impairment was a result of credit related factors and, as such, recorded an allowance for credit losses of $ 1.4 million which is included in investment loss for the year ended December 31, 2022.

The Company has recorded accrued

interest receivable of $ 0.1 million at December 31, 2022, in other current assets on our Consolidated Balance Sheets.

Accrued Liabilities

Accrued liabilities at consists of:

Accrued liabilities consists of:

Accrued payroll and related items

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Senior Secured Notes

2018 First Lien Term Loan

Convertible Senior Notes

Note payable - Promissory Note

Note payable - Unsecured Loan

Gross notes payable and long-term debt

Less deferred finance charges

Less current maturities

Net notes payable and long-term debt

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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 prior to February 15, 2023, at a price equal to 100 % of the principal amount of the Notes redeemed plus accrued and unpaid interest, if any, to, but excluding the applicable redemption date, plus a

“make-whole” premium.

Thereafter, the Company may redeem the Senior Secured Notes, in whole or in part, at established redemption prices set forth in the Senior Secured Notes Indenture, plus accrued and unpaid interest, if any.

In addition, on or

prior to February 15, 2023, the Company may redeem up to 40 % of the aggregate principal amount of the Senior Secured Notes with the

net cash proceeds from certain equity offerings at a redemption price equal to 105.625 %, plus accrued and unpaid interest, if any to

the redemption date;

provided, however , that at least 50 % of the original aggregate principal amount of the Senior Secured Notes (calculated after giving effect to the issuance of any additional notes) remains outstanding.

In addition, at any time and from time to

time prior to February 15, 2023, but not more than once in any twelve-month period, the Company may redeem up to 10 % of the aggregate principal amount of the Senior Secured Notes at a redemption price of 103 % of the aggregate principal amount of Senior Secured Notes redeemed plus accrued and unpaid interest, if any to but not including the redemption date, on the Senior

Secured Notes to be redeemed.

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

The Company may redeem the Senior Secured

Notes, in whole or in part, at any time prior to February 15, 2023, 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

On or after February 15, 2024

On or after February 15, 2025 and thereafter

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 Indenture contains covenants that, among other things, limit the ability of the Company and its restricted subsidiaries to:

grant or incur liens;

(ii) incur, assume or guarantee additional indebtedness;

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exceptions set forth in the Indenture.

See Note 23, “ Dividends”, for further information regarding dividend restrictions.

See Note 22, “ Dividends and Share Repurchases”, for further information regarding dividend restrictions.

The Indenture provides for customary events of default.

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is 91 days prior to the maturity date of July 15, 2024 for such Convertible Senior Notes.

Interest is payable on the 2021 Revolving Credit Facility at a fluctuating rate of interest determined by reference to the Eurodollar

rate plus an applicable margin of 3.50 % (with step-downs upon de-leveraging).

The Company also has the option to borrow at a rate

determined by reference to the base rate.

Interest is payable on the 2021 Revolving Credit Facility at a fluctuating rate of interest determined by reference to the Eurodollar rate plus

an applicable margin of 3.50 % (with step-downs upon de-leveraging).

The Company also has the option to borrow at a rate determined by

reference to the base rate.

The obligations under the 2021 Revolving Credit Agreement are guaranteed on a joint and several basis by the Guarantors.

The Company’s

and Guarantors’ obligations under the 2021 Revolving Credit Facility are secured on a pari passu basis with the Senior Secured Notes.

The 2021 Revolving Credit Agreement contains covenants that are substantially the same as the covenants in the Senior Secured Notes

The 2021 Revolving Credit Facility also requires the maintenance of a Consolidated Leverage Ratio (as defined in the 2021 Revolving Credit Agreement) of 5.50 to 1.00 (with a step down to 5.25 to 1.00 beginning with the fiscal quarter ending March 31,

2023) at the end of each fiscal quarter when extensions of credit under the 2021 Revolving Credit Facility and certain drawn and undrawn letters of credit (excluding (a) letters of credit that have been cash collateralized and (b) letters of

credit having an aggregate face amount less than $ 5 ,000,000) in the aggregate outstanding exceeds 35 % of the total commitments under the 2021 Revolving Credit Facility.

The Company’s and

Guarantors’ obligations under the 2021 Revolving Credit Facility are secured on a pari passu basis with the Senior Secured Notes.

The 2021 Revolving Credit Agreement contains covenants that are substantially the same as the covenants in the Senior Secured Notes Indenture.

The 2021 Revolving Credit Facility also requires the maintenance of a Consolidated Leverage Ratio (as defined in the 2021 Revolving Credit Agreement) of 5.50

to 1.00 (with a step down to 5.25 to 1.00 beginning with the fiscal quarter ending March 31, 2023) at the end of each fiscal quarter

when extensions of credit under the 2021 Revolving Credit Facility and certain drawn and undrawn letters of credit (excluding (a) letters of credit that have been cash collateralized and (b) letters of credit having an aggregate face amount less

than $ 5 ,000,000) in the aggregate outstanding exceeds 35 % of the total commitments under the 2021 Revolving Credit Facility.

The 2021 Revolving Credit Agreement provides for customary events of default.

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2018 Credit Facility

On March 7, 2018, the Company entered into $ 250

million of credit facilities consisting of a $ 160 million 2018 First Lien Term Loan and a $ 50 million 2018 Revolving Credit Facility (collectively, the “2018 First Lien Credit Facility”), in each case, with Fifth Third Bank, as administrative agent, and other lenders,

On March 7, 2018, the Company entered into $ 250 million of

credit facilities consisting of a $ 160 million 2018 First Lien Term Loan and a $ 50 million 2018 Revolving Credit Facility (collectively, the “2018 First Lien Credit Facility”), in each case, with Fifth Third Bank, as administrative agent, and other lenders,

in addition to a $ 40 million 2018 Second Lien Term Loan (the “2018 Second Lien Credit Facility,” and, together with the 2018 First Lien

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The 2018 Credit Facility contained a $ 40 million accordion feature.

In the first quarter of 2021, the Company used a portion of the proceeds from the issuance of the Senior Secured Notes to prepay all

outstanding amounts under and terminate the 2018 First Lien Credit Facility in the amount of $ 130.0 million, and the transaction resulted

in a $ 5.7 million loss on extinguishment of debt, which includes a $ 3.6 million loss from the early termination of the interest rate swap agreement.

2018 First Lien Credit Facility:

The 2018 First Lien

Term Loan and the 2018 Revolving Credit Facility bore interest at LIBOR plus a spread of 2.75 % to 3.50 % based on the Company’s senior leverage ratio.

The 2018 First Lien Term Loan had quarterly required payments of $ 2.0 million beginning June 30,

2018, increasing to $ 3.0 million on June 30, 2020, and increasing to $ 4.0 million on June 30, 2022.

The 2018 First Lien Credit Facility had a maturity date of March 7, 2023 .

The 2018 First Lien Term Loan was secured by a first priority lien on substantially all of the assets of the borrowers and the guarantors thereunder, including a pledge of the Company’s capital stock,

other than certain excluded assets (the “Collateral”).

2018 Second Lien Credit Facility:

The 2018 Second

Lien Credit Facility bore interest at a rate of LIBOR plus 7.00 % and had a maturity date of March 7, 2024 .

The 2018 Second Lien Term Loan was secured by a second priority interest in the Collateral and was guaranteed by the same entities as the 2018 First Lien Term

Based on an excess cash covenant for the facility, a $ 4.5 million principal payment was made in the second quarter 2019, resulting in

a $ 0.2 million loss on extinguishment of debt.

The Company used a portion of the proceeds from the issuance of the Convertible Senior Notes

to prepay all outstanding amounts related to the 2018 Second Lien Credit Facility in the third quarter 2019.

The principal paid in the third quarter amounted to $ 35.5 million, and the transaction resulted in a $ 1.1 million loss on extinguishment of debt.

the first quarter 2021, the Company used a portion of the proceeds from the issuance of the Senior Secured Notes to prepay all outstanding amounts under and terminate the 2018 First Lien Credit Facility in the amount of $ 130.0 million, and the transaction resulted in a $ 5.7

million loss on extinguishment of debt, which includes a $ 3.6 million loss from the early termination of the interest rate swap

Convertible Senior Notes

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The Convertible Senior Notes are senior unsecured obligations of the Company.

The Convertible Senior Notes are convertible into approximately 3,208,172 shares of our voting common stock under certain circumstances prior to maturity at a conversion rate of 18.598

shares per $ 1,000 principal amount of the Convertible Senior Notes, which represents a conversion price of approximately $ 53.77 per share, subject to adjustment under certain conditions, but will not be adjusted for any accrued and unpaid interest.

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.

In the fourth quarter 2022 a wholly owned subsidiary of the Company purchased $ 10.0 million in aggregate principal of its Convertible Senior Notes on the open market for $ 9.0 million that remain in the Treasury and may be redeemed subject to compliance with applicable securities law.

The transaction resulted in a $ 0.9 million gain on extinguishment of debt.

As of December 31, 2022, $ 162.5

million aggregate principal remains outstanding.

The Convertible Senior Notes are convertible into approximately 3,029,699

shares of our voting common stock under certain circumstances prior to maturity at a conversion rate of 18.6443 shares per $ 1,000 principal amount of the Convertible Senior Notes, which represents a conversion price of approximately $ 53.64 per share, subject to adjustment under certain conditions, but will not be adjusted for any accrued and unpaid interest.

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 December 31, 2022.

The Company early adopted ASU 2020-06 effective January 1, 2021 on a retrospective basis to all periods

Under ASU 2020-06, the Company accounts for the Convertible Senior Notes entirely as a liability and no longer separately accounts for the Convertible Senior Notes with liability and equity components.

See Note 2 for further discussion of

the impact of the adoption of ASU 2020-06.

The Company incurred debt issuance costs attributable to the Convertible Senior Notes of $ 5.9 million which are amortized to interest expense using the effective interest 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 $ 53.77 per and a cap price of $ 82.86 per, and are exercisable when, and if, the Convertible Senior Notes are converted.

In connection with the Convertible Senior Notes offering, the Company entered into privately negotiated capped call transactions with certain financial institutions.

capped call transactions have a strike price of $ 53.64 per and a cap price of $ 82.86 per, and are exercisable when, and if, the Convertible Senior Notes are converted.

The Company paid $ 20.53 million for these capped calls and charged that amount to additional paid-in capital.

Promissory Note

On June 10, 2020 , in connection with the acquisition of certain Durfort assets, the Company issued the Promissory Note in the principal amount of $ 10.0 million (the “Principal Amount”), with an annual interest rate of 7.5 % , payable quarterly , with the first payment due September 10, 2020 .

The Principal

Amount was payable in two $ 5.0 million installments, with the first installment due 18 months after the closing date of the acquisition ( June 10, 2020 ), and the second installment due 36

months after the closing date of the acquisition.

The second installment was subject to reduction for certain amounts payable to the Company as a holdback.

The Company prepaid all outstanding amounts under and

terminated the Promissory Note in the third quarter of 2021 in the amount of $ 9.6 million.

The transaction resulted in a $ 0.4 million gain on extinguishment of debt.

Unsecured Loan

On April 6, 2020 , the 2018 First Lien Credit Facility was amended to allow for an unsecured loan under the Coronavirus Aid, Relief, and Economic Security

Act of 2020 (“CARES”).

On April 17, 2020 , National Tobacco Company, L.P., a

subsidiary of the Company, entered into a loan agreement with Regions Bank guaranteed by the Small Business Administration for a $ 7.5 million unsecured loan.

The proceeds of the loan were received on April 27, 2020 .

was scheduled to mature on April 17, 2022 and had a

1.00 % interest rate.

During 2021, the Company applied for forgiveness for the loan.

On October 15, 2021, the Company received notice that its

application for forgiveness was fully approved.

The extinguishment of the unsecured loan occurred in the fourth quarter of 2021 resulting in a $ 7.5 million gain on extinguishment of debt .

The Company is subject to audit relating to the unsecured loan until 2027 which could result in

repayment of some or all of the unsecured loan previously forgiven.

However, the Company believes that repayment of any amount is not probable.

Note Payable – IVG

In September 2018, the Company issued a note payable to IVG’s former shareholders (“IVG Note”).

The IVG Note had a principal amount of $ 4.0 million with an interest rate of 6.0 %

per year and matured on March 5, 2020 .

All principal and accrued and unpaid interest under the IVG Note were subject to indemnification

obligations of the sellers pursuant to the International Vapor Group Stock Purchase Agreement dated as of September 5, 2018.

The carrying amount of the IVG Note, $ 4.2 million, was deposited into an escrow account in the first quarter of 2020 pending agreement with the sellers of any indemnification obligations.

escrow funds were distributed in the first quarter of 2021.

Income tax expense (benefit) for the years ended December 31 consists of the following components:

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740, Income Taxes.

Therefore, a valuation allowance of $ 2.6 million and $ 2.2 million has been recorded at December 2021 and 2020, respectively.

Therefore, a valuation allowance for state NOL carryforwards of $ 2.4 million and $ 2.6 million has been recorded at December 2022 and 2021, respectively.

ASC 740-10-25 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken

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Effective income tax rate

The permanent differences for the year ended December 31, 2021 are primarily related to income tax benefits of $ 7.5

million ($ 1.6 million tax effected) as a result of the forgiveness of the $ 7.5 million unsecured loan and $ 7.2 million ($ 1.5 million tax effected) as a result of stock option exercises.

The permanent differences for the years ended December 31, 2020 and 2019 are primarily

related to income tax benefits of $ 3.3 million ($ 0.7 million tax effected), and $ 4.6 million ($ 1.0 million tax effected), respectively, as a result of stock option exercises.

The permanent differences for the year ended December 31, 2022 are not significant in the aggregate.

The permanent difference for the year December 31, 2021 are primarily related to income tax benefits of $ 7.5 million ($ 1.6 million tax effected)

as a result of the forgiveness of the $ 7.5 million unsecured loan and $ 7.2 million ($ 1.5 million tax effected) as a result of stock option exercises.

The permanent differences for the years ended December 31, 2020 are primarily related to income tax benefits of $ 3.3 million ($ 0.7 million tax effected) as a result of stock option exercises.

Pension and Postretirement Benefit Plans

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In the fourth quarter 2019, the Company amended the plan to cease benefits effective June 30, 2020.

The plan amendment eliminated a significant amount of the benefits under the plan, resulting in a curtailment of $ 3.2 million for the

year ended December 31, 2019.

The curtailment resulted in $ 1.8 million being reclassified from accumulated other comprehensive income to

income in 2019.

The total gain on the curtailment was $ 4.9 million for the year ended December 31, 2019, and is recorded in Net periodic

benefit cost (income), excluding service cost in the income statement.

The following tables provide a reconciliation of the changes in the plans’ benefit obligations and fair value of assets for the year ended December 31,

Postretirement

Reconciliation of benefit obligations:

Benefit obligation at January 1

Interest cost

Actuarial loss (gain)

Settlement/curtailment

Annuities purchased

Benefits paid

Benefit obligation at December 31

Reconciliation of fair value of plan assets:

Fair value of plan assets at January 1

Actual return on plan assets

Employer contributions

Settlement/curtailment

Annuities purchased

Benefits paid

Asset reversion upon termination

Fair value of plan assets at December 31

The following table provides the components of net periodic pension and postretirement benefit costs and total costs for the plans for the years ended

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Lease Commitments

The Company’s leases consist primarily of leased property for manufacturing warehouse, head offices and retail space as well as vehicle leases.

the Company does not recognize any renewal periods within the lease terms as there are not significant barriers to ending the lease at the initial term.

Lease and non-lease components are accounted for as a single lease component.

The Company’s operating leases consist primarily of leased property for manufacturing warehouse, head offices and retail space.

The Company’s capital

leases consist of vehicle leases.

In general, the Company does not recognize any renewal periods within the lease terms as there are not 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.

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do not represent a good or service but for which the lessee is responsible for paying.

Right of use assets

For the year ended December 31,

Financing lease cost

Selling, general and administrative

Right of use assets - Operating

Right of use assets - Financing

Total lease assets

Current lease liabilities - Operating (2)

Current lease liabilities

Long-term lease liabilities

- Financing (2)

Long-term lease liabilities - Operating

Long-term lease liabilities - Financing

Total lease liabilities

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Weighted-average discount rate - operating leases

Weighted-average remaining lease term - financing leases

Weighted-average discount rate - financing leases

Nearly all the lease contracts for the Company do not provide a readily determinable implicit rate.

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that approximates its incremental borrowing rate at the time of the lease commencement.

Maturities of lease liabilities consisted of the following:

Maturities of operating lease liabilities consisted of the following:

Years thereafter

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Present value of lease liabilities

Minimum lease payments for operating leases that had initial or remaining non-cancelable lease terms in excess of one year consisted of the following:

Years thereafter

The Company recognized $ 0.0 million and $ 0.1 million in impairments of right of use assets in 2021 and 2020, respectively, related to store closures.

Maturities of financing lease liabilities consisted of the following:

Total lease payments

Imputed interest

Present value of lease liabilities

Share Incentive Plans

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As of December 31,

2021, net of forfeitures, there were 8,637 Restricted Stock Units (“RSUs”) and 7,500 options granted under the 2021 Plan.

There are 1,383,469 shares available

for grant under the 2021 Plan.

2022, net of forfeitures, there were 103,282 Restricted Stock Units (“RSUs”), 109,119 options and 16,978 Performance Based Restricted Stock Units (“PRSUs”)

granted under the 2021 Plan.

There are 1,160,673 shares available for 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

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Outstanding, December 31, 2022

Under the 2006 Plan, the total intrinsic value of options exercised during the years ended December 31, 2021, 2020, and 2019, was $ 7.9 million, $ 3.7 million, and $ 5.0 million, respectively.

Under the 2006, 2015 and 2021 Plans, the total intrinsic value of options exercised during the years ended December 31, 2022, 2021, and 2020, was $ 0.7 million, $ 7.9 million, and $ 3.7 million, respectively.

At December 31, 2022, under the 2006 Plan, the outstanding stock options’ exercise price for 74,379 options is $ 3.83 per share, all of which are exercisable.

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Total unrecognized compensation expense related to options at December 31, 2022, is $ 0.7 million, which will be expensed over 1.77

Performance-based restricted stock units (“PRSUs”) are restricted stock units subject to both performance-based and service-based vesting conditions.

number of shares of 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 three to five-year period.

Performance-based restricted stock units are restricted stock units subject to both performance-based and service-based vesting conditions.

The number of

shares of 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 three to five-year period.

PRSUs will vest on the measurement

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over the service period based on the probability of achieving the performance condition.

During 2021, the Company granted 8,637

RSUs which vest over one year .

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 $ 0.3 million for the year ended December 31, 2021.

RSUs are stock units

subject to service-based vesting conditions from one to five years .

At December 31, 2022, there are 89,696 RSUs outstanding, 89,696 of which are unvested.

The following table outlines the RSUs granted and outstanding as of December 31, 2022.

Number of RSUs granted

RSUs outstanding at December 31, 2022

Fair value as of grant date

Remaining lives

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 $ 1.3 million, $ 0.3 million and $ 0.0 for the years ended December 31, 2022, 2021 and 2020, respectively.

Total unrecognized compensation expense related to RSUs at December 31, 2022, is $ 1.6 million, which will be expensed over 3.36

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 SDI with a TPB subsidiary pursuant to the Agreement and Plan of Merger and Reorganization, dated as of April 7, 2020, by and among TPB, SDI and Merger Sub.

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 SDI with a TPB subsidiary 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 complaint purports to assert two derivative counts for breach of fiduciary duty on TPB’s behalf and against the TPB Board of Directors and certain SDI affiliates.

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director H.C.

Charles Diao as a defendant in the action and dismissed the third count of the plaintiff’s complaint as moot.

The remaining defendants answered the complaint on August 23, 2021.

While the Company believes it has good and valid

defenses to the claims, there can be no assurance that the Company will prevail in this case, and it could have a material adverse effect on the Company’s business and results of operations.

Charles Diao as a defendant in the action and dismissed the third count of the plaintiff’s complaint as moo t.

The remaining defendants attended a mediation in late November 2022 where a tentative

settlement was reached.

The impact to the Company is not expected to be material.

Other major tobacco companies are defendants in product liability claims.

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As a result of the overall publicity and controversy

surrounding the vapor industry generally, many companies have received informational subpoenas from various regulatory bodies and in some jurisdictions lawsuits have been filed regarding marketing practices and possible underage sales.

that our subsidiaries will be subject to some such cases and investigative requests.

In the acquisition of the vapor businesses, we negotiated financial “hold-backs,” which we have used to defray expenses associated with the information production

and the cost of defending any such lawsuits as well as the franchisee lawsuit.

To the extent that litigation becomes necessary, we believe that the subsidiaries have strong factual and legal defenses against claims that they unfairly marketed vapor

surrounding the vapor 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 vapor products.

We have two franchisor subsidiaries.

many franchise businesses, in the ordinary course of their business, these subsidiaries are from time-to-time responding parties to arbitration demands brought by franchisees.

One of our subsidiaries, which we acquired in 2018, is the franchisor of the VaporFi system.

This subsidiary is a responding party in an arbitration brought by a former

franchisee claiming, among other things, violations of Federal Trade Commission Rules and Florida law.

While we believe we have good and valid substantive defenses against these claims, to avoid the protracted expense of arbitration, we reached a

settlement in principle with the claimants and expect the settlement to be finalized by the end of the first quarter of 2022.

We have also been named in a lawsuit brought by a different former franchisee represented by the same firm that represents the plaintiff in the action

described above.

This case relates to the termination of the franchise agreement by the franchisor for failure to pay franchising fees and our subsequent demand that the franchisee cease using our marks and de-image locations formerly housing the

The franchisee filed suit against us in the U.S.

District Court for the Southern District of Florida sixteen months after

We have reached an agreement to arbitrate a claim brought by a former

This matter relates to the termination of the franchise agreement by the franchisor for failure to pay franchising fees and our subsequent demand that the franchisee cease using our marks and de-image locations formerly housing the

The franchisee is claiming tortious interference and conversion.

We believe the franchisor’s ultimate termination of the franchise agreement for multiple uncured material defaults by the franchisee was proper.

We believe that the suit

was improperly brought before the U.S.

District Court for the South District of Florida because the related franchising agreements included a mandatory arbitration clause.

We also believe we have good and valid substantive defenses against the

claims and intend on vigorously defending our interests in this matter.

Legal Settlement

The Company engaged in discussions and mediation with VMR Products LLC (“VMR”), which was acquired in 2018.

Pursuant to a Distribution and Supply agreement

(“VMR Agreement”), VMR was providing the Company with V2 e-cigarettes for the exclusive distribution in bricks-and-mortar stores in the United States.

Under the terms of the VMR Agreement, in the event of termination following a change in control,

the acquirer was required to make a payment to the Company under a formula designed to provide the Company with a fair share of the value created by the Company’s performance under the VMR Agreement.

The discussions have been completed and the

Company received $ 6.7 million in the second quarter 2019 to settle the issue.

Net of legal costs and reserves for anticipated future

returns associated with the discontinuance, the Company recorded a $ 5.5 million gain in the second quarter of 2019, which was recorded as a

reduction to selling, general, and administrative expenses.

Income Per Share

We believe we have good

and valid substantive defenses against the claims and intend on vigorously defending our interests in this matter.

Earnings Per Share

T he following is a reconciliation of the numerators and denominators of the basic and diluted

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December 31, 2020

Net income attributable to Turning Point Brands, Inc.

Net income attributable to Turning

Point Brands, Inc.

Weighted average

Net income attributable to Turning Point Brands, Inc.

Interest expense related to Convertible Senior Notes, net of tax

Net income attributable to Turning

Point Brands, Inc.

Interest expense related to

Convertible Senior Notes, net of

Diluted consolidated net income

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Stock options

The effect of 3,208,172 shares issuable upon conversion of the Convertible Senior Notes were excluded from the diluted net income per share calculation because the effect would have

been antidilutive.

Segment Information

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The Zig-Zag Products segment markets and distributes (a) rolling papers, tubes, and related products;

and (b) finished cigars and MYO cigar wraps.

The Stoker’s Products segment (a) manufactures and markets

moist snuff and (b) contracts for and markets loose leaf chewing tobacco products.

The NewGen Products segment (a) markets and distributes liquid vapor products and certain other products without tobacco and/or nicotine;

(b) distributes a wide

assortment of products to non-traditional retail outlets via VaporBeast;

and (b) finished cigars and MYO cigar wraps and (c) CLIPPER reusable lighters.

The Stoker’s Products

segment (a) manufactures and markets moist snuff and (b) contracts for and markets loose-leaf chewing tobacco products.

The NewGen segment (a) markets and distributes liquid vapor 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 B 2 C online platform.

Products in the Zig-Zag Products and Stoker’s Products segments are distributed primarily through wholesale distributors in the United States while products in the NewGen Products segment are distributed primarily

through e-commerce to non-traditional retail outlets and direct to consumers in the United States.

The Other segment 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.

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 NewGen segment

are distributed primarily through e-commerce to non-traditional retail outlets and direct to consumers in the U.S.

The Other segment 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 Company had no customer that accounted for more than 10% of net sales in 2022, 2021, or 2020.

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Investment loss (income)

(Gain) loss on extinguishment of debt

Goodwill and intangible impariment loss

Gain on extinguishment of debt

Net periodic benefit (income) cost, excluding service cost

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Corporate unallocated (1)

Includes assets not assigned to the three

reportable segments.

Includes assets not assigned to the three reportable segments.

All goodwill has been allocated to the reportable segments.

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Dividends and Share Repurchase

On November 9, 2017 , the Company’s Board of

Directors approved the initiation of a cash dividend to shareholders.

The initial quarterly dividend of $ 0.04 per common share was paid on

December 15, 2017 , to shareholders of record at the close of business on November 27, 2017 .

The most recent dividend of $ 0.055 per common share, an

increase of approximately 38 %, was paid on January 7, 2022 , to shareholders of record at the close of business on December 17, 2021 .

are considered restricted payments under the Senior Secured Notes Indenture and 2021 Revolving Credit Facility.

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.

currently pays a quarterly cash dividend.

Dividends are considered restricted payments under the Senior Secured Notes Indenture and 2021 Revolving Credit Facility.

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 earning and market capitalization restrictions limit the aggregate amount of restricted, quarterly dividends during a fiscal year.

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million and an average price per share of $ 28.62 .

On October 25, 2021, the Board increased the approved share repurchase program by $ 30.7 million.

$ 31.8 million remains

available for share repurchases under the program at December 31, 2021.

On February 24, 2022, the Board increased the approve share repurchase program by $ 24.6

On October 25, 2021, the Board increased the approved share repurchase program by $ 30.7 million and by another $ 24.6 million

on February 24, 2022.

$ 27.2 million remains available for share repurchases under the program at December 31, 2022.

Changes In and Disagreements With Accountants on Accounting and Financial Disclosure

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 8. Financial Statements and Supplementary Data