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Item 7. Management’s Discussion and Analysis

2024-02-28 compared with 2023-03-15 · 534 added, 408 removed, 208 unchanged (82% of the section changed)

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The following discussion is intended to help the reader understand the results of operations and financial condition of the Company.

The discussion is provided as a supplement to,

and should be read in conjunction with our historical consolidated financial statements and accompanying notes, which are included elsewhere in this Annual Report on Form 10-K and incorporated herein by reference.

In addition, this discussion

includes forward-looking statements subject to risks and uncertainties that may result in actual results differing from statements we make.

See “Cautionary Note Regarding Forward-Looking Statements.” Factors that could cause actual results to

differ include those risks and uncertainties discussed in “Item 1A Risk Factors.”

The discussion is provided as a

supplement to, and should be read in conjunction with our historical consolidated financial statements and accompanying notes, which are included elsewhere in this Annual Report on Form 10-K and incorporated herein by reference.

In addition, this

discussion includes forward-looking statements subject to risks and uncertainties that may result in actual results differing from statements we make.

See “Cautionary Note Regarding Forward-Looking Statements.” Factors that could cause actual

results to differ include those risks and uncertainties discussed in Item 1A “Risk Factors.”

The following discussion relates to the audited financial statements of Turning Point Brands, Inc., included elsewhere in this Annual Report on Form 10-K.

In this discussion,

unless the context requires otherwise, references to “our Company” “we,” “our,” or “us” refer to Turning Point Brands, Inc., and its consolidated subsidiaries.

References to “TPB” refer to Turning Point Brands, Inc., without any of its

subsidiaries.

discussion, unless the context requires otherwise, references to “the Company” “we,” “our,” or “us” refer to Turning Point Brands, Inc., and its consolidated subsidiaries.

References to “TPB” refer to Turning Point Brands, Inc., without any of

its subsidiaries.

We were incorporated in 2004 under the name North Atlantic Holding Company, Inc.

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convenience of presentation.

We are a leading manufacturer, marketer and distributor of branded adult consumer products.

We sell a wide range of products to adult consumers consisting of staple products with our iconic brands Zig-Zag ® and Stoker’s ® to our next generation products to satisfy evolving consumer preferences.

Among other markets, we compete in the alternative smoking accessories and Other Tobacco Products

(“OTP”) industries.

Turning Point Brands, Inc.

is a leading manufacturer, marketer and distributor of branded consumer products.

We sell a wide range of products to adult consumers consisting of staple products

with our iconic brands Zig-Zag ® and Stoker’s ® and our next generation products to fulfill evolving consumer preferences.

Among other markets, we compete in the alternative smoking

accessories and Other Tobacco Products (“OTP”) industries.

The alternative smoking accessories market is a dynamic market experiencing robust secular growth driven by cannabinoid legalization in the U.S.

and Canada and positively evolving consumer perception and acceptance in North

The OTP industry, which consists of non-cigarette tobacco products, exhibited mid-single-digit consumer unit annualized growth over the three year period ending 2022 as reported by Management Science Associates, Inc.

third-party analytics and information company.

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

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

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

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

Our businesses generate solid cash flow which we use to re-invest in our business,

finance acquisitions, increase brand support, expand our distribution infrastructure, and strengthen our capital position.

We currently ship to approximately 850 distributors with an additional 300 secondary, indirect wholesalers in the U.S.

carry and sell our products.

Under the leadership of a senior management team with extensive experience in the consumer products, alternative smoking accessories and tobacco industries, we have grown and diversified our business through new product

launches, category expansions, and acquisitions while concurrently improving operational efficiency.

and Canada, and positively evolving

consumer perception and acceptance in North America.

The OTP industry, which consists of non-cigarette tobacco products, exhibited low-single-digit consumer unit annualized growth over the four-year period ended 2023 as reported by Management

Science Associates, Inc., a third-party analytics and information company.

Our segments are led by our core, proprietary brands:

Zig-Zag ® and CLIPPER ® in the Zig-Zag Products segment and Stoker’s ® along with Beech-Nut ® and Trophy ® in the Stoker’s Products segment.

Our businesses generate

solid cash flows which we use to invest in our business, finance acquisitions, increase brand support, expand our distribution infrastructure, and strengthen our capital position.

We currently ship to approximately 820 distributors with an

additional 650 secondary, indirect wholesalers in the U.S.

that carry and sell our products.

Under the leadership of a senior management team with extensive experience in the consumer products, alternative smoking accessories and tobacco

industries, we have grown and diversified our business through new product launches, category expansions, and acquisitions while concurrently improving operational efficiency.

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

As of December 31, 2022, our products were available in approximately

Our products are currently available in approximately 197,000 U.S.

retail locations which, with the addition of retail stores in Canada, brings our total North American retail presence to an estimated 217,000 points of distribution.

Our sales team targets widespread distribution to all traditional

retail channels, including convenience stores, and we have a growing e-commerce business.

Our sales team targets widespread distribution to all traditional retail

channels, including convenience stores.

We also have a growing e-commerce business.

In the fourth quarter of 2022, we contributed our NewGen Products business to South Beach Holdings LLC doing business as Creative Distribution Solutions (“CDS”), a newly-formed wholly-owned

CDS is separately operated and reports to its own Board of Directors.

During the first quarter of 2023, the business was designated an unrestricted subsidiary under the Senior Secured Notes (the “Notes”) and concurrently we renamed

what we previously referred to as our NewGen Products segment as our Creative Distribution Solutions segment as we believe this name better aligns with the goals and strategies of the segment.

During the third quarter of 2023, the CDS business

was restructured to eliminate certain unprofitable brands and focus on a narrower set of products to better position it as a standalone business.

We operate in three segments:

Zig-Zag Products, Stoker’s Products and NewGen Products.

In our Zig-Zag Products segment, we principally market and distribute (i) rolling papers, tubes, and related products;

finished cigars and make-your-own (“MYO”) cigar wraps and (iii) lighters and other accessories.

Zig-Zag Products, Stoker’s Products and Creative Distribution Solutions.

In our Zig-Zag Products segment, we principally market and distribute (i) rolling papers,

tubes, and related products;

(ii) finished cigars and make-your-own (“MYO”) cigar wraps and (iii) lighters and other accessories.

In addition, we have a majority stake in Turning Point Brands Canada which markets and distributes cannabis

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In our Stoker’s Products segment, we (i) manufacture and market moist snuff tobacco (“MST”) and (ii) contract for and market loose leaf chewing tobacco products.

In our NewGen Products segment, we

(i) market and distribute vapor products and certain other products without tobacco and/or nicotine;

(ii) distribute a wide assortment of products to non-traditional retail via Vapor Beast;

and (iii) market and distribute a wide assortment of

products to individual consumers via the VaporFi and Direct Vapor B2C online platforms.

In our Creative Distribution

Solutions segment, we (i) market and distribute liquid nicotine products and certain other products without tobacco and/or nicotine;

(ii) distribute a wide assortment of products to non-traditional retail via VaporBeast;

and (iii) market and

distribute a wide assortment of products to individual consumers via the VaporFi B2C online platform.

Our portfolio of brands includes some of the most widely recognized names in the alternative smoking accessories and OTP industries, such as Zig-Zag ® , Stoker’s ® , Vapor Beast ® and VaporFi ® .

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Market share and category rank data for all products are derived from MSAi data 2023 52 weeks ended 12/30/23.

We subscribe to a sales tracking system from MSAi that records all OTP product shipments (ours as well as those of our competitors) from approximately 600 wholesalers to over 250,000 traditional

retail stores in the U.S.

This system enables us to understand individual product share and volume trends across multiple categories down to the individual retail store level, allowing us to allocate field salesforce coverage to the highest

opportunity stores.

We subscribe to a sales tracking system from MSAi that records all OTP product shipments (ours as well as those of our competitors) from approximately 600 wholesalers to over 250,000

traditional retail stores in the U.S.

highest opportunity stores.

Our sales and marketing group of approximately 180 professionals utilize the MSAi system to efficiently target markets and sales channels with the highest sales potential.

Our core Zig-Zag Products and Stoker’s Products segments primarily generate revenues from the sale of our products to wholesale distributors who, in turn, resell the products to retail operations.

acquisition of Vapor Beast in 2016 expanded our revenue streams as we began selling directly to non-traditional retail outlets.

Our acquisition of IVG in 2018 enhanced our B2C revenue stream with the addition of the Vapor-Fi online platform.

net sales, which include federal excise taxes, consist of gross sales net of cash discounts, returns, and selling and marketing allowances.

Our core Zig-Zag Products and Stoker’s Products segments primarily generate revenues from the sale of our products to wholesale distributors who, in turn, resell the products to retail

Our acquisition of Vapor Beast in 2016 expanded our revenue streams as we began selling directly to non-traditional retail outlets.

Our acquisition of IVG in 2018 enhanced our B2C revenue stream with the addition of the Vapor-Fi

online platform.

Our net sales, which include federal excise taxes, consist of gross sales net of cash discounts, returns, and selling and marketing allowances.

We rely on long-standing relationships with high-quality, established manufacturers to provide the majority of our produced products.

Approximately 79% of our production, as measured by net sales, is

outsourced to suppliers.

Approximately 75% of our production, as measured by net

sales, is outsourced to suppliers.

The remaining production consists primarily of our moist snuff tobacco operations located in Dresden, Tennessee and Louisville, Kentucky.

Our principal operating expenses include the cost of raw materials used to

manufacture the limited number of our products which we produce in-house;

Our principal operating expenses include the cost of raw materials used

to manufacture the limited number of our products which we produce in-house;

the cost of finished products, which are generally purchased goods;

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legal expenses;

and compensation expenses, including benefits and costs of salaried

and compensation expenses, including benefits and costs of

salaried personnel.

Our other principal expenses include interest expense and other expenses.

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Our ability to introduce new products and product lines that complement our core business;

Decreasing interest in tobacco products among consumers;

Decreasing interest in some tobacco products among consumers;

Price sensitivity in our end-markets;

Marketing and promotional initiatives, which cause variability in our results;

General economic conditions, including consumer access to disposable income and other conditions affecting purchasing power such as inflation;

Cost related to increasing regulation of promotional and advertising activities;

General economic conditions, including consumer access to disposable income and other conditions affecting purchasing power such as inflation and the interest rate environment;

Labor and production costs;

Cost and increasing regulation of promotional and advertising activities;

Cost of complying with regulation, including FDA regulations;

Increasing and unpredictable regulation of NewGen products;

Cost of complying with regulation, including the “deeming regulation”;

Increasing and unpredictable regulation and/or marketing order decisions impacting Creative Distribution Solutions products;

Counterfeit and other illegal products in our end-markets;

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Recent Developments

Creative Distribution Solutions

On December 21, 2022, we executed an internal reorganization whereby the NewGen entities were structurally separated from the remainder of the Company’s entities to clearly delineate the contribution

of the vaping business.

Upon execution of the reorganization, the NewGen business sits under a newly-formed wholly-owned subsidiary, South Beach Holdings LLC d/b/a Creative Distribution Solutions (“CDS”).

CDS specializes in the distribution of

vapor and related products to B2B and B2C customers throughout the U.S.

CDS is overseen by an independent board and a dedicated management team that differs from the Company’s management.

Although the NewGen business will operate independently,

it’s leadership and independent board will continue to report to the Company’s Board.

As part of the reorganization, the Company de-designated the NewGen entities as parties to its debt facilities, meaning the NewGen entities are no longer

guarantors of the Company’s debt or subject to the covenants in the Company’s debt facilities.

The Company believes that the separation of the NewGen Entities from the Company’s Zig-Zag and Stoker’s segments will provide the NewGen Entities the

flexibility to navigate the current regulatory environment, adapt to future marketplace changes, and pursue further value maximizing opportunities.

Leadership Transition

In October 2022, Graham A.

Purdy, the Company’s former Chief Operating Officer, was appointed as President and Chief Executive Officer of the Company and as a member of the Board upon the resignation

of Yavor Efremov as the Company’s president and CEO and a member of the Board of Directors.

In connection with Mr.

Purdy’s appointment and Mr.

Efremov’s departure, David Glazek, current non-executive Chair of the Board, transitioned to the role of Executive Chair effective January 2023.

Purdy will be the Company’s principal executive officer.

The Company appointed Ashley Davis as lead independent director at the time Mr.

Glazek became the Company’s Executive Chair.

Non-Tobacco Nicotine Included Under Jurisdiction of FDA’s Center for Tobacco Products

New legislation enacted on March 15, 2022, provides authority for the FDA to regulate NTN Products.

This law took effect April 14, 2022 and requires NTN Products to comply with applicable requirements

under the Federal Food, Drug, and Cosmetic Act, such as not selling to persons under 21 years of age, not marketing these products as modified risk tobacco products without FDA’s authorization, and not distributing free samples.

Additionally,

companies with NTN Products in the market between March 15, 2022, and April 14, 2022, were required to file a premarket tobacco application by May 14, 2022.

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.

We submitted premarket filings for certain of our NTN Products prior to the

May 14, 2022, deadline.

While these applications remain under review, we will continue to supplement these filings with additional information to support a finding that the marketing of these products is “appropriate for the protection of public

In November 2023, a wholly-owned subsidiary of the Company entered into a new asset-based revolving credit facility with committed borrowing capacity of up to $75.0 million.

The facility is

secured solely by the assets of the subsidiary, which consists of certain inventory lines and cash.

Neither the Company or any of its other subsidiaries guarantees or provides other credit support for the new facility.

The new facility is

scheduled to mature in November 2027, and replaces a $25.0 million senior secured revolving credit facility which was scheduled to mature in August 2025.

The Company currently has no borrowings outstanding under the new asset-based revolving

credit facility.

Warehouse Damage

In December 2023, a third-party warehouse in Tennessee used to store some of the Company’s leaf tobacco incurred significant tornado damage resulting in damage to the leaf tobacco.

the Company recorded a $15.2 million inventory reserve related to its leaf tobacco inventory which is included in other operating income, net.

The leaf tobacco inventory is covered by the Company’s stock throughput insurance policy and the

Company believes the inventory loss is probable of being fully recovered under the policy.

As a result, the Company recorded a $15.2 million insurance recovery receivable which is included in other operating income, net.

The Company does not

expect to incur any delays in customer deliveries as a result of the damage.

Captive Insurer

In December 2023, the Company formed a captive insurance company, Interchange IC, incorporated in the District of Columbia, to write a portion of our general product, and officer and director

liability coverages under deductible reinsurance policies.

Interchange IC is a fully licensed captive insurance company holding a certificate of authority from the District of Columbia Department of Insurance, Securities and Banking.

IC is a wholly-owned subsidiary of Turning Point Brands and will be consolidated in the Company’s financial statements.

As of December 31, 2023 Interchange IC had not been funded and had no activity.

Critical Accounting Policies and Uses of Estimates

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

When more than one accounting principle, or the method of its

application, is generally accepted, we select the principle or method that is appropriate in the specific circumstances.

Application of these accounting principles requires us to make estimates about the future resolution of existing uncertainties.

When more than one accounting principle, or the

method of its application, is generally accepted, we select the principle or method that is appropriate in the specific circumstances.

Application of these accounting principles requires us to make estimates about the future resolution of

existing uncertainties.

Actual results could differ from these estimates.

We evaluate our estimates, including those related to revenue recognition, collectability of accounts receivable, inventory valuation and obsolescence, goodwill, intangibles, income taxes,

litigation, and contingencies on an ongoing basis.

We evaluate our estimates, including those related to revenue recognition, inventory valuation and obsolescence, goodwill, intangibles, fair value, income taxes,

stock-based compensation, litigation, and contingencies on an ongoing basis.

We base these estimates on our historical experience and other assumptions we believe are appropriate under the circumstances.

In preparing these consolidated financial statements, we have made our

best estimates and judgments of the amounts and disclosures included in the consolidated financial statements.

In preparing these consolidated financial

statements, we have made our best estimates and judgments of the amounts and disclosures included in the consolidated financial statements.

Revenue Recognition

We recognize revenues in accordance with Accounting Standards Codification (“ASC”) 606, Revenue from Contracts with Customers (Topic 606), which include 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 our performance obligation is satisfied—at an amount that we expect 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.

We exclude 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 customers).

We recognize revenues in accordance with Accounting Standards Codification (“ASC”) 606, Revenue from Contracts with Customers (Topic 606), which include 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 our performance obligation is satisfied—at an amount that we expect 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.

We exclude 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 customers).

We record an allowance for sales returns, based principally on historical volume and return rates, which is included in accrued liabilities on the consolidated balance sheets.

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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.

Our management views business performance through segments that closely resemble the performance of major product lines.

Thus, the primary, and most useful, disaggregation of

our contract revenue for decision making purposes is the disaggregation by segment which can be found in Note 20, “ Segment Information ” of our Notes to the Consolidated Financial Statements in Part II, Item

8 of the Annual Report on Form 10-K.

An additional disaggregation of contract revenue by sales channel can be found within Note 20 as well.

Derivative Instruments – Currency Forward Contracts

We use foreign currency forward contracts to hedge a portion of our exposure to changes in foreign currency exchange rates from time to time.

We account for our forward contracts under

the provisions of ASC 815, Derivatives and Hedging.

Under our policy, as amended, we may hedge up to 100% of our anticipated purchases of inventory in the denominated invoice currency over a forward period not to exceed twelve months.

also, from time to time, hedge up to 100% of our 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.

Gains and losses on these 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 in income currently.

Derivative Instruments - Interest Rate Swaps

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

We account for interest rate swap contracts under the provisions of ASC 815, Derivatives and

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.

Goodwill and Other Intangible Assets

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frequently if certain indicators are present, in accordance with ASC 350-20-35 and ASC 350-30-35, respectively.

When testing goodwill for impairment, we have 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 we choose 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.

When testing goodwill for impairment, we have 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.

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.

We determine 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 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, we select peer sets based on close competitors and review the revenue and EBITDA multiples to determine the fair value.

See Note 10, “ Goodwill and Other Intangible Assets ” ” of our Notes to the Consolidated Financial Statements in Part II, Item 8 of the Annual Report on Form 10-K for further information on goodwill.

Note 10, “Goodwill and Other Intangible Assets” in Notes to Consolidated Financial Statements in Part II, Item 8 of this Annual Report on Form 10-K 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.

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.

See Note 10, “ Goodwill and Other Intangible Assets ” of

our Notes to the Consolidated Financial Statements in Part II, Item 8 of the Annual Report on Form 10-K for further information on intangible assets.

See Note 10, “Goodwill and Other Intangible Assets” in Notes to

Consolidated Financial Statements in Part II, Item 8 of this Annual Report on Form 10-K for further information on intangible assets.

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.

The Company continually

evaluates the reasonableness of the useful lives of these assets and upon a triggering event evaluates its asset group for impairment.

GAAP establishes a framework for measuring fair value.

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

The hierarchy gives the highest

priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3).

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

hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3).

The three levels of the fair value hierarchy under U.S.

GAAP are described below:

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

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We account for income taxes under ASC 740.

We record 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.

We assess our 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.

We record 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.

We assess our 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 we determine that future benefits do not meet the “more likely than not” criteria, a valuation allowance is recorded.

Stock-Based Compensation

We measure stock compensation costs related to our stock options using the fair value-based method under the provisions of ASC 718, Compensation – Stock Compensation, which requires compensation cost

for stock options to be recognized based on the fair value of stock options granted.

We measure stock compensation costs related to our stock options using the fair value-based method under the provisions of ASC 718, Compensation – Stock Compensation, which requires

compensation cost for stock options to be recognized based on the fair value of stock options granted.

We determine the fair value of these awards using the Black-Scholes option pricing model.

We grant performance-based restricted stock units (“PRSU”) subject to both performance-based and service-based vesting conditions.

The fair value of each PRSU is our stock price on the date of grant.

The fair value of each PRSU is our stock price on the date of

For purposes of recognizing compensation expense as services are rendered in accordance with ASC 718, we assume 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.

Stock compensation

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

We grant restricted stock units (“RSU”) subject to service-based vesting conditions.

The fair value of each RSU is our stock price on the date of grant.

We recognize compensation expense as services

are rendered in accordance with ASC 718.

We recognize compensation expense as

services are rendered in accordance with ASC 718.

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

Accounts Receivable

Accounts receivable are recognized at their net realizable value.

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

We maintain allowances for

doubtful accounts receivable for estimated uncollectible invoices resulting from the customer’s inability to pay, which may result in write-offs.

We recorded an allowance for doubtful accounts of $0.1 million and $0.3 million at December 31, 2022

and 2021, respectively.

Inventories are stated at the lower of cost or net realizable value.

Cost is 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.

We recorded an inventory valuation allowance of $4.5 million and $7.7 million at December 31, 2022 and 2021,

respectively.

Inventories are stated at the lower of cost or net realizable value 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.

We recorded an inventory valuation allowance of $20.6 million and $4.5 million at December 31, 2023 and 2022, respectively.

Results of Operations

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Stoker’s products

NewGen products

Total Zig-Zag and Stoker’s products

Creative Distribution Solutions

Total net sales

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Stoker’s products

NewGen products

Total Zig-Zag and Stoker’s products

Creative Distribution Solutions

Total gross profit

Selling, general, and administrative expenses

Other operating income, net

Operating income

Interest expense, net

Investment loss (gain)

Investment loss

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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Comparison of Year Ended December 31, 2023, to Year Ended December 31, 2022

For the year ended December 31, 2022, overall net sales decreased to $415.0 million from $445.5 million for

the year ended December 31, 2021, a decrease of $30.5 million or 6.8%.

The decrease in net sales was primarily driven by decreased sales volume in the NewGen segment.

For the year ended December 31, 2022, net sales in the Zig-Zag Products segment increased to $190.4 million from $176.5 million for the year ended December 31, 2021, an increase of $13.9 million or

For the year ended December 31, 2022, Zig-Zag Products volumes increased 6.4%, and price/mix increased 1.5%.

The increase in net sales was by led by double-digit growth in sales of U.S.

rolling papers and e-commerce, other smoking

accessories, and Canadian businesses partially offset by a double-digit decline in the wraps business.

For the year ended December 31, 2022, net sales in the Stoker’s Products segment increased to $130.8 million from $124.3 million for the year ended December 31, 2021, an increase of $6.5 million or

For the year ended December 31, 2022, Stoker’s Products volume decreased 2.6% and price/mix increased 7.9%.

The increase in net sales was driven by the continuing double-digit growth of Stoker’s ® MST offset by high single-digit decline in loose-leaf chewing tobacco.

MST represented 66% of Stoker’s Products revenue in 2022, up from 63% a year

For the year ended December 31, 2022, net sales in the NewGen products segment decreased to $93.8 million from $144.7 million for the year ended December 31, 2021, a decrease of $50.9 million or

The decrease in net sales was primarily the result of declines in the vape distribution businesses as a result of the changing regulatory environment.

For the year ended December 31, 2023, overall net sales decreased to $405.4 million from $415.0 million

for the year ended December 31, 2022, a decrease of $9.6 million or 2.3%.

The decrease in net sales was primarily driven by decreased sales volume in the Creative Distribution Solutions segment.

For the year ended December 31, 2023, net sales in the Zig-Zag Products segment decreased to $180.5 million from $190.4 million for the year ended December 31, 2022, a decrease of $9.9 million

The decrease in net sales was driven by anticipated declines in the U.S.

rolling papers and wraps businesses which were impacted by a reduction of trade inventory, partially offset by growth in our Clipper products.

Additionally, a

discontinuation of an unprofitable product line negatively impacted Canadian sales by $4.9 million against the previous year.

For the year ended December 31, 2023, net sales in the Stoker’s Products segment increased to $144.6 million from $130.8 million for the year ended December 31, 2022, an increase of $13.8

million or 10.5%.

For the year ended December 31, 2023, Stoker’s Products volume increased 4.2% and price/mix increased 6.3%.

The increase in net sales was driven primarily by double-digit growth of Stoker’s ® MST.

MST represented 68% of Stoker’s Products revenue in 2023, up from 66% for the same period in 2022.

For the year ended December 31, 2023, net sales in the Creative Distribution Solutions segment decreased to $80.3 million from $93.8 million for the year ended December 31, 2022, a decrease of

$13.5 million or 14.3%.

The decrease in net sales was primarily the result of reduced volumes.

Gross Profit.

For the year ended December 31, 2022, overall gross profit decreased to $205.5 million from $217.8 million for the year ended December 31, 2021, a

decrease of $12.3 million or 5.6%.

Gross profit as a percentage of net sales increased to 49.5% for the year ended December 31, 2022, from 48.9% for the year ended December 31, 2021.

The increase in gross profit as a percentage of net sales was

driven by product mix.

For the year ended December 31, 2022, gross profit in the Zig-Zag Products segment increased to $106.6 million from $102.7 million for the year ended December 31, 2021, an increase of $3.8 million or

Gross profit as a percentage of net sales decreased to 56.0% of net sales for the year ended December 31, 2022, from 58.2% of net sales for the year ended December 31, 2021.

The decrease in gross profit as a percentage of net sales is a

result of product mix including the launch of our CLIPPER lighters business which operates at lower gross profit margins.

For the year ended December 31, 2022, gross profit in the Stoker’s Products segment increased to $71.3 million from $68.1 million for the year ended December 31, 2021, an increase of $3.2 million or

Gross profit as a percentage of net sales decreased to 54.5% of net sales for the year ended December 31, 2022, from 54.8% of net sales for the year ended December 31, 2020.

The decrease in gross profit as a percentage of net sales is

primarily a result of product mix shift including mix of discount loose-leaf products.

For the year ended December 31, 2022, gross profit in the NewGen segment decreased to $27.7 million from $47.0 million for the year ended December 31, 2021, a decrease of $19.3 million or 41.1%.

profit as a percentage of net sales decreased to 29.5% of net sales for the year ended December 31, 2022, from 32.5% of net sales for the year ended December 31, 2021, primarily as a result of product mix and the highly promotional environment.

For the year ended December 31, 2023, overall gross profit decreased to $203.2 million from $205.5 million for the year ended December 31, 2022,

a decrease of $2.3 million or 1.1%.

Gross profit as a percentage of net sales increased to 50.1% of net sales for the year ended December 31, 2023, from 49.5% of net sales for the year ended December 31, 2022.

The overall decrease in gross profit

was driven by decreased margins in the Creative Distribution Solutions segment partially offset by increased margin in the Stoker’s Products segment.

For the year ended December 31, 2023, gross profit in the Zig-Zag Products segment decreased to $101.1 million from $106.6 million for the year ended December 31, 2022, a decrease of $5.5

million or 5.2%.

Gross profit as a percentage of net sales remained steady at 56.0% of net sales for the years ended December 31, 2023 and 2022.

For the year ended December 31, 2023, gross profit in the Stoker’s Products segment increased to $81.9 million from $71.3 million for the year ended December 31, 2022, an increase of $10.6

million or 14.9%.

Gross profit as a percentage of net sales increased to 56.6% of net sales for the year ended December 31, 2023, from 54.5% of net sales for the year ended December 31, 2022, primarily as a result of the strong incremental

margin contribution of MST.

For the year ended December 31, 2023, gross profit in the Creative Distribution Solutions segment decreased to $20.3 million from $27.7 million for the year ended December 31, 2022, a decrease

of $7.4 million or 26.7%.

Gross profit as a percentage of net sales decreased to 25.3% of net sales for the year ended December 31, 2023, from 29.5% of net sales for the year ended December 31, 2022, primarily as a result of channel mix.

Selling, General and Administrative Expenses .

For the year ended December 31, 2022, selling, general and administrative

expenses increased to $130.0 million from $127.5 million for the year ended December 31, 2021, an increase of $2.5 million or 2.0%.

Selling, general, and administrative expenses for the year ended December 31, 2022, included $5.3 million of stock

options, restricted stock and incentives expense, $0.8 million of transaction expenses, $3.4 million of restructuring expenses, $2.0 million of ERP/CRM expenses and $4.6 million of expense related to PMTA.

Selling, general, and administrative

expenses for the year ended December 31, 2021, included $7.6 million of stock options, restricted stock and incentives expense, $1.3 million of transaction expenses, $0.9 million of restructuring expenses and $1.7 million of expense related to

The increase in selling, general and administrative expenses is a result of increased PMTA spend in 2022 and expenses related to of our new ERP/CRM system.

For the year ended December 31, 2023, selling, general and

administrative expenses decreased to $125.0 million from $130.0 million for the year ended December 31, 2022, a decrease of $5.0 million or 3.9%.

Selling, general, and administrative expenses for the year ended December 31, 2023, included $6.6

million of stock options, restricted stock and incentives expense, $0.2 million of transaction expenses, $0.4 million of restructuring expenses, $0.6 million of ERP/CRM expenses and $2.1 million of expense related to PMTA.

Selling, general, and

administrative expenses for the year ended December 31, 2022, included $5.3 million of stock options, restricted stock and incentives expense, $0.8 million of transaction expenses, $3.4 million of restructuring expenses, $2.0 million of ERP/CRM

expenses and $4.6 million of expense related to PMTA.

Other Operating Income, net.

For the year ended December 31, 2023, other operating income, net was $4.3 million as a result of a

$4.3 million gain from a federal excise tax refund and a $15.2 million gain related to insurance, partially offset by a $15.2 million reduction in inventory due to storm damage.

ended December 31, 2022 there was no other operating (income) expense.

Interest Expense, net.

For the year ended December 31, 2022, interest expense, on a net basis, decreased to $19.5 million from $20.5 million for the year ended

December 31, 2020, primarily as a result of interest income earned on our cash balance in 2022 that offset the interest expense.

For the year ended December 31, 2023, interest expense, net decreased to $14.6 million from $19.5 million for the year ended December

31, 2022, primarily as a result of the repurchases of $44.0 million and $10.0 million in aggregate principal amount of Convertible Senior Notes in 2023 and 2022, respectively, and increased interest income on cash as a result of rising interest

Investment Loss .

For the year ended December 31, 2022, investment loss

increased to $13.3 million compared to $6.7 million of investment loss for the year ended December 31, 2021, primarily as a result of impairments of our investments.

See Note 11, “ Other

Assets ” of our Notes to the Consolidated Financial Statements in Part II, Item 8 of the Annual Report on Form 10-K for additional information on the investment

For the year ended December 31, 2023, investment loss decreased to $11.9 million compared to $13.3

million of investment loss for the year ended December 31, 2022.

The change is primarily a result of the 2023 impairment charges recognized on our investments in Docklight, Wild Hemp and Old Pal of $8.7 million, $2.3 million and $1.3 million,

respectively, in 2023 compared to impairment charges of $7.9 million, $4.3 million and $1.4 million in 2022 related to our investments in Dosist, Real Brands and Old Pal, respectively.

Other Income.

For the year ended December 31, 2023, other income was $4.0 million as a result of a $4.0 million gain related to a legal settlement.

Goodwill and Intangible Impairment Loss.

For the year ended December 31, 2022, Goodwill and intangible impairment loss was $27.6

million primarily as a result of fully impairing the goodwill balance of the NewGen reporting unit.

For the year ended December 31, 2023 there was no goodwill and intangible impairment loss.

See Note 10, “Goodwill and Other Intangible

Assets” of our Notes to the Consolidated Financial Statements in Part II, Item 8 of this Annual Report on Form 10-K for further information on goodiwll and intangible assets.

For the year ended

December 31, 2022, goodwill and intangible impairment loss was $27.6 million primarily as a result of fully impairing the goodwill balance of the Creative Distribution Solutions reporting unit.

Gain on Extinguishment of Debt.

For the year ended December 31, 2023, gain on extinguishment of debt was $1.7 million as a result of the repurchase of $44.0

million principal of our Convertible Senior Notes at a discount.

For the year ended December 31, 2021, gain on extinguishment of debt was $2.2 million as a result of forgiveness of the unsecured loan issued to us under the Coronavirus Aid, Relief,

and Economic Security Act of 2020 (the “CARES Act”) partially offset by the repayment of the 2018 First Lien Credit Facility.

million in aggregate principal amount of our Convertible Senior Notes at a discount.

For the year ended December 31, 2022, gain on extinguishment of debt was $0.9 million as a result of the repurchase of $10.0 million in aggregate principal of

our Convertible Senior Notes at a discount.

Income Tax Expense.

The Company’s income tax expense was $4.8 million, or 30.3% of income before income taxes, for the year ended December 31, 2022.

Company’s income tax expense was $14.0 million, or 21.5% of income before income taxes, for the year ended December 31, 2021, and included discrete tax deductions of $7.5 million related to the forgiveness of the $7.5 million unsecured loan and

$7.2 million relating to stock option exercises during the year.

The Company’s income tax expense was $23.9 million, or 38.7% of income before income taxes, for the year ended December 31, 2023, and

included $6.4 million of valuation allowance for the deferred tax asset related to unrealized loss on investments and $1.7 million valuation allowance for foreign net operating losses.

The Company’s income tax expense was $4.8 million, or 30.3%

of income before income taxes, for the year ended December 31, 2022.

Net Loss Attributable to Non-Controlling Interest.

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Comparison of Year Ended December 31, 2022, to Year Ended December 31, 2021

For the year ended December 31, 2021, overall net sales increased to $445.5 million from $405.1 million for

the year ended December 31, 2020, an increase of $40.4 million or 10.0%.

The increase in net sales was primarily driven by increased sales volume in the Zig-Zag Products segment.

For the year ended December 31, 2021, net sales in the Zig-Zag Products segment increased to $176.5 million from $132.8 million for the year ended December 31, 2020, an increase of $43.7 million or

For the year ended December 31, 2022, Zig-Zag Products volumes increased 29.7%, and price/mix increased 3.2%.

The increase in net sales was by led by double-digit growth in sales of our MYO cigar wraps and U.S.

rolling papers business.

growth was complemented by our Canadian business which benefited from the consolidation of Turning Point Brands Canada in the current year period.

For the year ended December 31, 2021, net sales in the Stoker’s Products segment increased to $124.3 million from $115.9 million for the year ended December 31, 2020, an increase of $8.4 million or

For the year ended December 31, 2022, Stoker’s Products volume increased 1.3% and price/mix increased 6.0%.

The increase in net sales was driven by the continuing double-digit growth of Stoker’s ® MST offset by low single-digit decline in loose-leaf chewing tobacco.

MST represented 63% of Stoker’s Products revenue in 2022, up from 59% a year

For the year ended December 31, 2021, net sales in the NewGen segment decreased to $144.7 million from $156.4 million for the year ended December 31, 2020, a decrease of $11.7 million or 7.5%.

decrease in net sales was primarily the result of declines in the vape distribution businesses as a result of strong B2C orders during stay-at-home provisions in the prior year as well as the changing regulatory environment.

For the year ended December 31, 2022, overall net sales decreased to $415.0 million from $445.5 million

for the year ended December 31, 2021, a decrease of $30.5 million or 6.8%.

The decrease in net sales was primarily driven by decreased sales volume in the Creative Distribution Solutions segment.

For the year ended December 31, 2022, net sales in the Zig-Zag Products segment increased to $190.4 million from $176.5 million for the year ended December 31, 2021, an increase of $13.9

million or 7.9%.

The increase in net sales was by led by double-digit growth in sales of U.S.

rolling papers and e-commerce, other smoking accessories, and Canadian businesses partially offset by a double-digit decline in the wraps business.

For the year ended December 31, 2022, net sales in the Stoker’s Products segment increased to $130.8 million from $124.3 million for the year ended December 31, 2021, an increase of $6.5

million or 5.3%.

For the year ended December 31, 2022, Stoker’s Products volume decreased 2.6% and price/mix increased 7.9%.

The increase in net sales was driven by the continuing double-digit growth of Stoker’s ® MST offset by high single-digit decline in loose-leaf chewing tobacco.

MST represented 66% of Stoker’s Products revenue in 2022, up from 63% a

year earlier.

For the year ended December 31, 2022, net sales in the Creative Distribution Solutions segment decreased to $93.8 million from $144.7 million for the year ended December 31, 2021, a decrease

of $50.9 million or 35.2%.

The decrease in net sales was primarily the result of volume declines as a result of the changing regulatory environment relating to liquid nicotine products.

Gross Profit.

For the year ended December 31, 2021, overall gross profit increased to $217.8 million from $190.0 million for the year ended December 31, 2020,

an increase of $27.8 million or 14.7%.

For the year ended December 31, 2022, overall gross profit decreased to $205.5 million from $217.8 million for the year ended December 31,

2021, a decrease of $12.3 million or 5.6%.

Gross profit as a percentage of net sales increased to 49.5% for the year ended December 31, 2022, from 48.9% for the year ended December 31, 2021.

The increase in gross profit as a percentage of net sales was

driven by increased margin in the Stoker’s Products segment as a result of strong incremental margin contribution of MST.

For the year ended December 31, 2021, gross profit in the Zig-Zag Products segment increased to $102.7 million from $78.3 million for the year ended December 31, 2020, an increase of $24.5 million or

The increase in gross profit as a percentage of net

sales was driven by product mix.

For the year ended December 31, 2022, gross profit in the Zig-Zag Products segment increased to $106.6 million from $102.7 million for the year ended December 31, 2021, an increase of $3.8

million or 3.7%.

Gross profit as a percentage of net sales decreased to 56.0% of net sales for the year ended December 31, 2022, from 58.2% of net sales for the year ended December 31, 2021.

The decrease in gross profit as a percentage of net sales is a

result of the consolidation of Turning Point Brands Canada in the current year period which operates at lower margins than our traditional business.

For the year ended December 31, 2021, gross profit in the Stoker’s Products segment increased to $68.1 million from $61.8 million for the year ended December 31, 2020, an increase of $6.3 million or

Gross profit as a percentage of net sales increased to 54.8% of net sales for the year ended December 31, 2021, from 53.3% of net sales for the year ended December 31, 2020.

The increase in gross profit as a percentage of net sales is

primarily a result of pricing and strong incremental margin contribution of MST.

For the year ended December 31, 2021, gross profit in the NewGen segment decreased to $47.0 million from $49.9 million for the year ended December 31, 2020, a decrease of $2.9 million or 5.9%.

gross profit includes $1.1 million of tariff expenses in 2022 compared to $10.1 million in 2020.

Gross profit as a percentage of net sales increased to 32.5% of net sales for the year ended December 31, 2021, from 31.9% of net sales for the year

ended December 31, 2020, primarily as a result of increased margins in the vape distribution businesses.

The decrease in gross profit as a percentage of net

sales is a result of product mix including the launch of our CLIPPER lighter products which have lower gross profit margins.

For the year ended December 31, 2022, gross profit in the Stoker’s Products segment increased to $71.3 million from $68.1 million for the year ended December 31, 2021, an increase of $3.2

million or 4.7%.

Gross profit as a percentage of net sales decreased to 54.5% of net sales for the year ended December 31, 2022, from 54.8% of net sales for the year ended December 31, 2021.

The decrease in gross profit as a percentage of net

sales is primarily a result of product mix shift including mix of discount loose-leaf products.

For the year ended December 31, 2022, gross profit in the Creative Distribution Solutions segment decreased to $27.7 million from $47.0 million for the year ended December 31, 2021, a

decrease of $19.3 million or 41.1%.

Gross profit as a percentage of net sales decreased to 29.5% of net sales for the year ended December 31, 2022, from 32.5% of net sales for the year ended December 31, 2021, primarily as a result of product

mix and the highly promotional environment.

Selling, General and Administrative Expenses .

For the year ended December 31, 2021, selling, general and administrative

expenses increased to $127.5 million from $125.6 million for the year ended December 31, 2020, an increase of $2.0 million or 1.6%.

Selling, general, and administrative expenses for the year ended December 31, 2021, included $7.6 million of stock

options, restricted stock and incentives expense, $1.3 million of transaction expenses, $0.9 million of restructuring expenses and $2.6 million of expense related to PMTA.

Selling, general, and administrative expenses for the year ended December

31, 2020, included $2.6 million of stock options, restricted stock and incentives expense, $3.1 million of transaction expenses, $0.5 million of restructuring expenses and $14.4 million of expense related to PMTA.

The increase in selling, general

and administrative expenses is a result of variable costs in our online business as well as increased shipping costs from PACT Act implementation for vape products and higher freight rates across all segments combined with the impact of the

consolidation of Turning Point Brands Canada in the current year period.

For the year ended December 31, 2022, selling, general and

administrative expenses increased to $130.0 million from $127.5 million for the year ended December 31, 2021, an increase of $2.5 million or 2.0%.

Selling, general, and administrative expenses for the year ended December 31, 2022, included $5.3

million of stock options, restricted stock and incentives expense, $0.8 million of transaction expenses, $3.4 million of restructuring expenses, $2.0 million of ERP/CRM expenses and $4.6 million of expense related to PMTA.

Selling, general, and

administrative expenses for the year ended December 31, 2021, included $7.6 million of stock options, restricted stock and incentives expense, $1.3 million of transaction expenses, $0.9 million of restructuring expenses and $1.7 million of

expense related to PMTA.

The increase in selling, general and administrative expenses is a result of increased PMTA spend in 2022 and expenses related to of our new ERP/CRM system.

Interest Expense, net.

For the year ended December 31, 2021, interest expense, on a net basis, increased to $20.5 million from $13.5 million for the year ended

December 31, 2020, primarily as a result the issuance of the Senior Secured Notes and related refinancing of the 2018 First Lien Credit Facility which increased the Company’s outstanding debt.

Investment Loss (Income) .

For the year ended December 31, 2022, interest expense, on a net basis, decreased to $19.5 million from $20.5 million for the year

ended December 31, 2021, primarily as a result of interest income earned on our cash balance in 2022 that offset the interest expense.

Investment Loss .

For the year ended December 31, 2022, investment loss increased to $13.3 million compared to $6.7

$0.2 million of investment income for the year ended December 31, 2020, primarily as a result of $7.1 million impairment of our investment in dosist.

See Note 11, “ Other Assets ” of our Notes to the

Consolidated Financial Statements in Part II, Item 8 of this Annual Report on Form 10-K for additional information on the dosist investment.

(Gain) Loss on Extinguishment of Debt.

For the year ended December 31, 2021, gain on extinguishment of debt was $2.2 million as a result of forgiveness of the

unsecured loan issued to us under the Coronavirus Aid, Relief, and Economic Security Act of 2020 (the “CARES Act”) partially offset by the repayment of the 2018 First Lien Credit Facility.

For the year ended December 31, 2020, there was no loss on

extinguishment of debt.

Net Periodic Benefit Cost (Income), excluding service cost.

For the year ended December 31, 2021, there was no net periodic benefit cost or income.

ended December 31, 2020, net periodic cost was $0.9 million primarily as a result of the curtailment from the shutdown of the pension plan.

million of investment loss for the year ended December 31, 2021, primarily as a result of impairments of our investments.

See Note 11, “Other Assets” in Notes to the Consolidated Financial Statements in Part II, Item 8 of this Annual Report on

Form 10-K for additional information on the investment impairments.

Goodwill and Intangible Impairment Loss.

For the year ended December 31, 2022, Goodwill and intangible impairment loss was $27.6 million primarily as a

result of fully impairing the goodwill balance of the Creative Distribution Solutions reporting unit.

For the year ended December 31, 2021 there was no Goodwill and intangible impairment loss.

See Note 10, “Goodwill and Other Intangible

Assets” in Notes to the Consolidated Financial Statements in Part II, Item 8 of this Annual Report on Form 10-K for further information on goodwill and intangible assets.

Gain on Extinguishment of Debt.

For the year ended December 31, 2022, gain on extinguishment of debt was $0.9 million as a result of the repurchase of $10.0

million principal of our Convertible Senior Notes at a discount.

For the year ended December 31, 2021, gain on extinguishment of debt was $2.2 million as a result of forgiveness of the unsecured loan issued to us under the Coronavirus Aid,

Relief, and Economic Security Act of 2020 (the “CARES Act”) partially offset by the repayment of the 2018 First Lien Credit Facility.

Income Tax Expense.

The Company’s income tax expense was $14.0 million, or 21.5% of income before income taxes, for the year ended December 31, 2022, and

included discrete tax deductions of $7.5 million related to the forgiveness of the $7.5 million unsecured loan and $7.2 million relating to stock option exercises during the year.

The Company’s income tax expense was $12.0 million, or 23.8% of

income before income taxes, for the year ended December 31, 2020, and included a discrete tax deduction of $3.3 million relating to stock option exercises during the year and a discrete tax benefit of $0.6 million from the shutdown of the pension

The Company’s income tax expense was $4.8 million, or 30.3% of income before income taxes, for the year ended December 31, 2022.

$7.2 million relating to stock option exercises during the year.

Net Loss Attributable to Non-Controlling Interest.

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EBITDA and Adjusted EBITDA

To supplement our financial information presented in accordance with U.S.

To supplement our financial information presented in accordance with generally accepted accounting principles in the United States, or U.S.

GAAP, we use non-U.S.

GAAP financial measures including EBITDA and Adjusted EBITDA.

We believe Adjusted EBITDA provides useful information to

management and investors regarding certain financial and business trends relating to our financial condition and results of operations.

Adjusted EBITDA is used by management to compare our performance to that of prior periods for trend analyses and

planning purposes and is presented to our Board of Directors.

We believe that EBITDA and Adjusted EBITDA are appropriate measures of operating performance because they eliminate the impact of expenses that do not relate to operating performance.

addition, our debt instruments contain covenants which use Adjusted EBITDA calculations.

We define “EBITDA” as net income before interest expense, loss on extinguishment of debt, provision for income taxes, depreciation, and amortization.

We define “Adjusted EBITDA” as net income before interest expense,

loss (gain) on extinguishment of debt, income tax expense, depreciation, amortization, other non-cash items, and other items we do not consider ordinary course in our evaluation of ongoing operating performance.

GAAP financial measures

including EBITDA and Adjusted EBITDA.

We believe Adjusted EBITDA provides useful information to management and investors regarding certain financial and business trends relating to our financial condition and results of operations.

EBITDA is used by management to compare our performance to that of prior periods for trend analyses and planning purposes and is presented to our Board of Directors.

We believe that EBITDA and Adjusted EBITDA are appropriate measures of

operating performance because they eliminate the impact of expenses that do not relate to operating performance.

In addition, our debt instruments contain covenants which use Adjusted EBITDA calculations.

We define “EBITDA” as net income before interest expense, gain (loss) on extinguishment of debt, provision for income taxes, depreciation, and amortization.

We define “Adjusted EBITDA” as net

income before interest expense, gain (loss) on extinguishment of debt, provision for income taxes, depreciation, amortization, other non-cash items, and other items we do not consider the ordinary course in our evaluation of ongoing operating

performance noted in the reconciliation below.

GAAP measures should not be considered a substitute for, or superior to, financial measures calculated in accordance with U.S.

Adjusted EBITDA excludes significant expenses required to be recorded in

our financial statements by U.S.

Adjusted EBITDA excludes significant expenses

required to be recorded in our financial statements by U.S.

GAAP and is subject to inherent limitations.

Other companies in our industry may calculate this non-U.S.

GAAP measure differently than we do or may not calculate it at all, limiting its usefulness as a comparative

The table below provide a reconciliation between net income, EBITDA and Adjusted EBITDA.

GAAP measure differently than we do or may not calculate it at all, limiting its

usefulness as a comparative measure.

The tables below provide reconciliations between net income and Adjusted EBITDA.

(in thousands)

7 unchanged sentences

Components of Adjusted EBITDA

Corporate and vapor restructuring (a)

Corporate and CDS restructuring (a)

Stock options, restricted stock, and incentives expense (c)

1 unchanged sentence

Non-cash asset impairment (f)

FET Refund (g)

Legal settlement (h)

Adjusted EBITDA

(a) Represents costs associated with corporate and vape restructuring, including severance.

(b) Represents cost associated with scoping and mobilization of new ERP and CRM systems and cost of duplicative ERP licenses.

(d) Represents the fees incurred for transaction expenses.

(e) Represents costs associated with applications related to FDA premarket tobacco product application (“PMTA”).

(f) Represents impairment of goodwill, intangible and investment assets.

(g) Represents non-cash pension expense (income) and foreign exchange hedging.

Represents costs associated with corporate and CDS restructuring, including severance.

Represents cost associated with scoping and mobilization of new ERP and CRM systems and cost of duplicative ERP licenses.

Represents non-cash stock options, restricted stock, incentives expense and Solace performance stock units.

Represents the fees incurred for transaction expenses.

Represents costs associated with applications related to FDA premarket tobacco product application (“PMTA”).

Represents impairment of goodwill, intangible and investment assets.

Represents a federal excise tax refund included in other operating income, net.

Represents other income from litigation settlement.

Liquidity and Capital Resources

Our principal uses for cash are working capital, debt service, and capital expenditures.

We believe our cash flows from operations and borrowing availability under our New Revolving Credit Facility

are adequate to satisfy our operating cash requirements for the foreseeable future.

Our working capital, which we define as current assets less cash and current liabilities, increased $29.4 million to $109.9 million at December 31, 2022, compared with $80.5 million at December 31,

The increase in working capital is primarily due to increased inventory levels at December 31, 2022.

As of December 31, 2023, we have $117.9 million cash on hand and have up to $60.0 million of

availability under the new 2023 ABL Facility.

Our Convertible Senior Notes, with an outstanding balance of $118.5 million as of December 31, 2023, mature in July 2024.

On November 7, 2023, one of our wholly-owned subsidiaries entered into

a new 2023 ABL Facility to refinance up to $75.0 million of the Convertible Senior Notes at maturity.

As a result, we classified $60.0 million related to the Convertible Senior Notes in long-term liabilities on our December 31, 2023 Balance

With our strong cash balance, free cash flow generation and borrowing availability under the 2023 ABL Facility, we expect to have ample liquidity to address the remaining balance of the Convertible Senior Notes maturing in 2024, and to

satisfy our operating cash requirements for the foreseeable future.

Our working capital, which we define as current assets less cash and current liabilities, decreased to $49.4 million at December 31, 2023, compared with $109.9 million at December 31, 2022.

decrease in working capital is primarily a result of the portion of the Convertible Senior Notes to be paid during the third quarter of 2024.

(in thousands)

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Working capital

During the year ended December 31, 2022 and 2021, we invested $7.7 million and $6.2 million, respectively, in capital expenditures.

For the years ended December 31, 2023 and 2022, we invested $5.7 million and $7.7 million, respectively, in capital expenditures.

We had unrestricted cash on hand of $117.9 million and $106.4

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Cash Flows from Operating Activities

For the year ended December 31, 2022, net cash provided by operating activities decreased to $30.3 million from $68.2 million for the year ended December 31, 2021, a decrease of $37.9 million or 56%,

primarily due to changes in working capital including an increase in inventory.

For the year ended December 31, 2021, net cash provided by operating activities increased to $68.2 million from $43.7 million for the year ended December 31, 2020, an increase of $24.5 million or 56%,

primarily due to higher net income due to increased sales combined with the timing of changes in working capital.

For the year ended December 31, 2023, net cash provided by operating activities increased to $66.9 million from $30.3 million for the year ended December 31, 2022, an increase of $36.6 million

or 121%, primarily due to the timing of changes in inventory and other working capital.

For the year ended December 31, 2022, net cash provided by operating activities decreased to $30.3 million from $68.2 million for the year ended December 31, 2021, a decrease of $37.9 million

or 56%, primarily due to changes in working capital including an increase in inventory.

Cash Flows from Investing Activities

For the year ended December 31, 2023, net cash used in investing activities decreased to $5.9 million from $18.8 million for the year ended December 31, 2022, a decrease of $12.9 million or

primarily due to the decrease in acquisitions and investments.

69%, primarily due to a decrease in purchases of investments in our MSA escrow account.

For the year ended December 31, 2022, net cash used in investing activities decreased to $18.8 million from $58.8 million for the year ended December 31, 2021, a decrease of $40.0 million or

primarily due to the decrease in acquisitions partially offset by the purchase of investments in our MSA escrow account which reflects the change in restricted cash.

68%, primarily due to the decrease in acquisitions and investments.

Cash Flows from Financing Activities

For the year ended December 31, 2022, net cash used in financing activities was $43.3 million compared to net cash provided by financing activities of $57.1 million for the year ended December 31,

2021, a decrease of $100.4 million or 176%, primarily due to the net proceeds from the Senior Secured Notes partially offset by the repayment in full of the 2018 First Lien Term Loan in the first quarter of 2021.

For the year ended December 31, 2021, net cash provided by financing activities was $57.1 million compared to net cash used in financing activities $29.3 million for the year ended December 31, 2020,

an increase of $86.4 million or 295%, primarily due to the net proceeds from the Senior Secured Notes partially offset by the repayment in full of the 2018 First Lien Term Loan in the first quarter of 2021 with the proceeds of the Senior Secured

Notes and the repurchase of $38.7 million of common stock during 2021.

For the year ended December 31, 2023, net cash used in financing activities increased to $49.5 million from $43.3 million for the year ended December 31, 2022, an increase of $6.2 million or

14%, primarily due to $41.8 million in repurchases of Convertible Senior Notes during the period, offset by a decrease in repurchases of common stock of $29.2 million during 2023.

For the year ended December 31, 2022, net cash used in financing activities was $43.3 million compared to net cash provided by financing activities of $57.1 million for the year ended

December 31, 2021, a decrease of $100.4 million or 176%, primarily due to the net proceeds from the Senior Secured Notes partially offset by the repayment in full of the 2018 First Lien Term Loan in the first quarter of 2021.

Long-Term Debt

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Less deferred finance charges

Net notes payable and long-term debt

Less current maturities

Notes payable and long-term debt

Senior Secured Notes

On February 11, 2021, we closed a private offering (the “Offering”) of $250 million aggregate principal amount of our 5.625% senior secured notes due 2026 (the “Senior Secured Notes”).

Secured Notes bear interest at a rate of 5.625% and will mature on February 15, 2026.

Interest on the Senior Secured Notes is payable semi-annually in arrears on February 15 and August 15 of each year, commencing on August 15, 2021.

proceeds from the Offering (i) to repay all obligations under and terminate the 2018 First Lien Credit Facility, (ii) to pay related fees, costs, and expenses and (iii) for general corporate purposes.

Obligations under the Senior Secured Notes are guaranteed by the Company’s existing and future wholly-owned domestic subsidiaries (the “Guarantors”) that guarantee any Credit Facility (as defined in

the Indenture governing the Senior Secured Notes or the “Senior Secured Notes Indenture”), including the 2021 Revolving Credit Facility, or capital markets debt securities of the Company or Guarantors in excess of $15.0 million.

Secured Notes and the related guarantees are secured by first-priority liens on substantially all of the assets of the Company and the Guarantors, subject to certain exceptions.

The Company may redeem the Senior Secured Notes, in whole or in part, at any time 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:

Senior Secured Notes bear interest at a rate of 5.625% and will mature on February 15, 2026.

Interest on the Senior Secured Notes is payable semi-annually in arrears on February 15 and August 15 of each year, commencing on August 15, 2021.We

used the proceeds from the Offering (i) to repay all obligations under and terminate the 2018 First Lien Credit Facility, (ii) to pay related fees, costs, and expenses and (iii) for general corporate purposes.

Obligations under the Senior Secured Notes are guaranteed by the Company’s existing and future wholly-owned domestic subsidiaries (the “Guarantors”) that guarantee any credit facility (as

defined in the indenture governing the Senior Secured Notes or the “Senior Secured Notes Indenture”) or capital markets debt securities of the Company or Guarantors in excess of $15.0 million.

The Senior Secured Notes and the related guarantees

are secured by first-priority liens on substantially all of the assets of the Company and the Guarantors, subject to certain exceptions.

The Company may redeem the Senior Secured Notes, in whole or in part, at any time on or after 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

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On or after February 15, 2025 and thereafter

If we experience a change of control (as defined in the Senior Secured Notes Indenture), we must offer to repurchase the Senior Secured Notes at a repurchase price equal to 101% of the principal

amount of the Notes to be repurchased, plus accrued and unpaid interest.

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

If we experience a change of control (as defined in the Senior Secured Notes Indenture), we must offer to repurchase the Senior Secured Notes at a repurchase price equal to 101% of the

principal amount of the Notes to be repurchased, plus accrued and unpaid interest.

The Senior Secured Notes Indenture contains covenants that, among other things, restrict the ability of the Company and its restricted subsidiaries to:

(i) grant or incur liens;

(ii) incur, assume or

guarantee additional indebtedness;

assume or guarantee additional indebtedness;

(iii) sell or otherwise dispose of assets, including capital stock of subsidiaries;

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(v) pay dividends, make distributions or redeem or repurchase capital stock;

(vi) engage in

certain transactions with affiliates;

engage in certain transactions with affiliates;

and (vii) consolidate or merge with or into, or sell substantially all of our assets to another entity.

These covenants are subject to a number of limitations and exceptions set forth in the Indenture.

Indenture provides for customary events of default.

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

These covenants are subject to a number of limitations and exceptions set forth in the

Senior Secured Notes Indenture.

The Senior Secured Notes Indenture provides for customary events of default.

We were in compliance with all covenants as of December 31, 2023.

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

life of the Senior Secured Notes.

2021 Revolving Credit Facility

In connection with the Offering, we also entered into a new $25 million senior secured revolving credit facility (the “ 2021 Revolving Credit Facility”) with the lenders party

thereto (the “Lenders”) and Barclays Bank PLC, as administrative agent and collateral agent (in such capacity, the “Agent”).

The 2021 Revolving Credit Facility provides for a revolving line of credit of up to $25.0 million.

Letters of credit

are limited to $10 million (and are a part of, and not in addition to, the revolving line of credit).

We have not drawn any borrowings under the 2021 Revolving Credit Facility but do have letters of credit of approximately $3.6 million

outstanding under the facility.

The 2021 Revolving Credit Facility will mature on August 11, 2025 if none of our Convertible Senior Notes are outstanding, and if any Convertible Senior Notes are outstanding, the date which 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).

We also have 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 Indenture.

The 2022 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.

We incurred debt issuance costs attributable to the issuance of the 2021 Revolving Credit Facility of $0.5 million which are amortized to interest expense using the effective interest method over

the expected life of the 2021 Revolving Credit Facility.

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

In connection with the Offering, we also entered into a new $25.0 million senior secured revolving credit facility (the “2021 Revolving Credit Facility”) with the lenders party thereto and

Barclays Bank PLC, as administrative agent and collateral agent (in such capacity, the “Agent”).

On May 10, 2023, the Company and certain of its subsidiaries, as guarantors, entered into an amendment (the “Amendment”) to the 2021 Revolving

Credit Facility (as amended, the “Amended Revolving Credit Facility”).

The Amendment includes certain modifications to the 2021 Revolving Credit Facility relating to the replacement of the London Inter-Bank Offered Rate with a Secured Overnight

Financing Rate (“SOFR”) as the interest rate benchmark under the 2021 Revolving Credit Facility and adjusts certain other provisions to reflect current documentation standards and other agreed modifications.

On November 7, 2023, in connection with the entry by a subsidiary of the Company in a new asset-backed revolving credit facility, the Company terminated the Amended Revolving Credit Agreement.

See “2023 ABL Facility” below.

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

We incurred debt issuance costs attributable to the issuance of the Amended Revolving Credit Facility of $0.5 million, with a remaining $0.2 million written off to gain on debt extinguishment

upon termination of the facility.

2023 ABL Facility

On November 7, 2023, TPB Specialty Finance, LLC, a wholly-owned subsidiary of the Company (the “ABL Borrower”), entered into a new $75.0 million asset-backed revolving credit facility (the

“2023 ABL Facility”), with the several lenders thereunder, and Barclays Bank Plc, as administrative agent (the “Administrative Agent”) and as collateral agent (the “Collateral Agent”) and First-Citizens Bank & Trust Company as additional

collateral agent (the “Additional Collateral Agent”).

Under the 2023 ABL Facility, the ABL Borrower may draw up to $75.0 million under Revolving Credit Loans and Last In Last Out (“LILO”) Loans.

The 2023 ABL Facility includes a $40.0 million

accordion feature.

In connection with the 2023 ABL Facility, Turning Point Brands contributed certain existing inventory to the ABL Borrower.

The 2023 ABL Facility is secured on a first priority basis (subject to customary exceptions) by all

assets of the ABL Borrower.

The 2023 ABL Facility contains customary borrowing conditions including a borrowing base equal to the sum of (a) the lesser of (1) 85% of the lower of (A) the market value (on a first in

first out basis) of the sum of eligible inventory, plus eligible in-transit inventory of the ABL Borrower and (B) 85% of the cost of the sum of eligible inventory, plus eligible in-transit inventory of the ABL Borrower and (2) 85% of the net

orderly liquidation value (“NOLV”) percentage of the lower of (1)(A) or (1)(B);

plus (b) 85% of the face value of all eligible accounts of the ABL Borrower minus (c) the amount of all eligible reserves.

The 2023 ABL Facility also includes a

LILO borrowing base equal to the sum of (a) the lesser of:

(1) 10% of the lower of (A) the market value (on a first in first out basis) of the sum of eligible inventory, plus eligible in-transit inventory of the ABL Borrower and (B) the cost of

the sum of eligible inventory, plus eligible in-transit inventory and (2) 10% of the NOLV percentage of the lower of (1)(A) or (1)(B);

plus (b) 10% of the face amount of eligible account;

minus (c) the amount of all eligible reserves.

Amounts borrowed under the 2023 ABL Facility are subject to an interest rate margin per annum equal to (a) from and after the closing date until the last day of the first full fiscal quarter

ended after the closing date, (i) 1.25% per annum, in the case base rate loans, and (ii) 2.25% per annum, in the case of revolving credit loans that are SOFR Loans, (b)(i) 2.25% per annum, in the case of LILO loans that are base rate loans, and

(ii) 3.25% per annum, in the case of LILO loans that are SOFR loans, (c) on the first day of each fiscal quarter, the applicable interest rate margins will be determined from the pricing grid below based upon the historical excess availability

for the most recent fiscal quarter ended immediately prior to the relevant date, as calculated by the Administrative Agent.

Historical Excess Availability

Applicable Margin

for SOFR Loans

Applicable Margin

for Base Rate Loans

Greater than or equal to 66.66%

Less than 66.66%, but greater than or equal to 33.33%

Less than 33.33%

The 2023 ABL Facility also requires the Company and its restricted subsidiaries to maintain a fixed charge coverage ratio of at least 1.00 to 1.00 as of the end of any four consecutive fiscal

quarters if excess availability shall be less than the greater of (a) 12.5% of the line cap and (b) $9.4 million, at any time and continuing until excess availability is equal to or exceeds the greater of (i) 12.5% of the line and (ii) $9.4

million for thirty (30) consecutive calendar days;

provided that such $9.4 million level shall automatically increase in proportion to the amount of any increase in the aggregate revolving credit commitments thereunder in connection with any

incremental facility.

The 2023 ABL Facility will mature on the earlier of (x) November 7, 2027 and (y) the date that is 91 days prior to the maturity date of any material debt of the ABL Borrower or the Company or

any of its restricted subsidiaries (subject to customary extensions agreed by the lenders thereunder);

provided that clause (y) shall not apply to the extent that on any applicable date of determination (on any date prior to the date set forth in

clause (y)), (A) the sum of (x) cash that is held in escrow for the repayment of such material debt pursuant to arrangements satisfactory to the Administrative Agent, (y) cash that is held in accounts with the Administrative Agent and/or the

Additional Collateral Agent, plus (z) excess availability, is sufficient to repay such material debt and (B) the ABL Borrower has excess availability of at least $15.0 million after giving effect to such repayment of material debt, including any

borrowings under the commitments in connection therewith.

The Company has not drawn any borrowings under the 2023 ABL Facility but has letters of credit of approximately $1.4 million outstanding under the facility and has an available balance of

$60.0 million as of December 31, 2023.

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

the 2023 ABL Facility.

Convertible Senior Notes

In July 2019 we closed an offering of $172.5 million in aggregate principal amount of our Convertible Senior Notes.

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

semiannually in arrears on January 15 and July 15 of each year, beginning on January 15, 2020.

The Convertible Senior Notes will mature on July 15, 2024, unless earlier repurchased, redeemed or converted.

The Convertible Senior Notes are senior

unsecured obligations.

In the fourth quarter 2022, our wholly owned subsidiary purchased $10.0 million in aggregate principal of our Convertible Senior Notes on the open market for $9.0 million that remain in the Treasury

and may be redeemed suspect 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 in aggregate principal amount 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.

conversion, we may pay cash, shares of our common stock or a combination of cash and stock, as determined by us at our discretion.

In July 2019, the Company closed an offering of $172.5 million in aggregate principal amount of its 2.50% Convertible Senior Notes due July 15, 2024 (the “Convertible Senior Notes”).

Convertible Senior Notes bear interest at a rate of 2.50% per year, payable semiannually in arrears on January 15 and July 15 of each year, beginning on January 15, 2020.

The Convertible Senior Notes are senior unsecured obligations of the

In the fourth quarter of 2022, a wholly owned subsidiary of the Company repurchased $10.0 million in aggregate principal amount of the Convertible Senior Notes on the open market resulting in a

$0.9 million gain on extinguishment of debt.

Subsequent principal repurchases occurred in 2023 for an aggregate principal amount of $44.0 million resulting in a gain on extinguishment of debt of $1.9 million.

The repurchased notes continue to be

held by our subsidiary and may be resold subject to compliance with applicable securities law.

As of December 31, 2023, $118.5 million aggregate principal remains outstanding and held by third parties.

The Convertible Senior Notes held by third parties are convertible into approximately 2,217,807 shares of TPB Common Stock under certain circumstances prior to maturity at a conversion rate

of 18.7092 shares per $1,000 principal amount of the Convertible Senior Notes, which represents a conversion price of approximately $53.45 per share, subject to adjustment under certain conditions, but will not be adjusted for any accrued and

unpaid interest.

The conversion price is adjusted periodically as a result of dividends paid by the Company in excess of pre-determined thresholds of $0.04 per share.

Upon conversion, the Company may pay cash, shares of common stock or a

combination of cash and stock, as determined by the Company at its discretion.

The conditions required to allow the holders to convert their Convertible Senior Notes were not met as of December 31, 2023.

The indenture covering the Convertible Senior Notes contains customary events of default.

We incurred debt issuance costs attributable to the Convertible Senior Notes of $5.9 million which are amortized to the interest expense using the effective interest method over the expected life of

the Convertible Senior Notes.

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

The 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.

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

As discussed above, on November 7, 2023, a wholly-owned subsidiary of the Company entered into the new 2023 ABL Facility to refinance up to $75.0 million of the Convertible Senior notes at

As a result, the Company classified $60.0 million related to the Convertible Senior Notes in Notes payable and long-term debt on the Company’s December 31, 2023 Consolidated Balance Sheets.

Based on current liquidity, free cash flow

generation and availability under the 2023 ABL Facility, the Company believes it will have sufficient liquidity to address the maturity of the remaining Convertible Senior Notes.

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

life of the Convertible Senior Notes.

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

The capped call

transactions have a strike price of $53.45 per share and a cap price of $82.86 per share, and are exercisable when, and if, the Convertible Senior Notes are converted.

The Company paid $20.53 million for these capped calls at the time they were

entered into and charged that amount to additional paid-in capital.

Distribution Agreements

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cigarette manufacturers, Philip Morris USA, Inc., Brown & Williamson Tobacco Corporation, Lorillard Tobacco Company and R.J.

Reynolds Tobacco

Company, entered into the MSA with attorneys general representing states that agreed to settle certain recovery actions (the “Settling States”).

In order to be in compliance with the MSA and subsequent states’ statutes, we were required to fund

an escrow account with each of the Settling States based on the number of cigarettes or cigarette equivalents (which is measured by pounds of MYO cigarette smoking tobacco) sold in such state.

We discontinued our generic category of MYO

in 2019 and our Zig-Zag branded MYO cigarette smoking tobacco in 2017.

Thus, pending a change in MSA

legislation, we have no remaining product lines covered by the MSA and will not be required to make future escrow deposits.

Reynolds Tobacco Company,

entered into the MSA with attorneys general representing states that agreed to settle certain recovery actions (the “Settling States”).

In order to be in compliance with the MSA and subsequent states’ statutes, we were required to fund an escrow

account with each of the Settling States based on the number of cigarettes or cigarette equivalents (which is measured by pounds of MYO cigarette smoking tobacco) sold in such state.

We discontinued our generic category of MYO in 2019 and our Zig-Zag branded MYO cigarette smoking tobacco in 2017.

Thus, pending a change in MSA legislation, we have

no remaining product lines covered by the MSA and will not be required to make future escrow deposits.

Each year’s deposit will be released from escrow after 25 years.

We are scheduled to

begin receiving payments as our escrow deposits are released from escrow beginning in 2024.

The following table summarizes our escrow deposit balances (in thousands) by sales year as of:

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Off-Balance Sheet Arrangements

During 2022 , we executed various foreign exchange contracts for the purchase of €28.9 million and sale of €28.9 million with maturity dates ranging from August 2022 to June 2023.

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

During 2023, we executed various foreign exchange contracts for the purchase of €20.1 million and sale of €15.2 million with maturity dates ranging from July 2023 to September 2024.

31, 2023, we had foreign currency contracts outstanding for the purchase of €15.2 million and sale of €15.2 million.

The fair value of the foreign currency contracts were based on quoted market prices and resulted in an asset of $0.3 million

included in Other current assets and liability of $0.1 million included in Accrued liabilities at December 31, 2023.

We had no interest rate swap contracts at December 31, 2022.

During 2021, we did not execute

any foreign exchange contracts.

We had no interest rate swap contracts at December 31, 2023 and 2022.

During 2022, we executed various foreign exchange contracts for the purchase of €28.9 million and sale of €28.9 million with maturity dates ranging from August 2022 to June 2023.

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

The fair value of the foreign currency contracts were based on quoted market prices and resulted in an asset of $1.2 million included in

Other current assets and liability of $0.0 million included in Accrued liabilities at December 31, 2022.

Future Cash Requirements

The Company’s primary future cash requirements will be to fund operations, lease payments, debt service and capital expenditures.

The Company’s contractual obligations primarily include long-term debt

and lease obligations.

For information regarding our long-term debt obligations and cash payment obligations thereunder, please see Note 13, “Notes Payable and Long-Term Debt” of our Notes to the Consolidated Financial Statements in Part II, Item 8

of this Annual Report on Form 10-K.

For information regarding our lease obligations and cash payment obligations thereunder, please see Note 16, “Lease Commitments” in the Notes to the Consolidated Financial Statements in Part II, Item 8 of this

Annual Report on Form 10-K.

In 2022, we spent $29.2 million to repurchase 1,021,052 shares at an average price of $28.62 per share and had $27.2 million of authorization remaining under our Board approved repurchase program.

The Company’s contractual obligations primarily include

long-term debt and lease obligations.

For information regarding our long-term debt obligations and cash payment obligations thereunder, please see Note 13, “Notes Payable and Long-Term Debt” in Notes to the Consolidated Financial Statements in

Part II, Item 8 of this Annual Report on Form 10-K.

For information regarding our lease obligations and cash payment obligations thereunder, please see Note 16, “Lease Commitments” in the Notes to the Consolidated Financial Statements in Part II,

Item 8 of this Annual Report on Form 10-K.

In 2023, we made no repurchases of our common stock and have $27.2 million of authorization remaining under our Board approved repurchase program.

In 2022, we spent $29.2 million to repurchase

1,021,052 shares at an average price of $28.62 per share.

Regulation and Legislation

While we are subject to several regulatory regimes and requirements, the following may meaningfully impact operations or resources:

Federal Regulation

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.

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

As of December 31, 2023, federal excise taxes are not assessed on

certain novel nicotine products, including nicotine pouches, e-cigarettes and related products.

State and Local Regulation

As of December 31, 2023, the states require excise tax payments on most of our products.

These required taxes may increase over time or be expanded to cover additional product categories and may in some cases

impact the consumer demand of the products.

In addition, there are several local taxing jurisdictions requiring taxes and/or licensing.

Several states have also implemented or are considering implementing additional regulations on our products,

including sales restrictions and registry requirements.

These requirements may impact which products we are allowed to offer for sale or may influence retailers’ likelihood of carrying regulated products more generally.

FDA Regulation

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 currently 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.

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 Creative Distribution Solutions

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 and wraps); (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

Accordingly, the FDA has since regulated our cigar and cigar wrap products as well as our liquid nicotine 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 Premarket Tobacco Application (“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.

submitted premarket filings for certain of our regulated products in order to continue selling these products while they remain under review.

We have continued to supplement these applications with additional information and have responded to

information requests from the FDA;

however, there can be no guarantee that the FDA will accept such amendments and responses or that the applications will meet the standard of “appropriate for the protection of public health” or “substantially

equivalent,” as appropriate.

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.

In addition, we currently distribute many third-party manufactured liquid nicotine 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 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.

Additionally, FDA has limited resources, which may impact its ability to meaningfully enforce these provisions.

This may adversely affect our ability

to compete in the marketplace against those who continue to sell unauthorized products;

however, regulatory uncertainty in the FDA’s enforcement policies may likewise affect operations or sales of our proprietary products if the FDA’s policies

or priorities shift.

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.

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 had the opportunity to provide comments with regard to the impact such standards would have on our products.

These proposed rules remain pending.

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.

On March 8, 2023, the FDA proposed requirements for tobacco product manufacturing practice (“TPMPs”).

Once finalized, TPMPs would establish requirements for tobacco product manufacturers regarding the manufacture,

design, packing and storage of finished and bulk tobacco products.

This product standard is required to go through the formal rulemaking process, where we have had the opportunity to comment on the proposed rule with regard to any impact on any

of our products and manufacturing practices.

Nonetheless, implementation may result in additional resource requirements for quality management and changes to existing manufacturing operations.

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 promulgate regulations clarifying the applicability of the prohibition on delivery sales of cigarettes to ENDS.

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.

Inflation in general and the recent rapid increases in costs of goods and services, such as food and gas prices have had a substantial negative effect on the purchasing power of consumers.

historically, we have been able to pass on most cost increases to our consumers, no assurance can be given that we will continue to be able to do so.

In addition, we have been able to maintain a relatively stable variable cost structure for our

products due, in part, to our successful procurement with regard to our tobacco products and, in part, to our existing contractual agreement for the purchase of our premium cigarette papers.

While historically, we have been able to pass on most cost increases to our consumers, no assurance can be given that we will continue to be able to do so.

In addition, we have been able to maintain a relatively stable variable cost structure for

our products due, in part, to our successful procurement with regard to our tobacco products and, in part, to our existing contractual agreement for the purchase of our premium cigarette papers.

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 7. Management’s Discussion and Analysis