What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2024-02-28 compared with 2023-03-15 · 699 added, 665 removed, 832 unchanged (62% of the section changed)

5 unchanged sentences

Consolidated Statements of Income for the years ended December 31, 2023, 2022, and 2021

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

Consolidated Statements of Comprehensive Income for the years ended December 31, 2023, 2022, and 2021

Consolidated Statements of Cash Flows for the years ended December 31, 2023, 2022, and 2021

Consolidated Statements of Changes in Stockholders’ Equity for the years ended December 31,

2022, 2021, and 2020

Consolidated Statements of Changes in Stockholders’ Equity for the

years ended December 31, 2023, 2022, and 2021

Notes to Consolidated Financial Statements

Report of Independent Registered Public Accounting

Independent Registered Public Accounting Firm

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

1 unchanged sentence

We have audited the accompanying consolidated balance sheets of Turning Point Brands, Inc.

and its subsidiaries (the Company) as of

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

consolidated financial statements (collectively, the financial statements).

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

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

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

Company’s internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control — Integrated

Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013.

Our report dated March 15, 2023 expressed an opinion that the Company had not maintained effective internal control over financial

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

Sponsoring Organizations of the Treadway Commission in 2013.

and its subsidiaries (the Company) as of December 31, 2023 and 2022, the related

consolidated statements of income, comprehensive income, changes in stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2023, and the related notes to the consolidated financial statements

(collectively, the financial statements).

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2023 and 2022, and the results of its operations and its

cash flows for each of the three years in the period ended December 31, 2023, in conformity with accounting principles generally accepted in the United States of America.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial

reporting as of December 31, 2023, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013.

report dated February 28, 2024 expressed an opinion that the Company had not maintained effective internal control over financial reporting as of December 31, 2023, based on criteria established in Internal

Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013.

Basis for Opinion

These financial statements are the responsibility of the Company’s management.

Our responsibility is to express an opinion on the

Company’s financial statements based on our audits.

Our responsibility is to express an opinion on the Company’s financial statements based on our

We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with U.S.

federal securities laws and the applicable rules

and regulations of the Securities and Exchange Commission and the PCAOB.

federal securities laws and the applicable rules and regulations of the Securities and

Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audits to

obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.

Our audits included performing procedures to assess the risks of material misstatement of the financial

statements, whether due to error or fraud, and performing procedures that respond to those risks.

Those standards require that we plan and perform the audits to obtain reasonable assurance about whether

the financial statements are free of material misstatement, whether due to error or fraud.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and

performing procedures that respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.

Our audits also

included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.

Our audits also included evaluating the accounting principles

used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.

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

Critical Audit Matter

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

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

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

to the audit committee and that:

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

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

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

Goodwill Impairment Analysis for the NewGen Reporting Unit

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

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

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

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

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

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

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

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

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

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

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

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

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

among others:

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

historical results and to publicly available market data.

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

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

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

the calculations.

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

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

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

mathematical accuracy of the calculation.

The communication of a critical audit matter does

not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to

which its relates.

Fair Value of Non-Marketable Equity Investments with Impairment Charges

As described in Note 11 to the financial statements, for the year ended December 31, 2023, the Company recorded an impairment loss of $10.9 million on two non-marketable equity

investments, one of which is recorded using the equity method with the other recorded at original cost, as adjusted for impairment and observable price changes.

Investments accounted for under the equity method of accounting are assessed for impairment, which includes estimating the fair value of the investment, when events or

circumstances suggest that any loss in value of the investment may be other than temporary.

A loss in value of an investment that is other than a temporary decline is recognized when evidence of a loss in value indicates, but would not

necessarily be limited to, absence of an ability to recover the carrying amount of the investment or inability of the investee to sustain an earnings capacity that would justify the carrying amount of the investment.

For equity investments that do not qualify to be accounted for under the equity method of accounting and do not have a readily determinable fair value, the Company has elected a

practical expedient to record the investment at the original cost, as adjusted for impairment and observable price changes.

Under the practical expedient, if a qualitative analysis indicates impairment exists, the fair value of the investment

is required to be estimated and any excess of the carrying value over the estimated fair value is recognized as an impairment loss.

The Company’s assessment of two non-marketable equity investments identified significant events negatively impacting each investments’ business strategy, deterioration in

operating results, and adverse cannabinoid market conditions, which management determined to be indicators of impairment.

Consequently, the Company estimated the fair values of these investments using a market approach derived from applying

market multiples of comparable public companies to the financial results of each investment.

The Company then compared the estimated fair value to the carrying value of each of these investments and recorded impairment losses equal to the

We identified the estimates of the fair values of these non-marketable equity investments as a critical audit matter because of the complexity of the valuation methodology and

the significant assumptions used by management in estimating the fair values of each investment, including the market multiples applied to the financial results of the investees.

Auditing management’s estimates of fair values of these

investments involved a high degree of auditor judgment and an increased audit effort, including the use of our valuation specialists, due to the impact these assumptions have on the estimates of fair value.

Our audit procedures related to the estimated fair values of these

non-marketable equity investments (collectively, the investees) included the following, among others:

We evaluated the relevance and reliability of the underlying business-related data used by management by comparing it to the investees’ historical financial results.

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

Assessing the appropriateness of management’s valuation methodologies

Corroborating guideline public company market multiples used in the Company’s fair value calculations by comparing them to publicly available market data.

We evaluated the comparability of the guideline public companies identified by management to the operations of the investees.

We recomputed the valuation models for mathematical accuracy.

/s/ RSM US LLP

We have served as the Company’s auditor since 2006.

Richmond, Virginia

March 15, 2023

Charlotte, North Carolina

February 28, 2024

Report of Independent Registered Public Accounting Firm

1 unchanged sentence

Opinion on the Internal Control Over Financial Reporting

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

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

Commission in 2013.

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

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

Organizations of the Treadway Commission in 2013.

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

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

and the related notes to the consolidated financial statements of the Company and our report dated March 15, 2023 expressed an unqualified opinion.

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that

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

The following material weaknesses have been identified and included in

management’s assessment:

There were deficiencies in the design and operation of information technology general controls (“ITGCs”) in the areas of user

access and program change-management over certain information technology (“IT”) systems that support the Company’s financial reporting processes.

The business process

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

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

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

address such risks.

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

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

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

We have audited Turning Point Brands, Inc.’s (the Company) internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013.

In our opinion, because of the effect of the material weakness described

below on the achievement of the objectives of the control criteria, the Company has not maintained effective internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013.

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

31, 2023 and 2022, the related consolidated statements of income, comprehensive income, changes in stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2023, and the related notes to the

consolidated financial statements of the Company and our report dated February 28, 2024 expressed an unqualified opinion.

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material

misstatement of the company’s annual or interim financial statements will not be prevented or detected on a timely basis.

The following material weakness has been identified and included in management’s assessment:

There were deficiencies in the design and operation of information technology general controls (ITGCs) in the areas of user access and program change-management over certain

information technology (IT) systems that support the Company’s financial reporting processes.

The business process controls (automated and manual) that are dependent on the affected ITGCs were also deemed ineffective because they could have

been adversely impacted.

This material weakness was considered in determining the nature, timing and extent of audit tests applied in our audit of the 2023 financial statements, and this report does not

affect our report dated February 28, 2024 on those financial statements.

Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of

the effectiveness of internal control over financial reporting in the accompanying Management’s Report on Internal Control Over Financial Reporting.

Our responsibility is to express an opinion on the Company’s internal control over financial

reporting based on our audit.

We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with U.S.

federal securities laws and the applicable rules and regulations of the

Securities and Exchange Commission and the PCAOB.

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over

financial reporting in the accompanying Management’s Report on Internal Control Over Financial Reporting.

Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.

public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission

and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit to

obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.

Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk

that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk.

Our audit also included performing such other procedures as we considered necessary in the

circumstances.

We believe that our audit provides a reasonable basis for our opinion.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether

effective internal control over financial reporting was maintained in all material respects.

Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and

testing and evaluating the design and operating effectiveness of internal control based on the assessed risk.

Our audit also included performing such other procedures as we considered necessary in the circumstances.

We believe that our audit

provides a reasonable basis for our opinion.

Definition and Limitations of Internal Control Over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability

of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

A company’s internal control over financial reporting includes those policies and procedures

that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company;

(2) provide reasonable assurance that transactions are recorded as necessary

to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the

and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company’s assets that could have a material effect on the financial statements.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation

of financial statements for external purposes in accordance with generally accepted accounting principles.

A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of

records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company;

(2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial

statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company;

and (3) provide

reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.

projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Also, projections of any evaluation of effectiveness to

future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ RSM US LLP

Richmond, Virginia

March 15, 2023

Charlotte, North Carolina

February 28, 2024

Turning Point Brands, Inc.

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Accounts receivable, net of allowances of $ 78 in 2023 and $ 114 in 2022

Inventories, net

Other current assets

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Additional paid-in capital

Cost of repurchased common stock ( 2,316,460 shares at December 31, 2022 and 1,295,408 shares at December

Cost of repurchased common stock ( 2,316,460 shares at December 31, 2023 and 2022)

Accumulated other comprehensive loss

6 unchanged sentences

and Subsidiaries

Consolidated Statements of Income

Statements of Income

for the years ended December 31, 2023, 2022, and 2021

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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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Other comprehensive income (loss), net of tax

Amortization of unrealized pension and postretirement gain (loss), net of tax of $ 0 in 2022 , $ 0 in 2021 , and $ 57 in 2020

Unrealized (loss) gain on MSA investments, net of tax of $ 860 in 2022 and $ 81 in 2021 and $ 0 in 2020

Unrealized gain (loss) on MSA investments, net of tax of $ 161 in 2023 and $ 860 in 2022 and $ 81 in 2021

Foreign currency translation, net of tax of $ 0 in 2023 , 2022 and 2021

Unrealized gain (loss) on derivative instruments, net of tax of $ 273 in 2022 , $ 813 in 2021 and $ 233 in 2020

Unrealized (loss) gain on derivative instruments, net of tax of $ 237 in 2023 , $ 273 in 2022 and $ 813 in 2021

Consolidated comprehensive income

4 unchanged sentences

and Subsidiaries

Consolidated Statements of Cash Flows

Consolidated Statements of

for the years ended December 31, 2023, 2022, and 2021

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Gain on extinguishment of debt

Pension settlement and curtailment loss

(Gain) loss on sale of property, plant, and equipment

Impairment loss

Loss (gain) on sale of property, plant, and equipment

Loss on goodwill impairment

Loss on intangible asset impairment

Gain on insurance recovery of inventory loss

Loss on investments

Depreciation expense

Depreciation and other amortization expense

Amortization of other intangible assets

Amortization of deferred financing costs

Deferred income taxes

Deferred income tax expense (benefit)

Stock compensation expense

Noncash lease (income) expense

Noncash lease income

Gain on MSA escrow deposits

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Accounts payable

Accrued postretirement liabilities

Accrued liabilities and other

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Settlement of interest rate swaps

Payments of Convertible Senior Notes

Convertible Senior Notes repurchased

Proceeds from call options

Payment of promissory note

Payment of IVG note

Proceeds from unsecured note

Standard Diversified Inc.

reorganization, net of cash acquired

Payment of dividends

2 unchanged sentences

Redemption of options

Surrender of restricted stock

Redemption of restricted stock units

Common stock repurchased

Net cash provided by (used in) financing activities

Net cash (used in) provided by financing activities

Net increase (decrease) in cash

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Cash paid during the period for income taxes, net

Supplemental schedule of noncash investing activities:

Accrued capital expenditures

Accrued consideration for acquisition of investments

Supplemental schedule of noncash financing activities:

Issuance of note payable for acquisition

Dividends declared not paid

2 unchanged sentences

and Subsidiaries

Consolidated Statements of Changes in Stockholders’ Equity

Consolidated Statements of

Changes in Stockholders’ Equity

for the years ended December 31, 2023, 2022, and 2021

3 unchanged sentences

Beginning balance January 1, 2021

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

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

Unrealized loss on MSA investments, net of tax of $ 81

Unrealized gain on derivative instruments, net of tax of $ 813

Foreign currency translation, net of tax of $ 0

Stock compensation expense

2 unchanged sentences

Cost of repurchased common stock

Standard Diversified Inc.

reorganization, net

ReCreation acquisition

A cquisition of ReCreation Marketing interest

Ending balance December 31, 2021

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Redemption of options

Issuance of performance based restricted stock units

Redemption of performance based restricted stock units

Issuance of restricted stock units

Redemption of restricted stock units

Cost of repurchased common stock

Acquisition of ReCreation Marketing interest

Settlement of call options, net of tax of $ 12

Ending balance December 31, 2022

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

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

Unrealized gain on MSA investments, net of tax of $ 161

Unrealized loss on derivative instruments, net of tax of $ 237

Foreign currency translation, net of tax of $ 0

6 unchanged sentences

Redemption of restricted stock units

Cost of repurchased common stock

Settlement of call options, net of tax of $ 28

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herein as the “Company,” “we,” “our,” or “us”) is a leading manufacturer, marketer and distributor of branded consumer products.

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

products to satisfy evolving consumer preferences.

Our three focus segments are led by our core, 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;

along with our distribution

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

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

products to fulfill evolving consumer preferences.

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

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

We operate in three segments:

(i) Zig-Zag Products, (ii) Stoker’s Products, and (iii) NewGen Products .

(i) Zig-Zag Products, (ii) Stoker’s Products, and (iii) Creative Distribution Solutions, formerly known as NewGen.

Basis of Presentation

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

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

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

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

and Securities and Exchange Commission (“SEC”) regulations.The preparation of financial statements in conformity with U.S.

GAAP requires management to make estimates and assumptions that affect the amounts of assets and liabilities, disclosure of

contingent assets and liabilities as of the dates of the financial statements, and the reported amounts of revenues and expenses during the reporting periods.

Actual results could differ from those estimates.

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

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

The Company’s significant estimates

include those affecting the valuation of goodwill and other intangible assets, deferred income tax valuation allowances, the valuation of investments and the valuation of

inventory, including reserves.

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

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All significant intercompany transactions have been eliminated.

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

beneficiary of VIEs.

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

primary beneficiary of VIEs.

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

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

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

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

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

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

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

financial support;

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

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

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

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

The Company may change its original assessment of a VIE

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

The Company may change its original assessment of a

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

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

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Derivative Instruments

Foreign Currency Forward Contracts:

The Company enters into foreign currency

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

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

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

Company’s policy, the Company may hedge up to 100 % of its anticipated purchases of inventory in the denominated invoice currency over a

forward period not to exceed twelve months .

The Company may also, from time to time, hedge up to 100 % of its non-inventory purchases in the denominated invoice currency.

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

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

Gains and losses on these foreign currency contracts are transferred from other comprehensive income into inventory

as the related inventories are received and are transferred to net income as inventory is sold .

Changes in fair value of any contracts that do not qualify for hedge accounting or

are not designated as hedges are recognized currently in income.

Interest Rate Swap Agreements:

The Company enters into interest rate swap

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

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

Swap contracts that qualify as hedges are

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

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

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

Changes in fair value of any contracts that do not qualify for hedge accounting or are not designated as hedges are recognized currently in income.

Under the Company’s policy, the Company may hedge up to 100 % of its anticipated purchases of inventory in the denominated invoice currency over a forward period not to exceed twelve months .

The Company may also, from time to time, hedge up to 100 % of its

non-inventory purchases (e.g.

production equipment) in the denominated invoice currency.

Foreign currency contracts that qualify as hedges are adjusted to their fair value through other comprehensive income as determined by market prices on the

measurement date, except any hedge ineffectiveness which is recognized currently in income.

Gains and losses on these foreign currency contracts are transferred from other comprehensive income into inventory as the related inventories are received and are transferred to net income as inventory is sold .

Changes in fair value of any contracts that do not

qualify for hedge accounting or are not designated as hedges are recognized currently in income.

Shipping Costs

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The Company considers any highly liquid investments with a maturity of three months or less from the date of purchase to be cash equivalents.

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

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

Leaf tobacco is presented in

current assets in accordance with standard industry practice, notwithstanding the fact that such tobaccos are carried longer than one year for the purpose of curing.

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.

Property, Plant and Equipment

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

Property, plant and equipment is stated at cost less accumulated depreciation and impairment.

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

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

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

respectively.

Goodwill is tested for impairment annually on December 31, or more frequently if certain indicators are present.

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

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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

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:

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

Equity Investments

The Company's investments include equity securities, which are accounted for at cost and under the equity method of accounting.

For equity investments that do not qualify to be accounted for under the equity method of accounting and that do not have a readily determinable fair

value, the Company has elected a practical expedient to record the investment at the original cost, as adjusted for impairment and observable price changes.

Under the practical expedient, if a qualitative analysis indicates impairment exists, the

fair value of the investment is required to be estimated and any excess of the carrying value over the estimated fair value is recognized as an impairment loss.

Equity investments accounted for under the equity method of accounting are assessed for impairment when events or circumstances suggest that any loss in

value of the investment may be other than temporary.

A loss in value of an investment is other than temporary when evidence of a loss in value indicates the absence of an ability to recover the carrying amount of the investment or inability of the

investee to sustain an earnings capacity that would justify the carrying amount of the investment.

In the absence of observable data, the Company estimates the fair values of these investments using a market approach derived from

applying market multiples of comparable public companies to the financial results of each investment.

The valuation methodology and the significant assumptions used by management in estimating the fair values of each investment, involve a high

degree of judgment and may involve the use of third-party valuation specialists.

Deferred Financing Costs

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

Deferred financing costs are amortized over the terms of the related debt obligations using the straight-line method.

Unamortized amounts are expensed upon

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products by any federal, state, or local legislative or regulatory body, nor can there be any assurance that any such legislation or regulation would not have a material adverse effect on the Company’s financial position, results of operations, or

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

Depending on the number and location of

such bans, that legislation or regulation could have a material adverse effect on the Company’s financial position, results of operations or cash flows.

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

regulations around our products, including targeted flavor bans;

In a number of states targeted flavor bans have been proposed or enacted legislatively or by the administrative process.

Depending on the number and location of such

bans, that legislation or regulation could have a material adverse effect on the Company’s financial position, results of operations or cash flows.

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

around our products, including targeted flavor bans;

however, the details, timing, and ultimate implementation of such measures remain unclear.

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Typically, such claims assert that use of smokeless products is addictive and causes oral cancer.

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

There can be no assurance the Company will not sustain losses in connection with such lawsuits and that such losses will not have a material adverse effect on the Company’s financial position, results of operations, or cash flows.

Additionally, several lawsuits have been brought against manufacturers and distributors of Creative Distribution Solutions

products due to malfunctioning devices.

operations, or cash flows.

Master Settlement Agreement (MSA):

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

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

The increase in fair value was due to decreasing maturities affecting the fair value of U.S.

government securities held in the MSA escrow

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

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Deposits as of December 31,

Federal Excise Taxes:

Tobacco products, cigarette papers, and cigarette tubes

are subject to federal excise taxes.

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

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

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

e-cigarettes and related products.

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

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

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

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

products, such as nicotine pouches, as well.

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

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

licensing requirements.

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

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

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

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

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

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

The FDA assesses tobacco product user fees on six classes

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

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

Then, the assessment

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

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

(i) certain NewGen

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

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

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

Accordingly, the

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

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

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

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

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

Additionally, NTN Products became subject to premarket filing requirements.

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

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

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

A successful PMTA must demonstrate that the subject product

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

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

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

products, all of which remain under review.

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

We have continued to supplement these applications with additional information;

however, there

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

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

marketing application.

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

against those who continue to sell unauthorized products.

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

The FDA has issued a number of rules related to premarket

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

On October 5, 2021, the FDA finalized two

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

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

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

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

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

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

However, there is no assurance

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

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

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

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

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

revenues generated by lower priority SKUs.

In addition, we currently distribute many third-party

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

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

in compliance with relevant legal requirements.

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

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

For a period of time after

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

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

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

and (2) a ban on

all characterizing flavors (including menthol) in cigars.

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

These product standards are required to go through

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

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

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

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

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

Consolidated Appropriations Act, 2021, was signed into law.

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

Service ( “ USPS ” ) promulgate regulations clarifying

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

USPS issued its final rule on October 21, 2021.

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

Failure to comply with the PACT Act could

result in significant financial or criminal penalties.

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

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

Concentration of Credit Risk:

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

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

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

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

The activity of

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

The activity of allowance for

credit losses during 2023 and 2022 is as follows:

Balance at beginning of period

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

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

The transaction was accounted for as an asset purchase with $ 10.0 million assigned to intellectual property and $ 0.7

million assigned to inventory.

The intellectual property asset is deductible for tax purposes.

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

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

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

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

The unsecured loan

is eliminated in the consolidation of Turning Point Brands Canada.

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

net assets acquired:

Total consideration transferred

Adjustments to consideration transferred:

Cash acquired

Accrued consideration

Adjusted consideration transferred

Assets acquired:

Working capital (primarily AR and inventory)

Fixed assets and Other long term assets

The acquisition

expands Turning Point Brands Canada’s markets in Canada.

The Company recorded goodwill of $ 2.5 million related to its acquisition of DVW

which consists of the synergies expected from combining the operations and is deductible for tax purposes.

Goodwill is determined as the consideration transferred in excess of the acquisition price over the estimated fair value of the identifiable

net assets acquired.

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

Turning Point Brands Canada

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The Company may, from time to time, hedge currency for non-inventory purchases, e.g., production equipment, not to exceed 100 % of the purchase price.

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

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

During 2023, the Company executed various foreign exchange contracts which met hedge accounting requirements for the

purchase of € 20.1 million and sale of € 15.2

During 2022, the Company executed various foreign exchange contract, which met hedge accounting requirements for the purchase of € 28.9

million and sale of € 28.9 million .

At December 31, 2023, the Company had foreign currency contracts outstanding for the purchase of € 15.2

million and sale of € 15.2 million.

The foreign currency contract’s fair value at December 31, 2023, resulted in an asset of $ 0.3 million included in Other current assets and a liability of $ 0.1 million included in Accrued liabilities.

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

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

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

Losses of $ 0.1 million were reclassified from Accumulated

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

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

million gain and $ 0.1 million loss were reclassified from Accumulated other comprehensive loss to Cost of sales for the years ended December 31, 2023 and 2022, respectively .

Interest Rate Swaps

The Company’s policy is

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

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

The swap agreements fixed LIBOR at 2.755 %.

The swap agreements met the hedge accounting requirements;

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

The Company uses the Shortcut Method to account

for the swap agreements.

The Shortcut Method assumes the hedge to be perfectly effective.

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

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

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

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

accumulated other comprehensive loss into loss on extinguishment of debt.

The Company terminated its interest rate swap agreements in the first quarter of 2021 with an early termination payment made by the Company in the amount of $ 3.6 million which was reclassified out of accumulated other comprehensive loss into loss on extinguishment of debt.

A loss of $ 0.1 million was reclassified into interest expense for the year ended

December 31, 2021 .

Fair Value of Financial Instruments

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The Company’s Senior

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

Secured Notes bear interest at a rate of 5.625 % per year.

As of December 31, 2023, the fair value approximated $ 234.9 million, with a carrying value of $ 250

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

Foreign Exchange

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

The fair value of the foreign exchange

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

At December 31, 2021, the Company had no

foreign currency contracts.

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

Foreign Currency

The fair value of the Company’s foreign currency contracts are based upon quoted market prices for similar instruments, thus leading to a Level 2 classification within the fair value hierarchy.

“Derivative Instruments”, for further information regarding the Company’s foreign currency contracts .

The components of inventories are as follows:

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Finished goods - Stoker’s Products

Finished goods - NewGen Products

Finished goods - Creative Distribution Solutions

The following represents the inventory valuation allowance roll-forward, for the years ended December 31:

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Balance at end of period

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

in damage to the leaf tobacco.

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

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 current assets in the consolidated balance sheet, and in other operating income , net offsetting the

inventory reserve recorded in the consolidated statement of income for the year ended December 31, 2023.

The Company does not expect to incur any delays in

customer deliveries as a result of the damage.

In 2022, the Company determined that the incorrect weight had been used in calculating the amount of federal excise tax assessed and paid on its

imported MYO cigar wraps during the years 2019 - 2021.

As a result, the Company filed a refund claim for $ 4.3 million with the

Alcohol and Tobacco Tax and Trade Bureau for the overpayment of federal excise taxes, which was approved and paid in the fourth quarter of 2023.

This refund is presented in Other operating income, net on the Company’s Consolidated Statements of

Income for the year ended December 31, 2023.

Other Current Assets

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Prepaid taxes

Settlement receivable

Insurance recovery receivable

Property, Plant and Equipment, Net

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Deferred Financing Costs, Net

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

Deferred financing costs consist of:

Deferred financing costs, net of accumulated amortization of $ 104 and $ 200 , respectively

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Balance as of December 31, 2023

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

is below its carrying value.

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

unobservable inputs and the market approach.

The Company tests

goodwill for impairment annually as of December 31, or more frequently when events or changes in circumstances indicate that the fair value is below its carrying value.

The Company elected to perform a qualitative assessment in evaluating its

Zig-Zag and Stoker’s reporting units for impairment as of December 31, 2023.

The Creative Distribution Solutions reporting unit goodwill was fully impaired as of December 31, 2022 as discussed below.

In evaluating the impairment indicators of its Zig-Zag and Stoker’s reporting units for its 2023

qualitative assessments, the Company considered macro and micro-economic indicators, changes in costs, overall financial performance and other relevant entity-specific events and noted no indication of impairment.

The Company also considered

the significant excess of fair values over carrying values as determined in the prior year’s quantitative assessment as discussed below.

The underlying assumptions utilized during the prior year’s quantitative assessment remain sufficiently

similar in 2023 and in line with Company projections.

Thus, such underlying assumptions on which the previous fair values are based have not sufficiently changed from the prior year to suggest a material difference in the 2023 fair value

assessments to indicate that it is more likely than not that the fair values of the reporting units in 2023 are below their carrying amounts.

For 2022, the Company performed quantitative testing on its Zig-Zag and Stoker’s reporting units as part of its annual impairment test and determined that no goodwill impairments existed.

For the quantitative

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

The Company’s significant assumptions in these analyses

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

The Company also performed quantitative testing on its Creative Distribution Solutions reporting unit as of December 31, 2022, using a combination of the income approach utilizing Level 3 unobservable inputs and the

market approach.

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

Continued regulatory uncertainty in the vape

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

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

impairments existed.

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

The Company’s

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

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

The Company’s

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

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

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

The impairment resulted from

continued regulatory uncertainty.

The Company’s goodwill impairment analysis as of December 31, 2022 referenced above used the discounted cash flow model (income approach) utilizing Level 3 unobservable inputs.

The Company’s significant assumptions

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

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

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

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

Future cash flow estimates

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

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

impairment charges in future periods.

Future cash flow estimates are, by their nature,

subjective and actual results may differ materially from the Company’s estimates.

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

future periods.

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

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

transactions and other market data.

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

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

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

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

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

The Company probability-weighted scenarios for

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

determine the concluded fair value of the reporting unit.

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

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Unamortized, indefinite life intangible assets:

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

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

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

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

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

In 2023, the Company conducted a qualitative assessment of its indefinite life intangible assets and noted no indicators of impairment, consistent with the goodwill assessment as discussed above.

2023, the Company transferred certain of its formulas and trade names within the Zig-Zag and Creative Distribution Solutions segments to amortized intangible assets.

The Company began to amortize the formula and trade name over their useful

lives of 15 years .

In 2022, based on its annual impairment testing, the fair value of the trade name in the Creative Distribution Solutions segment was less than its carrying amount

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

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

Amortized intangible assets consists of:

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Trade names (useful life of 15 years)

Formulas (useful life of 15 years)

Master distribution agreement (useful life of 15 years)

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Non-compete agreements (useful life of 3.5 years)

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

The Company exited the franchise

business and determined that the intangible asset was fully impaired.

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

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

In 2023, the Company noted indicators of possible impairment triggers for its Creative Distribution Solutions reporting unit and, as a result, performed an undiscounted cash flows recoverability assessment which

provided that the fair value of the asset group exceeded its carrying value, and thus no further impairment analysis was performed .

In 2022, the Company recorded an asset impairment charge of $ 0.3

million related to the franchise agreements intangible asset within the Creative Distribution Solutions segment included in Goodwill and intangible impairment loss for the year ended December 31, 2022.

The Company exited the franchise business and

determined that the intangible asset was fully impaired.

Annual amortization expense for the next five years is estimated to be approximately $ 3.0 million for 2024 and $ 2.4 million for 2025 through 2028, assuming no

additional transactions occur that require the amortization of intangible assets.

Other assets consists of:

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Debt security investment

The Company records its equity investments without a readily determinable fair value, that are not accounted for under the equity method, at cost, with

adjustments for impairment and observable price changes.

Equity Investments

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

Capitalized software

The Company records its equity investments without a readily determinable fair value, that

are not accounted for under the equity method, at cost, with adjustments for impairment and observable price changes.

The Company utilizes significant judgments in determining fair value of its equity and debt security investments that do

not have an observable market price.

Should assumptions underlying the determination of the fair values of the Company's equity and debt security investments change, it could result in material future impairment charges.

In April 2021, the Company invested $ 8.7 million in Docklight Brands, Inc., a

pioneering consumer products company with celebrated brands including Marley Natural® and Marley™.

The Company has additional follow-on investment rights.

As part of the investment, the Company has obtained exclusive U.S.

distribution rights for Docklight’s Marley ™ CBD topical products.

distribution rights for

Docklight’s Marley™ CBD topical products.

In 2023, based on Docklight’s financial results and operating difficulties, a significant change in their business model and the decline in the revenue multiples for public companies comparable to

Docklight, the Company deemed its investment in Docklight was fully impaired resulting in a loss of $ 8.7 million recorded in Investment

loss on our Consolidated Statements of Income.

Fair value for all periods presented was determined using a valuation derived from relevant revenue multiples (Level 3).

Purchases of inventory from Docklight Brands, Inc.

were $ 0.0 million and $ 0.1 million in 2023 and 2022, respectively.

There were no amounts payable to Docklight Brands,

There were no amounts payable to Docklight Brands, Inc.

at December 31, 2023 and 2022.

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

hemp cigarettes under the WildHemp™ and Hempettes™ brands, for $ 2.5 million.

In October 2020, the Company invested $ 2.5 million to acquire a 20 % stake in Wild Hempettes, LLC, a

manufacturer of natural CBD cigarettes designed as the first cigarette-styled CBD pre-roll in the world.

The Company has options to increase its stake to a 100 % ownership position based on certain milestones.

As part of the transaction, the Wild Hempettes joint venture was spun off from Crown Distributing LLC and formed as a vehicle for the Company to be the exclusive

distributor of Hempettes™ to U.S.

As part of the transaction, the Wild Hempettes joint venture was spun off from Crown Distributing LLC and formed as a vehicle for the

Company to be the exclusive distributor of Hempettes™ to U.S.

bricks and mortar retailers under a profit-sharing arrangement.

The Company has provided Wild Hempettes with a secured line of credit up to $ 2.0 million with a term up to 5 years.

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

The Company recorded investment loss of $ 0.1 million

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

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

Effective January 2023, the Company terminated its distribution agreement.

The Company accounts for its 20 % share of Wild Hempettes profit or loss using the equity method of accounting.

In 2023, based on Wild Hempettes financial results, the Company deemed

its investment in Wild Hempettes to be other-than-temporarily impaired resulting in a $ 2.2 million impairment charge included in

investment loss for the year ending December 31, 2023.

Fair value for the Company’s share of investment in Wild Hempettes was determined using a valuation derived from relevant revenue multiples (Level 3).

The Company recorded investment losses

including impairment charges of $ 2.3 million and $ 0.1 million for years ended December 31, 2023 and 2022, respectively.

Purchases of inventory from Wild Hempettes was $ 0.0

million and $ 0.4 million in 2023 and 2022, respectively.

There were no amounts payable to Wild Hempettes at December 31, 2023 and 2022.

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

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

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

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

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

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

These impairments resulted in a loss of $ 7.9

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

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

The valuations were probability

weighted based on anticipated outcomes.

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

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

In October 2020, the Company invested $ 1.8

million in BOMANI Cold Buzz, LLC (“BOMANI”), a manufacturer of alcohol-infused cold brew coffee.

The Company received rights to receive equity in BOMANI in the event of an equity financing.

The Company has a $ 0.2 million receivable from Wild Hemp at December 31, 2023 for the return

of product previously purchased and paid for.

In October 2020, the Company invested $ 15.0 million in dosist™ (“Dosist”), a global cannabinoid company, with an option to invest an additional $ 15.0 million on pre-determined terms over the twelve month

period ending October 2021.

The Company received a warrant exercisable for preferred shares of Dosist that would automatically be exercised upon the changing of certain federal cannabis laws in the United States, rescheduling cannabis and/or

permitting the general cultivation, distribution and possession of cannabis.

In 2021, based on the financial results of Dosist and the overall cannabinoid market, the Company deemed its investment was impaired resulting in a loss of $ 7.1 million recorded in investment loss for the year ended December 31, 2021.

In 2022, after a contemplated sale of the assets of Dosist did not

occur, Dosist entered into an agreement with a new buyer receiving the assets of Dosist for the assumption of its liabilities.

As such, the Company considered its remaining investment in Dosist to be fully impaired and recorded an additional loss

of $ 7.9 million in investment loss for the year ended December 31, 2022.

Fair value was determined using a valuation derived from the

contemplated purchase price (Level 3).

There were no purchases of inventory from Dosist in 2023 or 2022.

In October 2020, the Company invested $ 1.8 million in BOMANI Cold Buzz, LLC (“BOMANI”), a manufacturer of alcohol-infused cold brew coffee.

The Company received rights to receive equity in BOMANI in the event of

an equity financing.

There were no purchases of inventory from BOMANI in 2023 or 2022.

There were no amounts payable to BOMANI at December 31, 2023 and 2022.

The Company has a minority ownership position in Canadian American Standard Hemp (“CASH”).

CASH is headquartered in Warwick, Rhode Island, and

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

CASH is headquartered in Warwick, Rhode Island, and manufactures cannabidiol

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

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

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

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

CASH continued business under the Real Brands name.

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

In the fourth quarter 2022, as a result of a

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

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

In 2022, as a result of a significant decline in the enterprise value, the Company determined that the fair value of the investment was $ 0.0 and fully impaired the investment.

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

There were no purchases of inventory from Real Brands in 2023 or 2022.

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

There were no amounts payable to

Real Brands at December 31, 2023 and 2022.

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

(d/b/a RadioShack;

“RadioShack”) from 5G gaming

LLC for $ 0.4 million.

There were no

amounts payable to General Wireless Operations, Inc.

“RadioShack”) from 5G gaming LLC for $ 0.4 million.

There were no amounts

payable to General Wireless Operations, Inc.

at December 31, 2023 and 2022.

Debt Security Investment

In July 2021, the Company invested $ 8.0 million in Old

Pal Holding Company LLC (“Old Pal”).

In July 2021, the

Company invested $ 8.0 million in Old Pal Holding Company LLC (“Old Pal”).

In July 2022, the Company invested an additional $ 1.0 million in Old Pal.

The Company invested in

the form of a convertible note which includes additional follow-on investment rights.

The accrued interest of $ 0.2 million was rolled

into the note in July 2022 resulting in a total investment of $ 9.2 million.

Old Pal is a leading brand in the cannabis lifestyle space

that operates a non-plant touching licensing model.

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

Interest and principal are receivable at maturity.

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

interest of $ 0.2 million from July 2021 to July 2022 was rolled into the convertible note in July 2022 resulting in a total investment

of $ 9.2 million.

Old Pal is a leading brand in the cannabis lifestyle space that operates a non-plant touching licensing model.

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

Interest and principal not paid to date are

receivable at maturity.

Old Pal has the option to extend the maturity date in one-year increments.

The interest rate is subject to change based on sales levels of Old Pal meeting certain thresholds.

The weighted average interest rate was 3.0 %

for the year ended December 31, 2022.

The interest rate is subject to

change based on Old Pal reaching certain sales thresholds.

The weighted average interest rate on the convertible note was 3.0 % for the

year ended December 31, 2023.

Old Pal has the option to convert the note into shares once sales reach a certain threshold.

The conditions required to

allow Old Pal to convert the note were not met as of December 31, 2022.

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

The Company has classified the debt security with Old Pal as

available for sale.

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

The Company reports interest income on available for sale debt securities, in interest income in our Consolidated Statements of Income.

Quarterly, we perform a qualitative assessment to determine if the fair value of the investment could

be less than the amortized cost basis.

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

the fair value of the investment.

The conditions required to allow Old Pal to convert the note were not met as of December 31, 2023.

Additionally, the

Company has the right to convert the note into shares at any time.

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

The Company reports interest income on available for sale debt securities in interest income in

our Consolidated Statements of Income.

Quarterly, we perform a qualitative assessment to determine if the fair value of the investment could be less than the amortized cost basis.

In 2022, the Company performed a quantitative assessment of the

fair value of the investment.

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

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

The Company has recorded accrued

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

In 2023, based on a subsequent quantitative assessment of the fair value using a Monte Carlo

simulation, the Company determined the fair value to be $ 6.9 million and recorded an additional allowance for credit losses of $ 1.3 million which is included in investment loss for the year ended December 31, 2023.

The Company has recorded accrued interest receivable of $ 0.1 million and $ 0.1 million at December 31, 2023 and 2022, respectively, in other current assets on our Consolidated Balance Sheets.

Accrued Liabilities

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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, the Company closed a private offering (the “Offering”) of $ 250 million aggregate principal amount of its 5.625 % senior

secured notes due 2026 (the “Senior Secured Notes”).

On February 11, 2021, the Company closed a private offering (the “Offering”) of $ 250.0 million aggregate principal amount of its 5.625 % senior secured notes

due 2026 (the “Senior Secured Notes” or the “Notes”).

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

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August 15, 2021.

The Company used the proceeds from the Offering to (i) repay all obligations under and terminate the 2018 First Lien Credit Facility, (ii) 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.

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 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.

O bligations 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 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:

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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unpaid interest.

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

The Senior Secured

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

(i) grant or incur liens;

(ii) incur, assume or guarantee additional indebtedness;

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

(iii) sell or otherwise

dispose of assets, including capital stock of subsidiaries;

(iv) make certain investments;

(v) pay dividends, make distributions or redeem or

repurchase capital stock;

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

(vi) engage in certain transactions with affiliates;

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

These covenants are subject to a number of limitations and

exceptions set forth in the Indenture.

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

The Indenture provides for customary events of default.

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

and (vii) consolidate

or merge with or into, or sell substantially all of our assets to another entity.

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

The Senior Secured Notes Indenture provides

for customary events of default.

The Company was in compliance with all financial covenants as of December 31, 2023.

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

2021 Revolving Credit Facility

In connection with the Offering, the Company also entered into a 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).

The Company has no t drawn any borrowings under the 2021 Revolving Credit Facility but does 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 the Company’s 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).

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

reference to the base rate.

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

The Company’s and

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

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

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

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

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

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

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

The Company 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.

2018 Credit Facility

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

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

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

Credit Facility, the “2018 Credit Facility”) with Prospect Capital Corporation, as administrative agent, and other lenders.

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

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

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

In connection with the Offering, the Company also entered into a $ 25.0 million senior secured revolving credit facility (the “2021 Revolving Credit Facility”) with the lenders party thereto and Barclays Bank PLC, as administrative agent and collateral

agent (in such capacity, the “Agent”).

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

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

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

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

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.

The Company 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

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

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 shall mature on the earlier of (x) November 7, 2027 and (y) the date that is 91 days prior to the maturity date of any material debt of the ABL Borrower or the Company or any of its restricted subsidiaries (subject to customary extensions agreed by the

lenders thereunder);

provided that clause (y) shall not apply to the extent that on any applicable date of determination (on any date prior to the date set forth in clause (y)), (A) the sum of (x) cash that is held in escrow for the repayment of

such material debt pursuant to arrangements satisfactory to the Administrative Agent, (y) cash that is held in accounts with the Administrative Agent and/or the Additional Collateral Agent, plus (z) excess availability, is sufficient to repay such

material debt and (B) the ABL Borrower has excess availability of at least $ 15.0 million after giving effect to such repayment of

material debt, including any borrowings under the commitments in connection therewith.

The Company has no t 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

Convertible Senior Notes

In July 2019 the Company closed an offering of $ 172.5

million in aggregate principal amount of its 2.50 % Convertible Senior Notes due July 15, 2024 (the “Convertible Senior Notes”).

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

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

In July 2019, the Company

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

Senior Notes”).

The Convertible Senior Notes bear interest at a rate of 2.50 % per year, payable semiannually in arrears on January 15 and

July 15 of each year, beginning on January 15, 2020.

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

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

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

As of December 31, 2022, $ 162.5

million aggregate principal remains outstanding.

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

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

Upon conversion, the Company may pay cash, shares

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

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

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

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 maturity.

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 Balance Sheet.

Based on current liquidity, free cash flow generation and availability under the 2023 ABL Facility, the Company believes it will have sufficient liquidity to address the

maturity of the remaining Convertible Senior Notes.

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

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

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

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

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.

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

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Original issue discount

Stock compensation

Insurance receivable

Gross deferred income taxes

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Therefore, a valuation allowance for state NOL carryforwards of $ 2.9 million and $ 2.4 million has been recorded at December 2023 and 2022, respectively.

The Company has determined that, at December 31, 2023 its ability to realize future benefits of its unrealized loss on investments and foreign NOL carryforwards do not meet the “more likely than not”

criteria in ASC 740, Income Taxes.

Therefore a valuation allowance for unrealized loss on investments of $ 6.4 million and foreign NOL

carryforwards of $ 1.7 million has been recorded at December 31, 2023.

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

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Effective income tax rate

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

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

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

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

Pension and Postretirement Benefit Plans

The Company had a defined benefit pension plan.

Benefits for hourly employees were based on a stated benefit per year of service, reduced by amounts

earned in a previous plan.

Benefits for salaried employees were based on years of service and the employees’ final compensation.

The defined benefit pension plan was frozen.

The Company’s policy was to make the minimum amount of contributions that

can be deducted for federal income taxes.

In the fourth quarter 2019, the Company elected to terminate the defined benefit pension plan, effective December 31, 2019 with final distributions made in the third quarter of 2020.

The Company sponsored a defined benefit postretirement plan that covered hourly employees.

This plan provided medical and dental benefits.

This plan was

contributory with retiree contributions adjusted annually.

The Company’s policy was to make contributions equal to benefits paid during the year.

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

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

Pension Benefits

Postretirement Benefits

Interest cost

Expected return on plan assets

Amortization of (gains) losses

Settlement and Curtailment loss (gain)

Net periodic benefit cost (income)

The Company also sponsors a voluntary 401(k) retirement savings plan.

The permanent differences for the years ended December 31, 2023 and 2022 are not significant in the aggregate.

The permanent difference for the year December 31, 2021 are primarily related to income tax benefits of

$ 7.5 million ($ 1.6 million

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

option exercises.

401(k) Retirement Savings Plan

sponsors a voluntary 401(k) retirement savings plan.

Eligible employees may elect to contribute up to 15 % of their annual earnings subject to certain limitations.

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Lease Commitments

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

The Company’s capital

leases consist of vehicle leases.

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

Lease and non-lease components are accounted for as

a single lease component.

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

lease inception, the Company recognizes a lease right of use asset and lease liability calculated as the present value of future minimum lease payments.

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

are no significant barriers to ending the lease at the initial term.

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

Leases with an initial term of 12 months or less are not recorded on the balance sheet.

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basis over the lease term.

The components of lease expense consists of the following:

The components of lease expense consist of the following:

For the year ended December 31,

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Selling, general and administrative

The Company's lease balances consist of the following:

Right of use assets - Operating

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Reported within accrued liabilities on the balance sheet

Other information related to the Company's leases consists of the following:

Right of use assets obtained in exchange for lease obligations:

Operating leases

Finance leases

As of December 31,

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

Maturities of operating lease liabilities consisted of the following:

The following table illustrates the Company's future minimum rental payments for non-cancelable leases as of December 31, 2023:

Years thereafter

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Present value of lease liabilities

Maturities of financing lease liabilities consisted of the following:

Total lease payments

Imputed interest

Present value of lease liabilities

Share Incentive Plans

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granted under the 2021 Plan.

There are 1,160,673 shares available for grant under the 2021 Plan.

There are 981,274 shares available for future grant under the 2021 Plan.

On April 28, 2016, the Board of Directors of the Company adopted the 2015 Plan, pursuant to which awards could have been granted to employees, non-employee

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In addition, the 2015 Plan provided for the granting of nonqualified stock options to employees of the Company or any subsidiary of the Company.

Pursuant to the 2015 Plan, 1,400,000 shares of the Company’s voting common stock were reserved for issuance as awards to employees, non-employee directors, and consultants as compensation for past or

future services or the attainment of certain performance goals.

The 2015 Plan was scheduled to terminate on April 27, 2026.

Upon adoption of the 2021 Plan, the 2015 Plan was terminated, and the Company determined no additional grants would be made

under the 2015 Plan.

Upon adoption of the 2021 Plan, the 2015 Plan was terminated, and the

Company determined no additional grants would be made under the 2015 Plan.

However, all awards issued under the 2015 Plan that have not been previously terminated or forfeited remain outstanding and continue unaffected.

There are no shares available for grant under the 2015 Plan.

The 2015 Plan was administrated by the Committee.

On February 8, 2006, the Board of Directors of the Company adopted the 2006 Equity Incentive Plan (the “2006 Plan”) of North Atlantic Holding Company,

Inc., pursuant to which awards may be granted to employees.

The 2006 Plan provides for the granting of nonqualified stock options and restricted stock awards to employees.

Upon the adoption of the Company’s 2015 Equity Incentive Plan in connection

with its IPO, the Company determined no additional grants would be made under the 2006 Plan.

However, all awards issued under the 2006

Plan that have not been previously terminated or forfeited remain outstanding and continue unaffected.

There are no shares available for

grant under the 2006 Plan.

Inc., pursuant to which nonqualified stock options and restricted stock awards may be granted to employees.

Upon the adoption of the Company’s 2015 Equity Incentive Plan in connection with its IPO, the Company determined no additional grants would be made under the 2006 Plan.

However, all awards issued under the 2006 Plan that have not been previously terminated or

forfeited remain outstanding and continue unaffected.

There are no shares available for grant under the 2006 Plan.

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

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Under the 2006, 2015 and 2021 Plans, the total intrinsic value of options exercised during the years ended December 31, 2023, 2022, and 2021, was $ 0.3 million, $ 0.7 million, and $ 7.9 million, respectively.

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

average of the remaining lives of the outstanding stock options is approximately 1.50 years for the options with the $ 3.83 exercise price.

At December 31, 2023, under the 2006 Plan, the exercise price for the 43,693 outstanding options is $ 3.83 per share, all of which are exercisable.

weighted average of the remaining lives of the outstanding stock options with an exercise price of $ 3.83 is approximately 0.60 years.

The Company estimates the expected life of these stock options is ten years from the date of grant.

For the $ 3.83 per share options, the weighted

average fair value of options was determined using the Black-Scholes model assuming a ten-year life from grant date, a current share price

and exercise price of $ 3.83 , a risk-free interest rate of 3.57 %, a volatility of 40 %, and no assumed dividend yield.

average fair value of options at the date of grant was determined using the Black-Scholes model with the following assumptions:

life from grant date, a current share price and exercise price of $ 3.83 , a risk-free interest rate of 3.57 %, volatility of 40 %, and no assumed dividend yield.

Based on these assumptions, the fair value of these options is approximately $ 2.17 per share option granted.

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Total unrecognized compensation expense related to options at December 31, 2023, is $ 0.1 million, which will be expensed over 1.0

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

The number of

shares of common stock a recipient will receive upon vesting of a PRSU will be calculated by reference to certain performance metrics related to the Company’s performance over a three to five-year period.

PRSUs will vest on the measurement

date, which is no more than 65 days after the performance period, provided the applicable service and performance conditions are

At December 31, 2022, there are 469,733 PRSUs outstanding, 469,733 of which are unvested.

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

The number of shares of TPB Common Stock a

recipient will receive upon vesting of a PRSU will be calculated by reference to certain performance metrics related to the Company’s performance over a five-year

PRSUs will vest on the measurement date, which is no more than 65 days after the performance period provided the applicable

service and performance conditions are satisfied.

At December 31, 2023, there are 449,790 PRSUs outstanding.

The following table outlines the PRSUs granted and outstanding as of December 31, 2023.

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Remaining lives

The Company recorded compensation expense related to the PRSUs of approximately $ 2.9 million, $ 5.0 million and $ 1.4 million in the consolidated statements of income for the years ended December 31, 2022, 2021 and 2020, respectively, based on the probability of achieving the performance

Total unrecognized compensation expense related to these awards at December 31, 2022, is $ 2.5 million, which will be expensed

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

RSUs are stock units

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

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

The Company recorded compensation expense related to the PRSUs of approximately $ 3.0

million, $ 2.9 million and $ 5.0

million in the consolidated statements of income for the years ended December 31, 2023, 2022 and 2021, respectively, based on the probability of achieving the performance condition.

Total unrecognized compensation expense related to these awards at

December 31, 2023, is $ 4.1 million, which will be expensed over the service period based on the probability of achieving the performance

RSUs are stock units subject to service-based vesting conditions over one to five years .

31, 2023, there are 218,200 RSUs outstanding.

The following table outlines the RSUs granted and outstanding as of December 31, 2023.

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determined as the fair value of the RSUs on the date of grant and amortized over the vesting period.

The Company recorded compensation expense related to the RSUs of approximately $ 1.3 million, $ 0.3 million and $ 0.0 for the years ended December 31, 2022, 2021 and 2020, respectively.

The Company recorded compensation expense related to the RSUs of approximately $ 2.9 million, $ 1.3 million and $ 0.3 million for the years ended December 31, 2023, 2022 and 2021, respectively.

Total unrecognized compensation expense related to RSUs at December 31, 2023, is $ 2.5 million, which will be expensed over 2.3

Contingencies

On October 9, 2020, a purported stockholder of Turning Point Brands, Inc., Paul-Emile Berteau, filed a complaint in the Delaware Court

of Chancery relating to the merger of SDI with a TPB subsidiary pursuant to the Agreement and Plan of Merger and Reorganization, dated as of April 7, 2020, by and among TPB, SDI and Merger Sub.

The complaint purports to assert two derivative counts for breach of fiduciary duty on TPB’s behalf and against the TPB Board of Directors and certain SDI affiliates.

The third count

purports to assert a direct claim against TPB and its Board of Directors based on allegations that TPB’s Amended and Restated Bylaws are inconsistent with TPB’s certificate of incorporation.

On October 26, 2020, the TPB Board of Directors adopted

Amendment No.

1 to TPB’s Amended and Restated Bylaws, which amended the challenged section of the bylaws.

On June 30, 2021, the court granted in part and denied in part the defendants’ motions to dismiss.

Among other things, the court dismissed TPB

director H.C.

Charles Diao as a defendant in the action and dismissed the third count of the plaintiff’s complaint as moo t.

The remaining defendants attended a mediation in late November 2022 where a tentative

settlement was reached.

The impact to the Company is not expected to be material.

On October 9, 2020, a purported stockholder of Turning Point Brands, Inc., Paul-Emile Berteau, filed a complaint in the Delaware Court of Chancery relating to the merger of SDI with a TPB subsidiary pursuant to the

Agreement and Plan of Merger and Reorganization, dated as of April 7, 2020, by and among TPB, SDI and Merger Sub.

The parties attended a mediation in late November 2022 where a settlement was reached.

On December 12, 2023, the Court approved the

settlement and dismissed the action with prejudice.

As of December 31, 2023, the Company recorded a $ 4.0 million receivable in

other current assets, and a corresponding gain on settlement in other income on its Consolidated Statement of Income for the year ended December 31, 2023.

These funds were received in January 2024.

Other major tobacco companies are defendants in product liability claims.

In a number of these cases, the amounts of punitive and compensatory damages

sought are significant and, if such a claim were brought against the Company, could have a material adverse effect on our business and results of operations.

The Company is subject to several lawsuits alleging personal injuries resulting from

malfunctioning vaporizer devices and may be subject to claims in the future relating to our other NewGen products.

In a number of these cases, the amounts of punitive and compensatory damages sought are significant and, if such a claim were brought against the Company, could have a

material adverse effect on our business and results of operations.

The Company is subject to several lawsuits alleging personal injuries resulting from malfunctioning vaporizer devices or batteries and may be subject to claims in the future

relating to our other Creative Distribution Solutions products.

The Company is still evaluating these claims and the potential defenses to them.

For example, the Company did not design or

manufacture the products at issue;

rather, the Company was merely the distributor.

Nonetheless, there can be no assurance that the Company will prevail in these cases, and they could have a material adverse effect on the financial position, results

of operations or cash flows of the Company.

We have several subsidiaries engaged in making, distributing, and selling vapor products.

As a result of the overall publicity and controversy

surrounding the vapor industry generally, many companies have received informational subpoenas from various regulatory bodies and in some jurisdictions regulatory lawsuits have been filed regarding marketing practices and possible underage sales.

For example, the Company did not design or manufacture the products at issue;

rather, the Company was

merely the distributor.

Nonetheless, there can be no assurance that the Company will prevail in these cases, and they could have a material adverse effect on the financial position, results of operations or cash flows of the Company.

We have several subsidiaries engaged in making, distributing, and selling liquid nicotine products.

As a result of the overall publicity and controversy surrounding the industry generally, many companies have received informational subpoenas from

various regulatory bodies and in some jurisdictions regulatory lawsuits have been filed regarding marketing practices and possible underage sales.

We expect that our subsidiaries will be subject to some such cases and investigative requests.

To the extent that litigation becomes necessary, we believe that the subsidiaries have strong factual and legal defenses against claims that they

unfairly marketed vapor products.

extent that litigation becomes necessary, we believe that the subsidiaries have strong factual and legal defenses against claims that they unfairly marketed products.

We have two franchisor subsidiaries.

many franchise businesses, in the ordinary course of their business, these subsidiaries are from time-to-time responding parties to arbitration demands brought by franchisees.

We have reached an agreement to arbitrate a claim brought by a former

This matter relates to the termination of the franchise agreement by the franchisor for failure to pay franchising fees and our subsequent demand that the franchisee cease using our marks and de-image locations formerly housing the

The franchisee is claiming tortious interference and conversion.

We believe the franchisor’s ultimate termination of the franchise agreement for multiple uncured material defaults by the franchisee was proper.

We believe we have good

and valid substantive defenses against the claims and intend on vigorously defending our interests in this matter.

Like many franchise businesses, in the ordinary course of their business, these subsidiaries are

from time-to-time responding parties to arbitration demands brought by franchisees.

We recently won a dispositive motion in an arbitration brought by a former franchisee.

We have one remaining former franchisee arbitration with breach of contract and negligence allegations, among others.

We believe we have good and valid substantive defenses against these claims and

intend on vigorously defending our interests in this matter.

Earnings Per Share

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Convertible Senior Notes (1)

Stock options

The effect of 3,208,172 shares issuable upon conversion of the Convertible Senior Notes were excluded from the diluted net income per share calculation because the effect would have

Stock options and restricted stock units

For 2022, the effect of 3,208,172 shares issuable upon conversion of the Convertible Senior Notes were excluded from the diluted net income per share calculation because the effect would have

been antidilutive.

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(2) Stoker’s Products;

and (3) NewGen Products.

and (3) Creative Distribution Solutions.

The Zig-Zag Products segment markets and distributes (a) rolling papers, tubes, and related products;

and (b) finished cigars and MYO cigar wraps and (c) CLIPPER reusable lighters.

The Stoker’s Products

segment (a) manufactures and markets moist snuff and (b) contracts for and markets loose-leaf chewing tobacco products.

The NewGen segment (a) markets and distributes liquid vapor products and certain other products without tobacco and/or nicotine;

(b) finished cigars and MYO cigar wraps and (c) CLIPPER reusable lighters and other accessories.

The Stoker’s Products segment (a) manufactures and markets moist snuff and (b) contracts for and markets loose-leaf chewing tobacco products.

The Creative Distribution Solutions segment (a) markets and distributes liquid nicotine products and certain

other products without tobacco and/or nicotine;

(b) distributes a wide assortment of products to non-traditional retail outlets via Vapor Beast;

and (c) markets and distributes a wide assortment of products to individual consumers via the VaporFi B 2 C online platform.

and (c) markets and distributes a wide assortment of products to individual consumers via the VaporFi B2C

online platform.

Products in the Zig-Zag Products and Stoker’s Products segments are distributed primarily through wholesale distributors in the U.S.

and Canada while products in the NewGen segment

are distributed primarily through e-commerce to non-traditional retail outlets and direct to consumers in the U.S.

The Other segment includes the costs and assets of the Company not assigned to one of the three reportable segments such as intercompany transfers, deferred taxes,

deferred financing fees, and investments in subsidiaries.

and Canada while products in the Creative Distribution Solutions segment are distributed primarily

through e-commerce to non-traditional retail outlets and direct to consumers in the U.S.

Corporate unallocated includes the costs and assets of the Company not assigned to one of the three reportable segments such as intercompany transfers, deferred taxes, deferred financing fees, and investments in subsidiaries.

The Company had no customer that accounted for more than 10% of net sales in 2023, 2022, or 2021.

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Corporate costs are not directly charged to the three reportable segments in the ordinary course of operations.

The Company evaluates the performance of its segments and allocates resources to them

based on operating income.

The Company evaluates the performance of its segments and allocates resources to them based

on operating income.

The tables below present financial information about reportable segments:

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Stoker’s products

NewGen products

Total Zig-Zag and Stoker’s products

Creative Distribution Solutions

Zig-Zag products

Stoker’s products

NewGen products

Total Zig-Zag and Stoker’s products

Creative Distribution Solutions

Operating income (loss)

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Stoker’s products

NewGen products

Corporate unallocated (1)(2)

Total Zig-Zag and Stoker’s products

Creative Distribution Solutions

Interest expense, net

Investment loss (income)

Goodwill and intangible impariment loss

Investment loss

Goodwill and intangible impairment loss

Gain on extinguishment of debt

Net periodic benefit (income) cost, excluding service cost

Income before income taxes

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Stoker’s products

NewGen products

Total Zig-Zag and Stoker’s products

Creative Distribution Solutions

Depreciation and amortization

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Stoker’s products

NewGen products

Includes corporate costs that are not allocated to any

of the three reportable segments.

Total Zig-Zag and Stoker’s products

Creative Distribution Solutions

Includes corporate costs that are not allocated to any of

the three reportable segments.

Includes costs related to PMTA of $ 2.1 million, $ 4.6 million and $ 2.6 million in 2023, 2022, and 2021, respectively.

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Stoker’s products

NewGen products

Corporate unallocated (1)

Total Zig-Zag and Stoker’s products

Creative Distribution Solutions

Includes assets not assigned to the three reportable segments.

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Revenue Disaggregation—Sales Channel

Revenues of the Zig-Zag Products and Stoker’s Products segments are primarily comprised of sales made to wholesalers while NewGen sales are made business

to business and business to consumer, both online and through our corporate retail stores.

NewGen net sales are broken out by sales channel below.

NewGen Segment

Revenues of the Zig-Zag Products and Stoker’s Products segments are primarily comprised of sales made to wholesalers while Creative Distribution Solutions

sales are made business to business and business to consumer, both online and through our corporate retail stores.

Creative Distribution Solutions net sales are broken out by sales channel below.

Creative Distribution Solutions

For the year ended December 31,

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Business to Consumer - Online

Business to Consumer - Corporate store

Domestic and Foreign

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As a result, their sum may not equal the total year amounts.

Information with Respect to Unrestricted Subsidiary

Under the terms of the Senior Secured Notes

Indenture and Senior Secured Notes, the Company has designated its subsidiaries, South Beach Brands LLC, TPB Beast LLC and Intrepid Brands, LLC as “Unrestricted Subsidiaries”.

South Beach Brands LLC is a holding company under which our TPB Beast

LLC business operating as Creative Distribution Solutions sits.

The Company is required under the terms of the Senior Secured Notes Indenture and the Senior Secured Notes to present additional information that reflects the financial condition and

results of operations of the Company and its Restricted Subsidiaries separate from the financial condition and results of operations of the Company’s Unrestricted Subsidiaries as of and for the periods presented.

This additional information is

Income Statement for the years ended

December 31, 2023, 2022 and 2021:

Years Ended December 31,

Cost of sales

Selling, general, and administrative expenses

Other operating income, net

Operating income (loss)

Interest expense, net

Investment loss

Goodwill and intangible impairment loss

Gain on extinguishment of debt

Income (loss) before income taxes

Income tax expense

Consolidated net income (loss)

Net loss attributable to non-controlling interest

Net income (loss) attributable to Turning Point Brands, Inc.

Year Ended December 31,

Cost of sales

Selling, general, and administrative expenses

Operating income

Interest expense, net

Investment loss

Gain on extinguishment of debt

Income before income taxes

Income tax expense

Consolidated net income

Net loss attributable to non-controlling interest

Net income attributable to Turning Point Brands, Inc.

Balance Sheet as of December 31, 2023:

Current assets:

Accounts receivable, net

Inventories, net

Other current assets

Total current assets

Property, plant, and equipment, net

Deferred income taxes

Right of use assets

Deferred financing costs, net

Other intangible assets, net

Master Settlement Agreement (MSA) escrow deposits

Investment in unrestricted subsidiaries

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities:

Accounts payable

Accrued liabilities

Current portion of long-term debt

Total current liabilities

Notes payable and long-term debt

Lease liabilities

Total liabilities

Commitments and contingencies

Stockholders’ equity:

Total Turning Point Brands Inc.

Stockholders’ Equity/Net parent investment in unrestricted subsidiaries

Non-controlling interest

Total stockholders’ equity

Total liabilities and stockholders’ equity

Balance Sheet as of December 31,

Current assets:

Accounts receivable, net

Inventories, net

Other current assets

Total current assets

Property, plant, and equipment, net

Deferred income taxes

Right of use assets

Deferred financing costs, net

Other intangible assets, net

Master Settlement Agreement (MSA) escrow deposits

Investment in unrestricted subsidiaries

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities:

Accounts payable

Accrued liabilities

Other current liabilities

Total current liabilities

Notes payable and long-term debt

Lease liabilities

Total liabilities

Commitments and contingencies

Stockholders’ equity:

Total Turning Point Brands Inc.

Stockholders’ Equity/Net parent investment in unrestricted subsidiaries

Non-controlling interest

Total stockholders’ equity

Total liabilities and stockholders’ equity

Dividends and Share Repurchase

currently pays a quarterly cash dividend.

Dividends are considered restricted payments under the Senior Secured Notes Indenture and 2021 Revolving Credit Facility.

The Company is generally permitted to make restricted payments provided that, at the

time of payment, or as a result of payment, the Company is not in default on its debt covenants.

Dividends are considered restricted payments under the Senior Secured Notes Indenture.

The Company is generally permitted to make restricted payments provided that, at the time of payment, or as a result of

payment, the Company is not in default on its debt covenants.

Additional earning and market capitalization restrictions limit the aggregate amount of restricted, quarterly dividends during a fiscal year.

25, 2020, the Company’s Board of Directors approved a $ 50.0 million share repurchase program, which is intended for opportunistic

execution based upon a variety of factors including market dynamics.

The program is subject to the ongoing discretion of the Board.

The total number of shares repurchased for the year ended December 31, 2022, was 1,021,052 shares for a total cost of $ 29.2

million and an average price per share of $ 28.62 .

On October 25, 2021, the Board increased the approved share repurchase program by $ 30.7 million and by another $ 24.6 million

During the year ended December 31, 2023, the

Company paid cash dividends of $ 0.26 per common share for $ 4.5 million.

On February 25, 2020,

$ 27.2 million remains available for share repurchases under the program at December 31, 2022.

the Company’s Board of Directors approved a $ 50.0 million share repurchase program, which is intended for opportunistic execution based

upon a variety of factors including market dynamics.

The program is subject to the ongoing discretion of the Board of Directors.

On October 25, 2021, the Board of Directors increased the approved share repurchase program by $ 30.7 million and by an additional $ 24.6

million on February 24, 2022, in each case bringing the aggregate approval back to $ 50.0 million.

As of December 31, 2023, $ 27.2 million remains available for share repurchases under the program.

There were no shares repurchased for the year ended December 31, 2023.

Changes In and Disagreements With Accountants on Accounting and Financial Disclosure

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 8. Financial Statements and Supplementary Data