10q10k10q10k.net

What changed in Turning Point Brands, Inc.'s 10-K — 2022 vs 2023

vs

Paragraph-level year-over-year comparison of Turning Point Brands, Inc.'s 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+466 added−402 removedSource: 10-K (2024-02-28) vs 10-K (2023-03-15)

Top changes in Turning Point Brands, Inc.'s 2023 10-K

466 paragraphs added · 402 removed · 334 edited across 8 sections

Item 1. Business

Business — how the company describes what it does

90 edited+22 added−17 removed90 unchanged
Biggest changeApproximately 42% of our total 2022 Zig-Zag ® branded net sales are under our own Zig-Zag ® marks rather than those we license from RTI under the Distribution and Licensing Agreements described below . • Stoker’s ® is among the fastest growing MST brands in the industry and is the #1 loose-leaf chewing tobacco brand.
Biggest changeApproximately 41% of our total 2023 Zig-Zag ® branded net sales are under our own Zig-Zag ® marks rather than those we license from RTI under the Distribution and Licensing Agreements described below . • Stoker’s ® is among the fastest growing MST brands in the industry and is the #1 loose-leaf chewing tobacco brand. 1 We manufacture Stoker’s ® MST using only 100% American Leaf, utilizing a proprietary process to produce what we believe is a superior product. 1 Brand rankings and market share percentages obtained from MSAi for the 52-week period ended December 30, 2023. 6 Table of Contents Zig-Zag ® is an iconic brand and has strong, enduring brand recognition among a wide audience of consumers.
In February 2022, we announced an agreement with Flamagas, a renowned lighter manufacturer, for exclusive distribution of CLIPPER® lighters in the U.S. and Canada. CLIPPER® is the #1 reusable lighter in the world and the #2 overall world lighter brand but currently underrepresented in the U.S. and Canada with significant potential for growth.
In February 2022, we announced an agreement with Flamagas, a renowned lighter manufacturer, for exclusive distribution of CLIPPER® lighters in the U.S. and Canada. CLIPPER® is the #1 reusable lighter in the world and the #2 overall world lighter brand but is currently underrepresented in the U.S. and Canada with significant potential for growth.
The PMTA process is a very expensive and resource-intensive process and there are currently hundreds of competitors in the market but very few have the capability and or the resources to get their products successfully through this process. In the years since, FDA has rejected millions of applications.
The PMTA process is a very expensive and resource-intensive process and there are currently hundreds of competitors in the market but very few have the capability and or the resources to get their products successfully through this process. In the years since, the FDA has rejected millions of applications.
Having established a strong infrastructure and negotiated relationships across multiple segments and products, we are pursuing an international growth strategy to broaden sales and strengthen margins. We believe international sales represent a meaningful growth opportunity. In 2021, we further invested in growth in Canada by increasing our ownership in Turning Point Brands Canada to 65%.
We believe international sales represent a meaningful growth opportunity. Having established a strong infrastructure and negotiated relationships across multiple segments and products, we are pursuing an international growth strategy to broaden sales and strengthen margins. In 2021, we further invested in growth in Canada by increasing our ownership in Turning Point Brands Canada to 65%.
CLIPPER® is the #1 reusable lighter in the world and the #2 overall world lighter brand but currently underrepresented in the U.S. and Canada with significant potential for growth. As we have done successfully in the past, we will leverage our existing sales infrastructure to drive distribution of new products and are investing to expand our e-commerce distribution capabilities.
CLIPPER® is the #1 reusable lighter in the world and the #2 overall world lighter brand but is currently underrepresented in the U.S. and Canada with significant potential for growth. As we have done successfully in the past, we will leverage our existing sales infrastructure to drive distribution of new products and are investing to expand our e-commerce distribution capabilities.
See “Distribution and Supply Agreements” for a discussion of the Zig-Zag ® distribution agreements. If RTI is unable or unwilling to perform its obligations or ceases its cigarette paper manufacturing operations, in each case, as set forth in the Distribution Agreements, we may seek third-party suppliers and continue the use of the Zig-Zag ® trademark to market these products.
See “Distribution and Supply Agreements” below for a discussion of the Zig-Zag ® distribution agreements. If RTI is unable or unwilling to perform its obligations or ceases its cigarette paper manufacturing operations, in each case, as set forth in the Distribution Agreements, we may seek third-party suppliers and continue the use of the Zig-Zag ® trademark to market these products.
Our senior leadership has embraced a collaborative culture in which the combined experience, analytical rigor, and creativity are leveraged to assess opportunities and deliver products that satisfy consumers’ demands. Our management team also brings a proven track record of patient and selective capital deployment into value enhancing transactions.
Our senior leadership has embraced a collaborative culture in which combined experience, analytical rigor, and creativity are leveraged to assess opportunities and deliver products that satisfy consumers’ demands. Our management team also brings a proven track record of patient and selective capital deployment into value enhancing transactions.
Health and Safety: Our health and safety programs are designed to address applicable regulations as well as the specific hazards and work environments of each of our facilities. We regularly conduct safety reviews at each of our locations to ensure compliance with applicable regulations and all policies and procedures.
Health and Safety: Our health and safety programs are designed to address applicable regulations as well as the specific hazards and work environments of each of our facilities. We regularly conduct safety reviews and trainings at each of our locations to ensure compliance with applicable regulations and all policies and procedures.
We believe there are meaningful opportunities to grow through investing in organic growth, acquisitions and joint ventures across all product categories. As of December 31, 2022, our products were available in approximately 197,000 U.S. retail locations which, with the addition of retail stores in Canada, brings our total North American retail presence to an estimated 217,000 points of distribution.
We believe there are meaningful opportunities to grow through investing in organic growth, acquisitions and joint ventures across all product categories. As of December 31, 2023, our products were available in approximately 197,000 U.S. retail locations which, with the addition of retail stores in Canada, brings our total North American retail presence to an estimated 217,000 points of distribution.
This strategy allows new products to be tested with lower risk before we incorporate them into our wider brick and mortar distribution system. 8 Table of Contents Combining our different platforms, we have an expansive multi-channel distribution infrastructure that gives us a big competitive advantage when we introduce new products or acquire companies that we can integrate into our network.
This strategy allows new products to be tested with lower risk before we incorporate them into our wider brick and mortar distribution system. 9 Table of Contents Combining our different platforms, we have an expansive multi-channel distribution infrastructure that gives us a big competitive advantage when we introduce new products or acquire companies that we can integrate into our network.
Our major areas of focus are lowering vehicle emissions produced by our fleet, incorporating energy savings initiative at our facilities, reducing water consumption in our operations, and increasing our recycling efforts. Within each of these categories we are concentrating on developing and measuring progress with an aim to define metrics against which we can track our efforts.
Our major areas of focus are lowering vehicle emissions produced by our fleet, incorporating energy savings initiatives at our facilities, reducing water consumption in our operations, and increasing our recycling efforts. Within each of these categories we are concentrating on developing and measuring progress with an aim to define metrics against which we can track our efforts.
To ensure we have a steady supply of premium cigarette paper products, as well as cigarette tubes and injectors, RTI is required to maintain, at its expense, a two-month supply of inventory in a bonded, public warehouse in the U.S. 9 Table of Contents We obtain our MYO cigar wraps from our supplier in the Dominican Republic.
To ensure we have a steady supply of premium cigarette paper products, as well as cigarette tubes and injectors, RTI is required to maintain, at its expense, a two-month supply of inventory in a bonded, public warehouse in the U.S. 10 Table of Contents We obtain our MYO cigar wraps from our supplier in the Dominican Republic.
Within our Stoker’s Products segment, there is ample runway to gain market share driven by same store sales growth and further distribution gains as Stoker’s ® MST continues to be one of the fastest growing brands in the category. In 2022, less than 10% of our revenues were generated outside of the U.S.
Within our Stoker’s Products segment, there is ample runway to gain market share driven by same store sales growth and further distribution gains as Stoker’s ® MST continues to be one of the fastest growing brands in the category. In 2023, less than 10% of our revenues were generated outside of the U.S.
For the years ended December 31, 2022, 2021, and 2020, we did not have any customer that accounted for 10% or more of our net sales. Our customers use an open purchase order system to buy our products and are not obligated to do so pursuant to ongoing contractual obligations.
For the years ended December 31, 2023, 2022, and 2021, we did not have any customer that accounted for 10% or more of our net sales. Our customers use an open purchase order system to buy our products and are not obligated to do so pursuant to ongoing contractual obligations.
We perform periodic credit evaluations of our customers and generally do not require collateral on trade receivables. Historically, we have not experienced material credit losses. Sales to customers within our NewGen segment are generally prepaid. Competition Many of our competitors are better capitalized than we are and have greater resources, financial and otherwise.
We perform periodic credit evaluations of our customers and generally do not require collateral on trade receivables. Historically, we have not experienced material credit losses. Sales to customers within our CDS segment are generally prepaid. Competition Many of our competitors are better capitalized than we are and have greater resources, financial and otherwise.
See “Risks Related to Legal, Tax and Regulatory Matters” under “Item 1A Risk Factors” and Note 1, “Organizations and Basis of Presentation” in the notes to the Consolidated Financial Statements in Part II, Item 8 of this Annual Report on Form 10-K, for additional information. 7 Table of Contents In addition, we have been building and expanding an alternative logistics infrastructure across the U.S. to comply with the Prevent All Cigarette Trafficking Act (“PACT Act”) which was recently extended to prohibit the use of the U.S.
See “Risks Related to Legal, Tax and Regulatory Matters” under Item 1A “Risk Factors” and Note 1, “Organizations and Basis of Presentation” in the Notes to the Consolidated Financial Statements in Part II, Item 8 of this Annual Report on Form 10-K, for additional information. 8 Table of Contents In addition, we have been building and expanding an alternative logistics infrastructure across the U.S. to comply with the Prevent All Cigarette Trafficking Act (“PACT Act”) which was recently extended to prohibit the use of the U.S.
Sales and Marketing We have grown the size and capacity of our salesforce and intend to continue strengthening the organization to advance our ability to deepen and broaden the retail availability of our products and brands. As of December 31, 2022, we had a nationwide sales and marketing organization of approximately 180 professionals.
Sales and Marketing We have grown the size and capacity of our salesforce and intend to continue strengthening the organization to advance our ability to deepen and broaden the retail availability of our products and brands. As of December 31, 2023, we had a nationwide sales and marketing organization of approximately 180 professionals.
We have strong presence in independent convenience stores and now service most of the leading chain accounts. Through our e-commerce platforms we have alternative avenues through which to sell third-party products and an increasing mix of our proprietary products.
We have strong presence in independent convenience stores and now service most of the leading chain accounts. Through our e-commerce platforms we have alternative avenues through which to sell third-party products and an increasing amount of our proprietary products.
Our quality control group routinely tests the quality of the tobacco, flavorings, application of flavorings, premium cigarette papers, tubes and injectors, cigars, MYO cigar wraps, liquid vapor products, and packaging materials. We utilize sophisticated quality controls to test and closely monitor the quality of our products.
Our quality control group routinely tests the quality of the tobacco, flavorings, application of flavorings, premium cigarette papers, tubes and injectors, cigars, MYO cigar wraps, liquid nicotine products, and packaging materials. We utilize sophisticated quality controls to test and closely monitor the quality of our products.
In particular, the strength of the Zig-Zag ® brand provides a great platform to introduce a suite of complementary products similar to our launch and expansion of hemp papers, paper cones, hemp wraps and natural leaf wraps. In 2022, we entered the lighter market through an exclusive distribution agreement for CLIPPER® lighters in the U.S. and Canada.
In particular, the strength of the Zig-Zag ® brand provides a great platform to introduce a suite of complementary products such as our launch and expansion of hemp papers, paper cones, hemp wraps and natural leaf wraps. In 2022 we entered the lighter market through an exclusive distribution agreement for CLIPPER® lighters in the U.S. and Canada.
We believe this is a transformational event for the industry with potential for us to realize substantial benefits over time as the FDA accelerates enforcement thereby, creating significant barriers for new entrants as well as significant difficulties for existing companies who may not have the ability to comply with these regulatory requirements.
We believe this is a transformational event for the industry with potential for us to realize substantial benefits over time as the FDA accelerates enforcement thereby, creating significant barriers for new entrants as well as significant difficulties for existing companies who may not have the infrastructure needed to comply with these regulatory requirements.
The strength of the Zig-Zag ® brand drives our leadership position in both the rolling papers and MYO cigar wrap markets. Zig-Zag ® is the #1 premium and #1 overall rolling paper in the U.S. with approximately 35% total market share according to MSAi. Management estimates also indicate that Zig-Zag ® is the #1 brand in the promising Canadian market.
The strength of the Zig-Zag ® brand drives our leadership position in both the rolling papers and MYO cigar wrap markets. Zig-Zag ® is the #1 premium and #1 overall rolling paper in the U.S. with approximately 34% total market share according to MSAi. 1 Management estimates that Zig-Zag ® is also the #1 brand in the promising Canadian market.
Production and Quality Control We primarily outsource our manufacturing and production processes and focus on packaging, marketing, and distribution. We currently manufacture less than 20% of our products as measured by net sales.
Production and Quality Control We primarily outsource our manufacturing and production processes and focus on packaging, marketing, and distribution. We currently manufacture less than 25% of our products as measured by net sales.
To date, we have spent approximately $24 million in order to file and supplement applications covering a broad portfolio of noncombustible products, including vaping products and novel oral nicotine products.
To date, we have spent approximately $26 million in order to file and supplement applications covering a broad portfolio of noncombustible products, including vaping products and novel oral nicotine products.
In evaluating acquisition opportunities, our focus is on identifying acquisitions that would leverage our distribution platform and product offerings or enable category expansion in areas with high growth potential to drive profit generation. The vast majority of our 2022 U.S. gross profit was derived from sales of products currently regulated by the FDA Center for Tobacco Products.
In evaluating acquisition opportunities, our focus is on identifying acquisitions that would leverage our distribution platform, regulatory infrastructure and product offerings or enable category expansion in areas with high growth potential to drive profit generation. The vast majority of our 2023 U.S. gross profit was derived from sales of products currently regulated by the FDA Center for Tobacco Products.
Additionally, we verify B2B customers using business licenses in order to further prevent bulk sales to consumers, which we believe contributes to social sourcing by youth. 14 Table of Contents Environmental Stewardship Being good stewards of the planet will support our business success.
Additionally, we verify B2B customers using business licenses in order to further prevent bulk sales to consumers, which we believe contributes to social sourcing by youth. Environmental Stewardship Being good stewards of the planet will support our business success.
With flower being the leading form factor for cannabis consumption among consumers, we believe our product offerings provide us with significant opportunity to expand the retail channels our consumers frequent. A recent Gallup poll showed nearly seven in ten Americans now support legalizing cannabis nationwide, approximately twice the amount as twenty years ago.
With flower being the leading form factor for cannabis consumption among consumers, we believe our product offerings provide us with significant opportunity to expand the number of retail channels we reach. A recent Gallup poll showed nearly seven in ten Americans now support legalizing cannabis nationwide, approximately twice the amount as twenty years ago.
We are now the market share leader for MYO cigar wraps with approximately a 59% share of the cigar wraps category and 79% of the share of the HTL cigar wraps sub-category. 1 We believe our success was driven by the Zig-Zag ® tobacco branding, which we feel is widely understood by consumers to represent a favorable, customizable experience ideally suited to MYO products.
We are now the market share leader for MYO cigar wraps with approximately a 55% share of the cigar wraps category and 76% of the share of the HTL cigar wraps sub-category. 1 We believe our success was driven by the Zig-Zag ® tobacco branding, which we feel is widely understood by consumers to represent a favorable, customizable experience ideally suited to MYO products.
We plan to continue to engage in appropriately targeted marketing activity, consistent with all legal requirements, industry standards, and best practices. Preventing youth access and use of our adult-use products is a key to our continued success.
We plan to continue to engage in appropriately targeted marketing activity, consistent with all legal requirements, industry standards, and best practices. 15 Table of Contents Preventing youth access and use of our adult-use products is a key to our continued success.
See “Risks Related to Legal, Tax and Regulatory Matters” under “Item 1A Risk Factors” of this Annual Report on Form 10-K. Prevention of Youth Access Our vision is a world where only adult consumers purchase and use products that are not intended for youth.
See “Risks Related to Legal, Tax and Regulatory Matters” under Item 1A “Risk Factors” of this Annual Report on Form 10-K. Prevention of Youth Access Our vision is a world where only adult consumers purchase and use products that are not intended for youth.
In 2003, we acquired the Stoker’s ® brand. We have since built the brand to the #1 position in the chewing tobacco industry while successfully leveraging the brand’s value through our MST expansion where it remains among the fastest growing MST brands.
We have since built the brand to the #1 position in the chewing tobacco industry while successfully leveraging the brand’s value through our MST expansion where it remains among the fastest growing MST brands.
In the acquisition, we acquired a robust portfolio of cigarillo products and all related intellectual property, including Cigarillo Non-Tip (NT) HTL products and Rolled Leaf and Natural Leaf Cigarillo Products that we can leverage to re-introduce the Zig-Zag ® brand into a large and growing cigarillo market.
In the acquisition, we acquired a robust portfolio of cigarillo products and all related intellectual property, including Cigarillo Non-Tip (NT) HTL products and Rolled Leaf and Natural Leaf Cigarillo Products that we are using to re-introduce the Zig-Zag ® brand into a large and growing cigarillo market.
Expand into Adjacent Categories through Innovation and New Partnerships We continually evaluate opportunities to expand into adjacent product categories by leveraging our current portfolio and forming new partnerships. We believe there are meaningful opportunities for growth within the alternative smoking accessories and OTP markets.
Expand into Adjacent Categories through Innovation and New Partnerships We continually evaluate opportunities to expand into adjacent product categories by leveraging our current portfolio and distribution platform, as well as by forming new partnerships. We believe there are meaningful opportunities for growth within the alternative smoking accessories and OTP markets.
Our businesses generate solid cash flow which we use to re-invest in our business, finance acquisitions, increase brand support, expand our distribution infrastructure, and strengthen our capital position. We currently ship to approximately 850 distributors with an additional 300 secondary, indirect wholesalers in the U.S. that carry and sell our products.
Our businesses generate solid cash flow which we use to invest in our business, finance acquisitions, increase brand support, expand our distribution infrastructure, and strengthen our capital position. We currently ship to approximately 820 distributors with an additional 650 secondary, indirect wholesalers in the U.S. that carry and sell our products.
We spent approximately $0.6 million, $1.1 million, and $1.3 million dollars on research and development and quality control efforts for the years ended December 31, 2022, 2021, and 2020, respectively. Human Capital As of March 3, 2023, we employed 413 full-time and part-time employees. None of our employees are represented by unions.
We spent approximately $0.6 million, $0.6 million, and $1.1 million dollars on research and development and quality control efforts for the years ended December 31, 2023, 2022, and 2021, respectively. Human Capital As of December 31, 2023, we employed 373 full-time and part-time employees. None of our employees are represented by unions.
The FDA is implementing a premarket review process, referred to as the PMTA, or the Premarket Tobacco Application, process, which requires all tobacco products introduced or changed since 2007 to submit an application to the FDA and receive marketing authorization prior to entering the market.
The FDA has implemented a premarket review process, referred to as the PMTA, or the Premarket Tobacco Application process, which requires all tobacco products introduced or changed since 2007 to submit an application to the FDA and receive marketing authorization prior to entering the market.
Subsequent to our initial public offering (“IPO”) in 2016, we completed a series of acquisitions that built the foundation of our NewGen segment through (i) Vapor Beast, (ii) IVG, and (iii) Solace. Our investment in Turning Point Brands Canada in 2019 is accelerating Zig-Zag ® ’s growth through alternative channel penetration and introducing our proprietary NewGen products into Canada.
Subsequent to our initial public offering (“IPO”) in 2016, we completed a series of acquisitions that built the foundation of our CDS segment through (i) Vapor Beast, (ii) IVG, and (iii) Solace. Our investment in Turning Point Brands Canada in 2019 is accelerating Zig-Zag ® ’s growth through alternative channel penetration.
For further details, see ‘‘Item 1A Risk Factors” – We depend on a small number of key third-party suppliers and producers for our products’’. 10 Table of Contents In subsequent years, we entered into two licensing agreements, giving us the exclusive use of the Zig-Zag® brand name for e-cigarettes and related accessories in the U.S. and for paper cone products in the U.S. and Canada (collectively, the “License Agreements”).
For further details, see Item 1A “Risk Factors – We depend on a small number of key third-party suppliers and producers for our products’’. 11 Table of Contents In subsequent years, we entered into two licensing agreements, giving us the exclusive use of the Zig-Zag® brand name for e-cigarettes and related accessories in the U.S. and for paper cone products in the U.S. and Canada (collectively, the “License Agreements”).
In 2022, approximately 79% of our net sales were derived from outsourced production operations and our capital expenditures have ranged between $2.3 million and $7.7 million per year over the previous five years. The stability of our cash flows is enhanced by the resilience of our Zig-Zag Products and Stoker’s Products business segments which we believe have recession-resistant end-markets.
In 2023, approximately 75% of our net sales were derived from outsourced production operations and our capital expenditures have ranged between $4.8 million and $7.7 million per year over the previous five years. The stability of our cash flows is enhanced by the resilience of our Zig-Zag Products and Stoker’s Products business segments which we believe have recession-resistant end-markets.
We believe that we will maximize shareholder returns by implementing strategies and establishing goals to address public health concerns, mitigate environmental risks, seek and integrate a diverse range of viewpoints, and display responsible behaviors to suppliers, customers, members of the organization and most of all to our consumers.
We believe that we will maximize shareholder returns by implementing strategies and establishing goals to address public health concerns, mitigate environmental risks, seek and integrate a diverse range of viewpoints, and display responsible behaviors to suppliers, customers, members of the organization and most of all to our consumers. Our Nominating and ESG Committee manages oversight of the Company’s ESG efforts.
Stoker’s ® pioneered the large 12 oz. tub packaging format and is manufactured using a proprietary process that we believe results in a superior product. Starting in 2015, we extended the Stoker’s ® MST franchise to include traditional 1.2 oz. cans to broaden retail availability.
Stoker’s ® is a pioneer in the MST industry. 1 It was first to introduce the large 12 oz. tub packaging format and is manufactured using a proprietary process that we believe results in a superior product. Starting in 2015, we extended the Stoker’s ® MST franchise to include traditional 1.2 oz. cans to broaden retail availability.
Our CPO is also responsible for our diversity, equity, and inclusion (“DE&I”) strategies. The CEO and CPO regularly updates the board of directors and its committees on the human capital management, as well as the implementation of new initiatives.
Our CPO is also responsible for our diversity, equity, and inclusion (“DE&I”) strategies. The Chief Executive Officer (“CEO”) and CPO regularly update the board of directors and its committees on the human capital management, as well as the implementation of new initiatives.
As of the end of 2022, 21 U.S. states and the District of Columbia had legalized cannabis for adult recreational use and a majority of states now allow for comprehensive public medical cannabis programs.
As of the end of 2023, 24 U.S. states and the District of Columbia had legalized cannabis for adult recreational use and a majority of states now have comprehensive public medical cannabis programs.
Our investments in Wild Hempettes, Docklight and Old Pal give us increased exposure to the large and growing cannabinoid market. In 2021, we acquired certain assets from Unitabac, providing a platform to re-enter the large and growing cigarillo category.
Our investment in 2021 in Old Pal gives us increased exposure to the large and growing cannabinoid market. In 2021, we also acquired certain assets from Unitabac, providing a platform to re-enter the large and growing cigarillo category.
Our Zig-Zag ® and Stoker’s ® brands are each well established and date back 123 and 83 years, respectively. • Zig-Zag ® is the #1 premium and #1 overall rolling paper brand in the U.S., with significant distribution in Canada as well. Zig-Zag ® is also the #1 MYO cigar wrap brand in the U.S., as measured by MSAi.
Our Zig-Zag ® and Stoker’s ® brands are each well established and date back 144 and 83 years, respectively. • Zig-Zag ® is the #1 premium and #1 overall rolling paper brand in the U.S., with significant distribution in Canada as well.
Our acquisitions of Vapor Beast, IVG and Solace have (i) accelerated our entry into the non-traditional retail channel, where we believe a significant portion of liquid vapor products are sold; (ii) provided enhanced distribution of products; and (iii) established best-in-class distribution and B2C platforms.
Our acquisition of several ecommerce platforms have (i) accelerated our entry into the non-traditional retail channel, where we believe a significant portion of liquid nicotine and adjacent products are sold; (ii) provided enhanced distribution of our products; and (iii) established best-in-class distribution and B2C platforms.
CLIPPER® is the #1 reusable lighter in the world and the #2 overall world lighter brand but currently underrepresented in the U.S. and Canada with significant potential for growth. We believe the Stoker’s ® brand is seen as an innovator in both the moist snuff and loose-leaf chewing tobacco markets.
CLIPPER® is the #1 reusable lighter in the world and the #2 overall world lighter brand with significant opportunities to grow as it is currently underrepresented in the U.S. and Canada. The Stoker’s ® brand is seen as an innovator in both the moist snuff and loose-leaf chewing tobacco markets.
Our DE&I efforts are evidenced through programs like our Women’s Day conversations or our veterans-focused employee resource group. Our goal is to provide an injury-free workplace where every employee has a safe work environment and feels empowered to speak up.
Our DE&I efforts are evidenced through programs like our veterans and women focused business inclusion groups. Our goal is to provide an injury-free workplace where every employee has a safe work environment and feels empowered to speak up.
We acquired North American rolling papers distribution rights for Zig-Zag ® in 1997. More importantly, we own the Zig-Zag ® tobacco trademark in the U.S. which we leverage for our MYO cigar wraps product.
Zig-Zag ® is also the #1 MYO cigar wrap brand in the U.S., as measured by MSAi. 1 We acquired North American rolling papers distribution rights for Zig-Zag ® in 1997. More importantly, we own the Zig-Zag ® tobacco trademark in the U.S. which we leverage for our MYO cigar wraps product.
We market and sell products intended for adult use only, many containing nicotine. As a result, public health plays a central role in all of our product initiatives. We believe in, and work diligently to apply, harm reduction principles to all of our products, from development through distribution and marketing.
As a result, public health plays a central role in all of our product initiatives. We believe in, and work diligently to apply, harm reduction principles to all of our products, from development through distribution and marketing.
In 2022, we derived more than 90% of our net sales from sales in the U.S., with the remainder primarily from sales in Canada. 11 Table of Contents We subscribe to a sales tracking system from MSAi that records all traditional OTP product shipments (ours as well as those of our competitors) from approximately 600 wholesalers to over 250,000 traditional retail stores in the U.S.
We subscribe to a sales tracking system from MSAi that records all traditional OTP product shipments (ours as well as those of our competitors) from approximately 600 wholesalers to over 250,000 traditional retail stores in the U.S.
Retaining Talent: During the year ended December 31, 2022, our employee turnover rate was 14.9%. To retain our employees, we believe it is critical to continually focus on ensuring employees are highly engaged and feel valued.
In 2023, we had 20 internal promotions within the organization. Retaining Talent: During the year ended December 31, 2023, our employee turnover rate was 18%. To retain our employees, we believe it is critical to continually focus on ensuring employees are highly engaged and feel valued.
The components of inventories were as follows (in thousands): December 31, 2022 December 31, 2021 Raw materials and work in process $ 7,283 $ 6,936 Leaf tobacco 43,468 35,900 Finished goods - Zig-Zag Products 42,279 25,663 Finished goods - Stoker’s Products 9,667 8,959 Finished goods - NewGen Products 15,431 8,591 Other 1,787 1,558 Inventories $ 119,915 $ 87,607 Zig-Zag Products Pursuant to the Zig-Zag ® distribution agreements, we are required to purchase from RTI all cigarette papers, cigarette tubes, and cigarette injecting machines that we sell, subject to RTI fulfilling its obligations under the Zig-Zag ® distribution agreements.
The components of inventories were as follows (in thousands): December 31, 2023 December 31, 2022 Raw materials and work in process $ 5,201 $ 7,283 Leaf tobacco 34,894 43,468 Finished goods - Zig-Zag Products 41,783 42,279 Finished goods - Stoker’s Products 8,090 9,667 Finished goods - Creative Distribution Solutions 7,281 15,431 Other 1,711 1,787 Inventories $ 98,960 $ 119,915 Zig-Zag Products Pursuant to the Zig-Zag ® distribution agreements, we are required to purchase from RTI all cigarette papers, cigarette tubes, and cigarette injecting machines that we sell, subject to RTI fulfilling its obligations under the Zig-Zag ® distribution agreements.
Our status in the chew market is further strengthened by Beech-Nut ® , the #3 premium brand and #7 overall, as well as Trophy ® , Durango ® , and the five Wind River Brands. Collectively, the Company is the #2 marketer of chewing tobacco with approximately 34% market share.
Our status in the chew market is further strengthened by Beech-Nut ® , the #3 premium brand and #7 overall, as well as Trophy ® , Durango ® , and the five Wind River Brands.
As a result of our acquisitions of Vapor Beast, IVG and Solace we now also compete directly with other non-traditional distributors and retailers. 12 Table of Contents Patents, Trademarks, and Trade Secrets We have numerous registered trademarks relating to our products, including: Beech-Nut ® , Trophy ® , Havana Blossom ® , Durango ® , Stoker’s ® , Tequila Sunrise ® , Fred’s Choice ® , Old Hillside ® , Our Pride ® , Red Cap ® , Tennessee Chew ® , Big Mountain ® , Springfield Standard ® , Snake River ® , FRĒ ® , Vapor Beast ® , Vapor Shark ® , DirectVapor ® , VaporFi ® and South Beach Smoke ® .
Patents, Trademarks, and Trade Secrets We have numerous registered trademarks relating to our products, including: Beech-Nut ® , Trophy ® , Havana Blossom ® , Durango ® , Stoker’s ® , Tequila Sunrise ® , Fred’s Choice ® , Old Hillside ® , Our Pride ® , Red Cap ® , Tennessee Chew ® , Big Mountain ® , Springfield Standard ® , Snake River ® , FRĒ ® , Vapor Beast ® , Vapor Shark ® , DirectVapor ® , VaporFi ® and South Beach Smoke ® .
The committee is charged with recommending and implementing best practices in the areas of health and safety, DE&I, Talent Development and Retention, and Community Engagement. • The Governance Committee provides a platform to assure our governance practices are best in class.
The committee is charged with recommending and implementing best practices in the areas of health and safety, DE&I, Talent Development and Retention, and Community Engagement. • The Policies Committee provides a platform to review our governance practices and implement new or updated policies as our needs change.
Stoker’s ® is our focus brand in both MST and chewing tobacco. In MST, Stoker’s ® remains among the fastest growing brands and holds a 9.2% share in the stores with distribution and a 6.3% share of the total U.S. MST non-pouch market.
In MST, Stoker’s ® remains among the fastest growing brands and holds a 10.7% share in the stores with distribution and a 6.9% share of the total U.S. MST non-pouch market.
We acquired the U.S. and Canadian rolling papers distribution rights for Zig-Zag ® in 1997 and extended our product offerings including our entry into the MYO cigar wraps category in 2009. Today, Zig-Zag ® is the #1 premium and #1 overall rolling paper and MYO cigar wrap brand in the U.S., as measured by MSAi.
We acquired the U.S. and Canadian rolling papers distribution rights for Zig-Zag ® in 1997 and extended our product offerings including our entry into the MYO cigar wraps category in 2009. In 2003, we acquired the Stoker’s ® brand.
We train all employees on our business conduct policies. In addition, our governance program measures the diversity of our Board. We believe that Board diversity is critical to having a winning culture and strategy.
We train all employees on our business conduct policies. In addition, our governance program measures the diversity of our Board. We believe that Board diversity is critical to having a winning culture and strategy. We have established meaningful measures for our governance program and our targets and actions will allow us to achieve our goals in this area.
The committee is charged with recommending and implementing best practices in the areas of business ethics, political engagement, supply chain processes, and cybersecurity. The committee additionally is charged with recommending and implementing best practices in the areas of Public Health, Responsible Marketing, and Youth Access Prevention. Further information related to our ESG program can be found on our website.
The committee is charged with recommending and implementing appropriate best practices in the areas of business ethics, political engagement, supply chain processes, and cybersecurity. The committee additionally is charged with recommending and implementing best practices in the areas of public health, responsible marketing, and youth access prevention.
We aim to use our existing distribution infrastructure to expand access of CLIPPER® lighters to more retailers and consumers. 1 Brand ranking and market share percentages obtained from MSAi for the 53-week period ended December 31, 2022. 4 Table of Contents Since mid-2019, we have been repositioning the business with growth initiatives focused on new product introductions and new channel expansions that are better aligned with the growing market trends.
We aim to use our existing distribution infrastructure to expand access of CLIPPER® lighters to more retailers and consumers. Since mid-2019, we have been repositioning the business with growth initiatives focused on new product introductions and new channel expansions that are better aligned with the growing market trends.
We compete with these direct competitors for sales through wholesalers and retailers including, but not limited to, vapor stores, national chain stores, tobacco shops, and convenience stores and in the online direct to consumer environment.
Our direct competitors sell products that are substantially similar to the products that we sell through the same channels in which we sell such products. We compete with these direct competitors for sales through wholesalers and retailers including, but not limited to, smoke shops, national chain stores, tobacco shops, and convenience stores and in the online direct to consumer environment.
Our three focus segments are led by our proprietary, iconic brands: Zig-Zag ® and CLIPPER® in the Zig-Zag Products segment; Stoker’s ® along with Beech-Nut ® and Trophy ® in the Stoker’s Products segment; and our distribution platforms ( Vapor Beast ® , VaporFi ® and Direct Vapor ® ) in the NewGen Products (“NewGen”) segment.
Our segments are led by our core proprietary and iconic brands: Zig-Zag ® and CLIPPER® in the Zig-Zag Products segment and Stoker’s ® along with Beech-Nut ® and Trophy ® in the Stoker’s Products segment.
We leveraged those capabilities to build a meaningful B2B and B2C e-commerce business for Zig-Zag ® . 6 Table of Contents Extensive Distribution Network and Data Driven Sales Organization We have taken important steps to enhance our selling and distribution network and consumer marketing capabilities that allow us to grow our business while keeping our capital expenditure requirements relatively low.
Extensive Distribution Network and Data Driven Sales Organization We have taken important steps to enhance our selling and distribution network and consumer marketing capabilities that allow us to grow our business while keeping our capital expenditure requirements relatively low.
The committee is charged with recommending, implementing, and monitoring best practices in the areas of carbon emissions, waste, water, and biodiversity within our business units. • The Social Committee provides a platform to achieve the objective of being the employer of choice.
The following committees report to the ESG Executive Committee: • The Environmental Committee provides a platform to enhance and track the progress of our environmental practices within our business units. The committee is charged with recommending, implementing, and monitoring best practices in the areas of carbon emissions, waste, water, and biodiversity within our business units.
These products are primarily staples that are small ticket purchases for repeat consumers. In addition, we believe the secular shift to the value category in the Stoker’s Products segment will benefit the long-term resilience of our brands. Expertise to Succeed in Dynamic Regulatory Environments We operate in a highly regulated environment involving many different government agencies. In 2009, the U.S.
These products are primarily staples that are small ticket purchases for repeat consumers. In addition, we believe the secular shift to the value category in the Stoker’s Products segment will benefit the long-term resilience of our brands.
See “Distribution and Supply Agreements” for our discussion of the Swedish Match Manufacturing Agreement. NewGen Products We have sourcing relationships that are capable of providing liquid vapor products for other companies’ brands and for producing our own branded product lines in the category.
See “Distribution and Supply Agreements” below for our discussion of the Swedish Match Manufacturing Agreement. Creative Distribution Solutions Products We have sourcing relationships that provide liquid nicotine products and certain other products without tobacco and/or nicotine for other companies’ brands and for producing our own branded product lines.
We believe that encouraging continual development for our employees is essential for us to maintain the strength and profitability of the Company, generally, and brands, specifically. The Company posts its openings internally to allow current employees to apply. In 2022, we had 24 internal promotions within the organization.
In 2020, the Company developed Turning Point University, an online training and development tool used by management and employees. We believe that encouraging continual development for our employees is essential for us to maintain the strength and profitability of the Company, generally, and brands, specifically. The Company posts its openings internally to allow current employees to apply.
We have added brand dedicated platforms including ZigZag.com to facilitate our e-commerce brand presence as well as sell on Amazon and other e-commerce sites. Our NewGen B2B business reaches thousands of vape stores and our B2C business has over one million unique customers.
We have added brand dedicated platforms including ZigZag.com to facilitate our e-commerce brand presence as well as sell on Amazon and other e-commerce sites.
The information found on our website is not part of this or any other report we file with or furnish to the SEC. 15 Table of Contents
We make all such filings available free of charge as soon as reasonably practicable after filing. The information found on our website is not part of this or any other report we file with or furnish to the SEC. 16 Table of Contents
As a result of those initiatives, we have been successful in changing the growth profile of our Zig-Zag Products segment. The Zig-Zag Products segment accounts for the majority of our operating profit and has become our fastest growing segment. Stoker’s Products Our Stoker’s Products (“Stoker’s”) segment includes both moist snuff tobacco (“MST”) and loose-leaf chewing tobacco.
As a result of those initiatives, we have been successful in changing the growth profile of our Zig-Zag Products segment. Stoker’s Products Our Stoker’s Products (“Stoker’s”) segment includes both moist snuff tobacco (“MST”) and loose-leaf chewing tobacco in addition to recent introductions in the modern oral product category. Stoker’s ® is our focus brand in both MST and chewing tobacco.
Item 1. Business Turning Point Brands, Inc., Overview Turning Point Brands, Inc. (the “Company,” “we,” “our,” or “us”) is a leading manufacturer, marketer and distributor of branded adult consumer products.
Item 1. Business Overview Turning Point Brands, Inc. (the “Company,” “we,” “our,” or “us”) is a leading manufacturer, marketer and distributor of branded consumer products. We sell a wide range of products to adult consumers consisting of staple products with our iconic brands Zig-Zag ® and Stoker’s ® and our next generation products to fulfill evolving consumer preferences.
Our proprietary manufacturing process is conducted at our Dresden, Tennessee, plant and packaged in both our Dresden, Tennessee and Louisville, Kentucky facilities. 1 Stoker’s ® chewing tobacco has grown its market share considerably over the last several years and is presently the #1 discount and #1 overall brand in the industry, with approximately a 28% market share.
Stoker’s ® chewing tobacco has grown its market share considerably over the last several years becoming the largest brand family in the industry and is presently the #1 discount and #1 overall brand in the industry, with approximately a 31% market share.
We address these retention efforts in a number of ways from formal surveys and quarterly business updates to regular informal discussions with employees that enable us to listen to, understand and address their concerns. 13 Table of Contents Employee Benefits : We offer comprehensive benefit programs to our employees that provides them with, among other things, medical, dental, and vision healthcare; 401(k) matching contributions; paid parental leave; tuition assistance; paid holidays; and paid vacation time.
Employee Benefits : We offer comprehensive benefit programs to our employees that provides them with, among other things, medical, dental, and vision healthcare; 401(k) matching contributions; paid parental leave; tuition assistance; paid holidays; and paid vacation time.
While competitors have since introduced larger format tub packaging, the early entry and differentiation of the Stoker’s ® product have firmly established us as the market leader with over 50% of the tub market as of 2022.
While competitors have since introduced larger format tub packaging, the early entry and differentiation of the Stoker’s ® product have firmly established us as the market leader with over 55% of the tub market as of 2023. In 2015, we introduced Stoker’s ® MST in 1.2 oz. cans to further expand retail penetration, particularly in convenience stores.
Our supplier relationships allow us to increase the breadth of our product offerings and quickly enter new markets as management is able to focus on brand building and innovation.
By outsourcing the production of certain products to a select group of suppliers with whom we have strong relationships, we are able to maintain low overhead costs and minimal capital expenditures. Our supplier relationships allow us to increase the breadth of our product offerings and quickly enter new markets as management is able to focus on brand building and innovation.
In 2022, our Zig-Zag and Stoker’s Products sales and marketing efforts enabled our products to reach an estimated 217,000 retail outlets in North America and over 850 direct wholesale customers with an additional 300 secondary, indirect wholesalers in the U.S.
In 2023, our Zig-Zag and Stoker’s Products sales and marketing efforts enabled our products to reach an estimated 217,000 retail outlets in North America and over 820 direct wholesale customers with an additional 650 secondary, indirect wholesalers in the U.S. 12 Table of Contents Our Zig-Zag and Stoker’s Products sales efforts are focused on wholesale distributors and retail merchants in the independent and chain convenience store, tobacco outlet, food store, mass merchandising, drug store, and non-traditional retail channels.
We service our traditional tobacco and vapor customer bases with an experienced sales and marketing organization of approximately 180 professionals who possess in-depth knowledge of the OTP market. We extensively use data supported by leading technology, enabling our salesforce to analyze changing trends and effectively identify evolving consumer preferences at the store level and efficiently respond.
We extensively use data supported by leading technology, enabling our salesforce to analyze changing trends and effectively identify evolving consumer preferences at the store level and efficiently respond.
Diversity, Equity and Inclusion: We place a high value on DE&I. As of December 31, 2022, approximately 32% of our workforce was female and 28% of our employees in managerial roles were female. As of the same date, underrepresented minorities made up approximately 27% of our workforce, with 22% of our managerial roles held by underrepresented minorities.
Diversity, Equity and Inclusion: We place a high value on DE&I. As of December 31, 2023, approximately 33% of our workforce was female and 75% of our executive leadership roles were held by females.
Our NewGen sales efforts are focused on alternative channels and winning new stores, increasing our products share and store share and growing the B2C engine to capture a greater share of direct to consumer online sales. We have expanded, and intend to continue to expand, the sales of our products into previously underdeveloped geographic markets and retail channels.
For Zig-Zag Products, we have also developed a growing e-commerce business along with a sales team focused on serving alternative channels such as headshops and dispensaries. Our CDS sales efforts are focused on alternative channels and winning new stores, increasing our products share and store share and growing the B2C engine to capture a greater share of direct-to-consumer online sales.

… 49 more changes not shown on this page.

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

123 edited+36 added−12 removed193 unchanged
Biggest changeWe may also be required to issue common stock and conversion of our Convertible Senior Notes at the exercise or vesting of certain awards, s ee Note 13 , “Notes Payable and Long-Term Debt,” of our Notes to the Consolidated Financial Statements in Part II, Item 8 of this this Annual Report on Form 10-K for further discussion. 30 Table of Contents We cannot predict the size of future issuances of our common stock or securities convertible into common stock or the effect, if any, that future issuances and sales of shares of our common stock will have on the market price of our common stock.
Biggest changeSee Note 13, “Notes Payable and Long-Term Debt,” of our Notes to Consolidated Financial Statements in Part II, Item 8 of this Annual Report on Form 10-K for further discussion.
Any failure to track and prevent counterfeiting of our products could have a material adverse on our ability to maintain or effectively compete for the products we distribute under our brand names, which would have a material adverse effect on our business, results of operations and financial condition.
Any failure to track and prevent counterfeiting of our products could have a material adverse effect on our ability to maintain or effectively compete for the products we distribute under our brand names, which would have a material adverse effect on our business, results of operations and financial condition.
Any such delay or distribution challenges could have a material adverse impact on our business, results of operations an financial conditions. Climate change may have an adverse impact on our business and results of operations. Our operations may be impacted by adverse weather patterns or other natural disasters, such as hurricanes, earthquakes, floods, fires, tornadoes, tsunamis, typhoons and volcanic eruptions.
Any such delay or distribution challenges could have a material adverse impact on our business, results of operations and financial conditions. Climate change may have an adverse impact on our business and results of operations. Our operations may be impacted by adverse weather patterns or other natural disasters, such as hurricanes, earthquakes, floods, fires, tornadoes, tsunamis, typhoons and volcanic eruptions.
In 2022, our two most important suppliers and producers were: (i) Swedish Match (acquired in 2022 by Philip Morris International Inc.), which produces all of our loose-leaf chewing tobacco in the U.S.; and (ii) RTI, which provides us with exclusive access to the Zig-Zag ® cigarette paper and related accessories in the U.S. and Canada.
In 2023, our two most important suppliers and producers were: (i) Swedish Match (acquired in 2022 by Philip Morris International Inc.), which produces all of our loose-leaf chewing tobacco in the U.S.; and (ii) RTI, which provides us with exclusive access to the Zig-Zag ® cigarette paper and related accessories in the U.S. and Canada.
If contamination of our inventory or packaged products occurs, whether as a result of a failure in quality control by us or by one of our suppliers, we may incur significant costs in replacing the inventory and recalling products. We may be unable to meet customer demand and may lose customers who purchase alternative brands or products.
If contamination or damage of our inventory or packaged products occurs, whether as a result of a failure in quality control by us or by one of our suppliers, we may incur significant costs in replacing the inventory and recalling products. We may be unable to meet customer demand and may lose customers who purchase alternative brands or products.
Regulatory initiatives that have been proposed, introduced or enacted include: • the levying of substantial and increasing tax and duty charges; • restrictions or bans on advertising, marketing and sponsorship; • the display of larger health warnings, graphic health warnings and other labeling requirements; • restrictions on packaging design, including the use of colors and generic packaging; • restrictions or bans on the display of tobacco product packaging at the point of sale, and restrictions or bans on cigarette vending machines; • requirements regarding testing, disclosure and performance standards for tar, nicotine, carbon monoxide and other smoke constituents levels; • requirements regarding testing, disclosure and use of tobacco product ingredients; • increased restrictions on smoking in public and work places and, in some instances, in private places and outdoors; • elimination of duty-free allowances for travelers; and • encouraging litigation against tobacco companies.
Regulatory initiatives that have been proposed, introduced or enacted include: • the levying of substantial and increasing tax and duty charges; • restrictions or bans on advertising, marketing and sponsorship; • the display of larger health warnings, graphic health warnings and other labeling requirements; • restrictions on packaging design, including the use of colors and generic packaging; • restrictions or bans on the display of tobacco product packaging at the point of sale, and restrictions or bans on cigarette vending machines; • requirements regarding testing, disclosure and performance standards for tar, nicotine, carbon monoxide and other smoke constituents levels; • requirements regarding testing, disclosure and use of tobacco product ingredients; • increased restrictions on smoking in public and workplaces and, in some instances, in private places and outdoors; • elimination of duty-free allowances for travelers; and • encouraging litigation against tobacco companies.
Customs and Border Protection and the U.S. Center for Disease Control and Prevention’s Office on Smoking and Health. There have also been adverse legislative and political decisions and other unfavorable developments concerning cigarette smoking and the tobacco industry, which we believe have received widespread public attention.
Customs and Border Protection and the U.S. Center for Disease Control and Prevention’s Office on Smoking and Health. There have also been adverse legislative and political decisions and other unfavorable developments for the tobacco industry concerning cigarette smoking and the tobacco industry generally, which we believe have received widespread public attention.
Pursuant to the MSA and subsequent states’ statutes, a “cigarette manufacturer” (which is defined to also include a manufacturer of roll your won (“RYO”)/MYO cigarette tobacco) has the option of either becoming a signatory to the MSA, or, as we have elected, operating as a non-participating manufacturer (“NPM”) by funding and maintaining an escrow account, with sub-accounts on behalf of each settling state.
Pursuant to the MSA and subsequent states’ statutes, a “cigarette manufacturer” (which is defined to also include a manufacturer of roll your own (“RYO”)/MYO cigarette tobacco) has the option of either becoming a signatory to the MSA, or, as we have elected, operating as a non-participating manufacturer (“NPM”) by funding and maintaining an escrow account, with sub-accounts on behalf of each settling state.
In addition, there are currently relatively few U.S. restrictions on advertising electronic cigarettes and vaporizer products and competitors, including “big tobacco,” may have more resources than us for advertising expenses, which could have a material adverse effect on our ability to build and maintain market share, and thus have a material adverse effect on our business, results of operations and financial condition.
In addition, there are currently relatively few U.S. restrictions on advertising for electronic cigarettes and vaporizer products and our competitors, including “big tobacco,” may have more resources than us for advertising expenses in these spaces, which could have a material adverse effect on our ability to build and maintain market share, and thus have a material adverse effect on our business, results of operations and financial condition.
Further, there can be no assurance that we will be able to continue to effectively compete in the vapor and novel nicotine products marketplace. Complications with the design or implementation of our new enterprise resource planning system could adversely impact our business and operations. We rely extensively on information systems and technology to manage our business and summarize operating results.
Further, there can be no assurance that we will be able to continue to effectively compete in the novel nicotine and cannabinoid products marketplace. Complications with the design or implementation of our new enterprise resource planning system could adversely impact our business and operations. We rely extensively on information systems and technology to manage our business and summarize operating results.
The Act also amended the Federal Cigarette Labeling and Advertising Act, which governs how cigarettes can be advertised and marketed, as well as the Comprehensive Smokeless Tobacco Health Education Act, which governs how smokeless tobacco can be advertised and marketed.
The Tobacco Control Act also amended the Federal Cigarette Labeling and Advertising Act, which governs how cigarettes can be advertised and marketed, as well as the Comprehensive Smokeless Tobacco Health Education Act, which governs how smokeless tobacco can be advertised and marketed.
Our distribution to our wholesalers and retailers is dependent on the demands of their customers who are sensitive to increased sales taxes and economic conditions affecting their disposable income.
Our distribution to our wholesalers and retailers is dependent on the demands of their customers who are sensitive to increased taxes and economic conditions affecting their disposable income.
If one or more states from which we generate or anticipate generating significant sales of NewGen products bring actions to prevent us from selling our NewGen products unless we obtain certain licenses, approvals or permits, and if we are not able to obtain the necessary licenses, approvals or permits for financial reasons or otherwise and/or any such license, approval or permit is determined to be overly burdensome to us, then we may be required to cease sales and distribution of our products to those states, which could have a material adverse effect on our business, results of operations and financial condition.
If one or more states from which we generate or anticipate generating significant sales of Creative Distribution Solutions products bring actions to prevent us from selling our Creative Distribution Solutions products unless we obtain certain licenses, approvals or permits, and if we are not able to obtain the necessary licenses, approvals or permits for financial reasons or otherwise and/or any such license, approval or permit is determined to be overly burdensome to us, then we may be required to cease sales and distribution of our products to those states, which could have a material adverse effect on our business, results of operations and financial condition.
We anticipate that all levels of government, that have not already done so, are likely to seek in some way to regulate these products, but the type, timing, and impact of such regulations remains uncertain. These regulations include or could include restrictions prohibiting certain form factors, such as smokable hemp products, or age restrictions.
We believe that all levels of government, that have not already done so, are likely to seek in some way to regulate these products, but the type, timing, and impact of such regulations remains uncertain. These regulations include or could include restrictions prohibiting certain form factors, such as smokable hemp products, or age restrictions.
Postal Service to mail cigarette and smokeless tobacco products and also amended the Jenkins Act, which established cigarette sales reporting requirements for state excise tax collection, to require individuals and businesses that make interstate sales of certain cigarette or smokeless tobacco comply with state tax laws. The PACT Act was recently extended to also cover e-cigarette and related products.
Postal Service to mail cigarette and smokeless tobacco products and also amended the Jenkins Act, which established cigarette sales reporting requirements for state excise tax collection, to require individuals and businesses that make interstate sales of certain cigarette or smokeless tobacco to comply with state tax laws. The PACT Act was later extended to also cover e-cigarette and related products.
Examples of such events could include the effect of epidemics; political upheavals including violent changes in government, regional conflicts, such as the ware in Ukraine, and the reaction of the governments throughout the world to those conflicts such as the implementation of sanctions, widespread labor unrest, or breakdowns in civil order; and natural disasters, such as hurricanes, tornados, earthquakes or floods.
Examples of such events could include the effect of epidemics; political upheavals including violent changes in government, regional conflicts, such as the war in Ukraine, and the reaction of the governments throughout the world to those conflicts such as the implementation of sanctions, widespread labor unrest, or breakdowns in civil order; and natural disasters, such as hurricanes, tornados, earthquakes or floods.
As a result of recent litigation and subsequent FDA Guidance, marketing applications for newly-deemed products were required to have been submitted no later than September 9, 2020, with the exception of our “grandfathered” products (products in commerce as of February 15, 2007) which are already authorized.
As a result of recent litigation and subsequent FDA Guidance, marketing applications for newly-deemed products were required to have been submitted no later than September 9, 2020, with the exception of our “preexisting” products (products in commerce as of February 15, 2007) which are already authorized.
Our acquisition of the Vapor Beast ® brand in 2016 accelerated our entry into non-traditional retail channels while the 2018 acquisition of IVG added a top B2C platform which enhances our marketing and selling of proprietary and third-party vapor products to adult consumers.
Our acquisition of the Vapor Beast ® brand in 2016 accelerated our entry into non-traditional retail channels while the 2018 acquisition of IVG added a top B2C platform which enhanced our marketing and selling of proprietary and third-party vapor products to adult consumers.
A material decline in the economic conditions affecting consumers, which cause a reduction in disposable income for the average consumer, may change consumption patterns, and may result in a reduction in spending on OTP or a switch to cheaper products or products obtained through illicit channels.
A material decline in the economic conditions affecting consumers, which causes a reduction in disposable income for the average consumer, may change consumption patterns, and may result in a reduction in spending on OTP or a switch to cheaper products or products obtained through illicit channels.
The vast majority of our 2022 U.S. net sales are derived from the sale of products that are currently regulated by the FDA. The Tobacco Control Act grants the FDA broad regulatory authority over the design, manufacture, sale, marketing and packaging of tobacco products.
The vast majority of our 2023 U.S. net sales are derived from the sale of products that are currently regulated by the FDA. The Tobacco Control Act grants the FDA broad regulatory authority over the design, manufacture, sale, marketing and packaging of tobacco products.
These restrictions may affect the liquidity of our common stock and may result in Restricted Investors (as defined in our Certificate of Incorporation) being required to sell or redeem their shares at a loss or relinquish their voting, dividend and distribution rights; 16 Table of Contents • future sales of our common stock in the public market could reduce our stock price, and any additional capital raised by us through the sale of equity or convertible securities may dilute your ownership in us; • we may issue preferred stock whose terms could adversely affect the voting power or value of our common stock; General Risks • our business may be damaged by events outside of our or our suppliers’ control, such as the impact of epidemics (e.g., coronavirus), political upheavals, or natural disasters; • adverse impact of climate change; • our reliance on information technology; • cybersecurity and privacy breaches; • failure to manage our growth; • failure to successfully integrate our acquisitions or otherwise be unable to benefit from pursuing acquisitions; • fluctuations in our results; • exchange rate fluctuations; • adverse U.S. and global economic conditions; • departure of key management personnel or our inability to attract and retain talent; • infringement on or misappropriation of our intellectual property; • third-party claims that we infringe on their intellectual property; and • failure to meet expectations relating to environmental, social and governance factors Risks Related to Our Business and Industry Sales of tobacco products are generally expected to continue to decline.
These restrictions may affect the liquidity of our common stock and may result in Restricted Investors (as defined in our Certificate of Incorporation) being required to sell or redeem their shares at a loss or relinquish their voting, dividend and distribution rights; • future sales of our common stock in the public market could reduce our stock price, and any additional capital raised by us through the sale of equity or convertible securities may dilute your ownership in us; • we may issue preferred stock whose terms could adversely affect the voting power or value of our common stock; General Risks • our business may be damaged by events outside of our or our suppliers’ control, such as the impact of epidemics (e.g., coronavirus), political upheavals, or natural disasters; • adverse impact of climate change; • our reliance on information technology; • cybersecurity and privacy breaches, which have increased in part due to artificial intelligence; • failure to manage our growth; • failure to successfully integrate our acquisitions or otherwise be unable to benefit from pursuing acquisitions; • fluctuations in our results; • exchange rate fluctuations; • adverse U.S. and global economic conditions; • departure of key management personnel or our inability to attract and retain talent; • infringement on or misappropriation of our intellectual property; • third-party claims that we infringe on their intellectual property; and • failure to meet expectations relating to environmental, social and governance factors Risks Related to Our Business and Industry Sales of tobacco products are generally expected to continue to decline.
If we are unable to successfully design and implement the new ERP system as planned, or successfully update or integrate our systems when necessary, our financial positions, results of operations and cash flows could be negatively impacted. Risks Related to Legal, Tax and Regulatory Matters We are subject to substantial and increasing regulation.
If we are unable to successfully design and implement the new ERP system as planned, or successfully update or integrate our systems when necessary, our financial positions, results of operations and cash flows could be negatively impacted. 22 Table of Contents Risks Related to Legal, Tax and Regulatory Matters We are subject to substantial and increasing regulation.
Imposition of significant tariffs on imports into the U.S., could have a material and adverse effect on our business. We are required to purchase all our cigarette papers, cigarette tubes and cigarette injector machines under the Distribution Agreements from the supplier in France. Additionally, a substantial portion of our NewGen products are sourced from China.
Imposition of significant tariffs on imports into the U.S., could have a material adverse effect on our business. We are required to purchase all our cigarette papers, cigarette tubes and cigarette injector machines under the Distribution Agreements from the supplier in France. Additionally, a substantial portion of our Creative Distribution Solutions products are sourced from China.
The indenture governing the Senior Secured Notes and our New Revolving Credit Facility each contain, and any future indebtedness of ours would likely contain, a number of restrictive covenants that impose significant operating and financial restrictions on us, including restrictions on our ability to, among other things: • incur additional debt, disqualified stock and preferred stock; • pay dividends and make other restricted payments; • create liens; • make investments and acquisitions; • engage in sales of assets and subsidiary stock; • enter into sale-leaseback transactions; • enter into transactions with affiliates; and • transfer all or substantially all of our assets or enter into merger or consolidation transactions.
The indenture governing the Senior Secured Notes and our 2023 ABL Facility each contain, and any future indebtedness of ours would likely contain, a number of restrictive covenants that impose significant operating and financial restrictions on us, including restrictions on our ability to, among other things: • incur additional debt, disqualified stock and preferred stock; • pay dividends and make other restricted payments; • create liens; • make investments and acquisitions; • engage in sales of assets and subsidiary stock; • enter into sale-leaseback transactions; • enter into transactions with affiliates; and • transfer all or substantially all of our assets or enter into merger or consolidation transactions.
Any loss in our brand-name appeal to our existing customers as a result of the lapse or termination of our licenses could have a material adverse effect on our business, results of operations, and financial condition. 18 Table of Contents We may not be successful in maintaining the consumer brand recognition and loyalty of our products.
Any loss in our brand-name appeal to our existing customers as a result of the lapse or termination of our licenses could have a material adverse effect on our business, results of operations, and financial condition. We may not be successful in maintaining the consumer brand recognition and loyalty of our products.
Should federal, state and local governments and or other taxing authorities begin or continue to impose excise taxes similar to those levied against conventional cigarettes and tobacco products on NewGen products, it may have a material adverse effect on the demand for these products, as consumers may be unwilling to pay the increased costs, which in turn could have a material adverse effect on our business, results of operations and financial condition.
Should federal, state and local governments and or other taxing authorities begin or continue to impose excise taxes on Creative Distribution Solutions products, similar to those levied against conventional cigarettes and tobacco products, it may have a material adverse effect on the demand for these products, as consumers may be unwilling to pay the increased costs, which in turn could have a material adverse effect on our business, results of operations and financial condition.
Rapid growth in the use of, and interest in, these products is recent, and may not continue on a lasting basis. The demand and market acceptance for these products is subject to a high level of uncertainty. Therefore, we are subject to all of the business risks associated with a new enterprise in an evolving market.
Rapid growth in the use of, and interest in, these products is recent, and may not continue on a lasting basis. The long-term demand trends and market acceptance for these products is subject to a high level of uncertainty. Therefore, we are subject to all of the business risks associated with a new enterprise in an evolving market.
In such an event, we may ultimately be forced to pursue and rely on local and more fragmented sales channels, which will have a material adverse effect on our business, results of operations and financial condition. We face intense competition and may fail to compete effectively.
In such an event, we may ultimately be forced to pursue and rely on local and more fragmented sales channels, which will have a material adverse effect on our business, results of operations and financial condition. 20 Table of Contents We face intense competition and may fail to compete effectively.
Effective August 8, 2016, FDA’s regulatory authority under the Tobacco Control Act was extended to all remaining tobacco-derived products, 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; or (v) any other tobacco product “newly deemed” by the FDA.
Effective August 8, 2016, FDA’s regulatory authority under the Tobacco Control Act was extended to all remaining tobacco-derived products, including: (i) certain Creative Distribution Solutions products (such as electronic cigarettes, vaporizers and e-liquids) and their components or parts (such as tanks, coils and batteries); (ii) cigars and their components or parts (such as cigar tobacco); (iii) pipe tobacco; (iv) hookah products; or (v) any other tobacco product “newly deemed” by the FDA.
Material risks that may affect our business, operating results and financial condition include, but are not necessarily limited to, those relating to: Risks Related to Our Business and Industry • declining sales of tobacco products, and expected continuing decline of sales in the tobacco industry overall; • our dependence on a small number of third-party suppliers and producers; • the possibility that we will be unable to identify or contract with new suppliers or producers in the event of a supply or product disruption, as well as other supply chain concerns, including delays in product shipments and increases in freight cost; • the possibility that our licenses to use certain brands or trademarks will be terminated, challenged or restricted; • failure to maintain consumer brand recognition and loyalty of our customers; • our reliance on relationships with several large retailers and national chains for distribution of our products; • intense competition and our ability to compete effectively; • competition from illicit sources and the damage caused by illicit products to our brand equity; • contamination of our tobacco supply or products; • uncertainty and continued evolution of the markets for our products; • complications with the design or implementation of our new enterprise resource planning system could adversely impact our business and operations; Risks Related to Legal, Tax and Regulatory Matters • substantial and increasing U.S. regulation; • regulation or marketing denials of our products by the FDA, which has broad regulatory powers; • many of our products contain nicotine, which is considered to be a highly addictive substance; • requirement to maintain compliance with master settlement agreement escrow account; • possible significant increases in federal, state and local municipal tobacco- and vapor-related taxes; • our products are subject to developing and unpredictable regulation, such as court actions that impact obligations; • increase in state and local regulation of our products has been proposed or enacted; • increase in tax of our products could adversely affect our business; • sensitivity of end-customers to increased sales taxes and economic conditions including significant increases in the rate of inflation and other declines in purchasing power; • uncertainty surrounding FDA compliance policy; • possible increasing international control and regulation; • failure to comply with environmental, health and safety regulations; • imposition of significant tariffs on imports into the U.S.; • the scientific community’s lack of information regarding the long-term health effects of certain substances contained in some of our products; • significant product liability litigation; Risks Related to Financial Results, Finances and Capital Structure • our amount of indebtedness; • the terms of our indebtedness, which may restrict our current and future operations; • our ability to comply with required disclosure requirements; • identification of material weaknesses in our internal control over financial reporting, which, if not remediated appropriately or timely, could result in loss of investor confidence and adversely impact our stock price; Risks Related to our Common Stock • our certificate of incorporation and bylaws, as well as Delaware law and certain regulations, could discourage or prohibit acquisition bids or merger proposals, which may adversely affect the market price of our common stock; • our certificate of incorporation limits the ownership of our common stock by individuals and entities that are Restricted Investors.
Material risks that may affect our business, operating results and financial condition include, but are not necessarily limited to, those relating to: Risks Related to Our Business and Industry • declining sales of tobacco products, and expected continuing decline of sales in the tobacco industry overall; • our dependence on a small number of third-party suppliers and producers; • the possibility that we will be unable to identify or contract with new suppliers or producers in the event of a supply or product disruption, as well as other supply chain concerns, including delays in product shipments and increases in freight cost; • the possibility that our licenses to use certain brands or trademarks will be terminated, challenged or restricted; • failure to maintain consumer brand recognition and loyalty of our customers; • our reliance on relationships with several large retailers and national chains for distribution of our products; • intense competition and our ability to compete effectively; • competition from illicit sources and the damage caused by illicit products to our brand equity; • contamination of our tobacco supply or products; • uncertainty and continued evolution of the markets for our products; • complications with the design or implementation of our new enterprise resource planning system could adversely impact our business and operations; Risks Related to Legal, Tax and Regulatory Matters • substantial and increasing regulation and changes in FDA enforcement priorities; • regulation or marketing denials of our products by the FDA, which has broad regulatory powers; • many of our products contain nicotine, which is considered to be a highly addictive substance; • requirement to maintain compliance with master settlement agreement escrow account; • possible significant increases in federal, state and local municipal tobacco- and nicotine-related taxes; • our products are marketed pursuant to a policy of FDA enforcement priorities which could change, and our products could become subject to increased regulatory burdens by the FDA; • our products are subject to developing and unpredictable regulation, such as court actions that impact obligations; • increase in state and local regulation of our products has been proposed or enacted; • increase in tax of our products could adversely affect our business; • sensitivity of end-customers to increased sales taxes and economic conditions, including as a result of inflation and other declines in purchasing power; • possible increasing international control and regulation; • failure to comply with environmental, health and safety regulations; • imposition of significant tariffs on imports into the U.S.; • the scientific community’s lack of information regarding the long-term health effects of certain substances contained in some of our products; • significant product liability litigation; Risks Related to Financial Results, Finances and Capital Structure • our amount of indebtedness; • the terms of our indebtedness, which may restrict our current and future operations; • our ability to establish and maintain effective internal controls over financial reporting; • identification of material weaknesses in our internal control over financial reporting, which, if not remediated appropriately or timely, could result in loss of investor confidence and adversely impact our stock price; 17 Table of Contents Risks Related to our Common Stock • our certificate of incorporation and bylaws, as well as Delaware law and certain regulations, could discourage or prohibit acquisition bids or merger proposals, which may adversely affect the market price of our common stock; • our certificate of incorporation limits the ownership of our common stock by individuals and entities that are Restricted Investors.
As such, demand for our NewGen products may be particularly sensitive to economic conditions such as inflation, recession, high energy costs, unemployment, changes in interest rates and money supply, changes in the political environment, and other factors beyond our control, any combination of which could result in a material adverse effect on our business, results of operations and financial condition.
As such, demand for our Creative Distribution Solutions products may be particularly sensitive to economic conditions such as inflation, recession, high energy costs, unemployment, changes in interest rates and money supply, changes in the political environment, and other factors beyond our control, any combination of which could result in a material adverse effect on our business, results of operations and financial condition.
In addition, consumers may lose confidence in the affected product. 20 Table of Contents Under the terms of our contracts, we impose requirements on our major suppliers to maintain quality and comply with product specifications and requirements, and on our third-party co-manufacturer to comply with all federal, state and local laws.
In addition, consumers may lose confidence in the affected product. Under the terms of our contracts, we impose requirements on our major suppliers to maintain quality and comply with product specifications and requirements, and on our third-party co-manufacturer to comply with all federal, state and local laws.
Our tobacco products comprised approximately 50% of our total 2022 net sales and, while some of our sales volume declines have been offset by higher prices or by increased sales in other product categories, there can be no assurance that these price increases or increased sales can be sustained, especially in an environment of increased regulation, product characteristic restrictions, and taxation and changes in consumer spending habits.
Our tobacco products comprised approximately 52% of our total 2023 net sales and, while some of our sales volume declines have been offset by higher prices or by increased sales in other product categories, there can be no assurance that these price increases or increased sales can be sustained, especially in an environment of increased regulation, product characteristic restrictions, and taxation and changes in consumer spending habits.
Additionally, state attorneys general have monitored, and in some cases, have issued investigative requests and/or initiated litigation with regard to companies that sell these products related to online sales, marketing practices, and/or other aspects of the NewGen business. Increased regulation of additives in tobacco products through federal, state, or local governments may also adversely affect our products.
Additionally, state attorneys general have monitored, and in some cases, have issued investigative requests and/or initiated litigation with regard to companies that sell these products related to online sales, marketing practices, and/or other aspects of the Creative Distribution Solutions business. Increased regulation of additives in tobacco products through federal, state, or local governments may also adversely affect our products.
If we fail to satisfy the expectations of investors and other key stakeholders or our initiatives are not executed as planned, our reputation and financial results could be materially and adversely affected. 34 Table of Contents Item 1B. Unresolved Staff Comments None
If we fail to satisfy the expectations of investors and other key stakeholders or our initiatives are not executed as planned, our reputation and financial results could be materially and adversely affected. Item 1B. Unresolved Staff Comments None
Any such regulation has the potential to increase costs and have a material adverse effect on our business, results of operations, ability to compete, and financial condition. Our products are regulated by the FDA, which has broad regulatory powers.
Any such regulation has the potential to increase costs and have a material adverse effect on our business, results of operations, ability to compete, and financial condition. 23 Table of Contents Our products are regulated by the FDA, which has broad regulatory powers.
If our fluctuations obscure our ability to track important trends in our key markets, it may have a material adverse effect on our business, results of operations and financial condition. We are subject to the risks of exchange rate fluctuations.
If our fluctuations obscure our ability to track important trends in our key markets, it may have a material adverse effect on our business, results of operations and financial condition. 34 Table of Contents We are subject to the risks of exchange rate fluctuations.
Since their introduction, there has been significant uncertainty regarding whether, how and when tobacco regulations would apply to NewGen products, such as electronic cigarettes or novel nicotine products. Based on a decision in December 2010 by the U.S. Court of Appeals for the D.C.
Since their introduction, there has been significant uncertainty regarding whether, how and when tobacco regulations would apply to Creative Distribution Solutions products, such as electronic cigarettes or novel nicotine products. Based on a decision in December 2010 by the U.S. Court of Appeals for the D.C.
Factors that may affect consumer perception of our products include health trends and attention to health concerns associated with tobacco and other products we sell, price-sensitivity in the presence of competitors’ products or substitute products, and trends in favor of new NewGen products that are currently being researched and produced by participants in our industry.
Factors that may affect consumer perception of our products include health trends and attention to health concerns associated with tobacco and other products we sell, price-sensitivity in the presence of competitors’ products or substitute products, and trends in favor of new Creative Distribution Solutions products that are currently being researched and produced by participants in our industry.
Certain states and cities have already restricted the use of electronic cigarettes and vaporizer products in smoke-free venues, imposed excise taxes, or limited sales of flavored NewGen products. Additional city, state or federal regulators, municipalities, local governments and private industry may enact additional rules and regulations restricting electronic cigarettes and vaporizer products.
Certain states and cities have already restricted the use of electronic cigarettes and vaporizer products in smoke-free venues, imposed excise taxes, or limited sales of flavored Creative Distribution Solutions products. Additional city, state or federal regulators, municipalities, local governments and private industry may enact additional rules and regulations restricting electronic cigarettes and vaporizer products.
There could be a material adverse impact on our business development efforts if the FDA determines that our products are not subject to this compliance policy, or if our products become subject to increased regulatory enforcement burdens imposed by the FDA and other regulatory or legislative bodies.” for further details.
There could be a material adverse impact on our business development efforts if the FDA determines that our products are not subject to this compliance policy, or if our products become subject to increased regulatory enforcement burdens imposed by the FDA and other regulatory or legislative bodies” below for further details.
Because of these restrictions, our customers may reduce or otherwise cease using our NewGen products, which could have a material adverse effect on our business, results of operations and financial condition. Canada and some Canadian provinces have restricted or are contemplating restrictions on the sales and marketing of electronic cigarettes.
Because of these restrictions, our customers may reduce or otherwise cease using our Creative Distribution Solutions products, which could have a material adverse effect on our business, results of operations and financial condition. Canada and some Canadian provinces have restricted or are contemplating restrictions on the sales and marketing of electronic cigarettes.
Circuit (the “Sottera decision”), the FDA is permitted to regulate electronic cigarettes containing tobacco-derived nicotine as “tobacco products” under the Tobacco Control Act.
Circuit, the FDA is permitted to regulate electronic cigarettes containing tobacco-derived nicotine as “tobacco products” under the Tobacco Control Act.
These taxes apply to our online sales of NewGen products into those states and may result in reduced demand from the independent wholesalers who may not be able to absorb the increased taxes or successfully pass them onto the end-user without experiencing reduced demand.
These taxes apply to our online sales of Creative Distribution Solutions products into those states and may result in reduced demand from the independent wholesalers who may not be able to absorb the increased taxes or successfully pass them onto the end-user without experiencing reduced demand.
The deeming regulations require us to (i) register with the FDA and report product and ingredient listings; (ii) market newly deemed products only after FDA review and approval; (iii) only make direct and implied claims of reduced risk if the FDA approves after finding that scientific evidence supports the claim and that marketing the product will benefit public health as a whole; (iv) refrain from distributing free samples; (v) implement minimum age and identification restrictions to prevent sales to individuals under age 18; (vi) develop an approved warning plan and include prescribed health warnings on packaging and advertisements; and (vii) refrain from selling the products in vending machines, unless the machine is located in a facility that never admits youth.
That law subjects NTN Products to the same requirements as tobacco-derived products. 25 Table of Contents The deeming regulations require us to (i) register with the FDA and report product and ingredient listings; (ii) market newly deemed products only after FDA review and approval; (iii) only make direct and implied claims of reduced risk if the FDA approves after finding that scientific evidence supports the claim and that marketing the product will benefit public health as a whole; (iv) refrain from distributing free samples; (v) implement minimum age and identification restrictions to prevent sales to individuals under age 18; (vi) develop an approved warning plan and include prescribed health warnings on packaging and advertisements; and (vii) refrain from selling the products in vending machines, unless the machine is located in a facility that never admits youth.
Presently the federal government and many states do not tax the sale of NewGen products like they do the sale of conventional cigarettes or other tobacco products, all of which generally have high tax rates and have faced significant increases in the amount of taxes collected on their sales.
Presently the federal government and many states do not tax the sale of Creative Distribution Solutions products like they do the sale of conventional cigarettes or other tobacco products, all of which generally have high tax rates and have faced significant increases in the amount of taxes collected on their sales.
In addition to current and potential future claims related to our core tobacco products, we are 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. We are still evaluating these claims and the potential defenses to them.
In addition to current and potential future claims related to our core tobacco products, we are 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 Creative Distribution Solutions products. We are still evaluating these claims and the potential defenses to them.
As a result of their relative novelty, electronic cigarette and vaporizer product manufacturers and sellers have only recently become subject to litigation. We may see increasing litigation over NewGen products or the regulation of our products, as the regulatory regimes surrounding these products develop.
As a result of their relative novelty, electronic cigarette and vaporizer product manufacturers and sellers have only recently become subject to litigation. We may see increasing litigation over Creative Distribution Solutions products or the regulation of our products, as the regulatory regimes surrounding these products develop.
In November 2020, Bolloré sold its rights to its trademarks for the Zig-Zag® brand name in the U.S. and Canada to RTI and, in connection with the sale, assigned the Distribution Agreements and the License Agreements to RTI. RTI is an affiliate of one of our competitors.
The Distribution Agreements were initially entered into with Bolloré. In November 2020, Bolloré sold its rights to its trademarks for the Zig-Zag® brand name in the U.S. and Canada to RTI and, in connection with the sale, assigned the Distribution Agreements and the License Agreements to RTI. RTI is an affiliate of one of our competitors.
At present, we are not able to predict whether the Tobacco Control Act will impact our products to a greater degree than competitors in the industry, thus affecting our competitive position. Furthermore, in addition to the FDA, there are restrictions being proposed or in effect at the federal, state, and local level related to our products.
At present, we are not able to predict whether the Tobacco Control Act will impact our products to a greater degree than competitors in the industry, which would affect our competitive position. Furthermore, in addition to the FDA, there are restrictions being proposed or in effect at the federal, state, and local level related to our products.
Our New Revolving Credit Facility also requires us to maintain certain financial ratios under certain limited circumstances. A failure by us to comply with the covenants or financial ratios in our debt instruments could result in an event of default under the facility, which could adversely affect our ability to respond to changes in our business and manage our operations.
Our 2023 ABL Facility also requires us to maintain certain financial ratios under certain limited circumstances. A failure by us to comply with the covenants or financial ratios in our debt instruments could result in an event of default under the facility, which could adversely affect our ability to respond to changes in our business and manage our operations.
There has been increasing activity on the state and local levels with respect to scrutiny of NewGen products. State and local governmental bodies across the U.S. have indicated NewGen products may become subject to new laws and regulations at the state and local levels.
There has been increasing activity on the state and local levels with respect to scrutiny of Creative Distribution Solutions products. State and local governmental bodies across the U.S. have indicated Creative Distribution Solutions products may become subject to new laws and regulations at the state and local levels.
Although no such legislation has been proposed or enacted, future changes to the MSA, such as legislation that extends the MSA to products to which it does not currently apply or legislation that limits the ability of companies to receive unused escrow funds after 25 years, may have a material adverse effect on our business, results of operations and financial condition.
Future changes to the MSA, such as legislation that extends the MSA to products to which it does not currently apply or legislation that limits the ability of companies to receive unused escrow funds after 25 years, may have a material adverse effect on our business, results of operations and financial condition.
The extension of the PACT Act has resulted in increased costs and disruption to our NewGen business, and those costs may continue to rise if we are unable to adjust our operations to respond relative to our competitors.
The extension of the PACT Act has resulted in increased costs and disruption to our Creative Distribution Solutions business, and those costs may continue to rise if we are unable to adjust our operations to respond relative to our competitors.
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). 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.
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). Subsequently, on April 14, 2022, the FDA Center for Tobacco Products also obtained jurisdiction over non-tobacco nicotine products (“NTN Products”), including synthetic nicotine.
Accordingly, we cannot give any assurance that such actions would not have a material adverse effect on this emerging business and our NewGen strategy. Significant increases in state and local regulation of our NewGen products have been proposed or enacted and are likely to continue to be proposed or enacted in numerous jurisdictions.
Accordingly, we cannot give any assurance that such actions would not have a material adverse effect on the emerging business and our Creative Distribution Solutions strategy. Significant increases in state and local regulation of our Creative Distribution Solutions products have been proposed or enacted and are likely to continue to be proposed or enacted in numerous jurisdictions.
As of December 31, 2022, we had $250 million in aggregate principal amount of our 5.625% senior secured notes due 2026 (the “Senior Secured Notes”) outstanding and $162.5 million in aggregate principal amount outstanding under our 2.50% Convertible Senior Notes due July 15, 2024 (the “Convertible Senior Notes”).
As of December 31, 2023, we had $250.0 million in aggregate principal amount of our 5.625% senior secured notes due 2026 (the “Senior Secured Notes”) outstanding and $118.5 million in aggregate principal amount outstanding under our 2.50% Convertible Senior Notes due July 15, 2024 (the “Convertible Senior Notes”).
These tax structures may benefit one type of NewGen product over another, which may result in consumers switching between NewGen products, other traditional tobacco products, or depress overall consumption in general.
These tax structures may benefit one type of Creative Distribution Solutions product over another, which may result in consumers switching between Creative Distribution Solutions products, other traditional tobacco products, or may depress overall consumption in general.
Vapor products and other novel nicotine products, having been introduced to the market over the past fifteen years, are at a relatively early stage of development, and represent core components of a market that is evolving rapidly, highly regulated and characterized by a number of market participants.
Novel nicotine and cannabinoid products, having been introduced to the market over the past fifteen years, are at a relatively early stage of development compared to “traditional” tobacco products, and represent core components of a market that is evolving rapidly, highly regulated and characterized by a number of market participants.
Electronic cigarettes, vaporizer, e-liquid, and other NewGen products are relatively new to market and may be regarded by users as a novelty item and expendable.
Electronic cigarettes, vaporizer, e-liquid, and other Creative Distribution Solutions products are relatively new to market and may be regarded by users as a novelty item and expendable.
Some products we sell are subject to developing and unpredictable regulation. Some of the products sold through our NewGen distribution vehicles may be subject to uncertain and evolving federal, state and local regulations concerning hemp, CBD and other non-tobacco consumable products. Regulatory and related enforcement initiatives by authorities related to such products are unpredictable and impossible to anticipate.
Some of the products sold through our Creative Distribution Solutions distribution vehicles may be subject to uncertain and evolving federal, state and local regulations concerning hemp, CBD and other non-tobacco consumable products. Regulatory and related enforcement initiatives by authorities related to such products are unpredictable and impossible to anticipate.
These measures will result in additional technology, new personnel, the creation of training programs and other expenses.
Our remediation measures will result in additional technology, new personnel, the creation of training programs and other expenses.
In September 2020, we submitted applications on a timely basis for the appropriate authorizations for our products that are deemed products under the 2016 deeming regulations, not otherwise grandfathered. We believe that these products satisfy the criteria for current marketing pursuant to the FDA’s compliance policy.
In September 2020, we submitted applications on a timely basis for the appropriate authorizations for our products that are deemed products under the 2016 deeming regulations, not otherwise grandfathered. We believe that these products satisfy the criteria for current marketing pursuant to the FDA’s compliance policy. For our NTN Products, we filed several PMTAs by May 14, 2022.
Expenses related to protecting and enforcing our intellectual property rights, the loss or compromise of any of these rights or the loss of revenues as a result of infringement or misappropriation could have a material adverse effect on our business, results of operations and financial condition, and may prevent the brands we own or license from growing or maintaining market share. 33 Table of Contents Third parties may claim that we infringe or misappropriate their intellectual property rights.
Expenses related to protecting and enforcing our intellectual property rights, the loss or compromise of any of these rights or the loss of revenues as a result of infringement or misappropriation could have a material adverse effect on our business, results of operations and financial condition, and may prevent the brands we own or license from growing or maintaining market share.
The application of these types of restrictions, and of any new laws or regulations which may be adopted in the future, to these products could result in additional expenses and require us to change our advertising and labeling, and methods of marketing and distribution of our products, any of which could have a material adverse effect on our business, results of operations and financial condition.
The application of these types of restrictions, and of any new laws or regulations which may be adopted in the future, to these products could result in additional expenses and require us to change our advertising and labeling, and methods of marketing and distribution of our products, any of which could have a material adverse effect on our business, results of operations and financial condition. 26 Table of Contents Some products we sell are subject to developing and unpredictable regulation.
If we are not able to comply with the requirements of Section 404, or if we or our independent registered public accounting firm identify deficiencies in our internal control over financial reporting that are deemed to be material weaknesses: • our reputation may be adversely affected and our business and operating results could be harmed; • the market price of our stock could decline; • we could fail to meet our financial reporting obligations; and • we could be subject to litigation and/or investigations or sanctions by the SEC, the New York Stock Exchange or other regulatory authorities.
If we are not able to comply with the requirements of Section 404, or if we or our independent registered public accounting firm identify deficiencies in our internal control over financial reporting that are deemed to be material weaknesses: • our reputation may be adversely affected and our business and operating results could be harmed; • the market price of our stock could decline; • we could fail to meet our financial reporting obligations; and • we could be subject to litigation and/or investigations or sanctions by the SEC, the New York Stock Exchange or other regulatory authorities. 30 Table of Contents We identified a material weakness in our internal control over financial reporting which, if not remediated appropriately or in a timely manner, could result in loss of investor confidence and adversely impact our stock price.
Currently, there is no way of knowing whether these products are safe for their intended use. If the scientific community were to determine conclusively that use of any or all of these products poses long-term health risks, market demand for these products and their use could materially decline. Such a determination could also lead to litigation and significant regulation.
If the scientific community were to determine conclusively that use of any or all of these products poses long-term health risks, market demand for these products and their use could materially decline. Such a determination could also lead to litigation and significant regulation.
In connection with the preparation of our consolidated financial statements for the year ended December 31, 2021, during the fourth quarter of 2021, management identified a material weakness in internal control related to ineffective 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.
In connection with the preparation of our consolidated financial statements, management identified a material weakness in internal control related to ineffective information technology general controls (“ITGCs”) in the areas of user access and program change-management over certain IT systems that support the Company’s financial reporting processes.
Marketing authorizations will be necessary in order for us to continue our distribution of certain of our NewGen, cigar, and other novel nicotine products.
Marketing authorizations will be necessary in order for us to continue our distribution of certain of our Creative Distribution Solutions, cigar, and other novel nicotine products, such as our nicotine pouches.
Our certificate of incorporation authorizes our board of directors to issue preferred stock without stockholder approval. If our board of directors elects to issue preferred stock, it could be more difficult for a third party to acquire us.
If our board of directors elects to issue preferred stock, it could be more difficult for a third party to acquire us.
See “Item 1 – Business – Distribution and Supply Agreements” All of our loose-leaf tobacco products are manufactured for us by Swedish Match pursuant to a ten-year renewable agreement, which we entered into in 2008.
All of our loose-leaf tobacco products are manufactured for us by Swedish Match pursuant to a ten-year renewable agreement, which we entered into in 2008.
In recent years, however, state and local governments have taken actions to move towards imposing excise taxes on NewGen products. As of December 31, 2022, over half of the states, as well as, certain localities impose excise taxes on electronic cigarettes and/or liquid vapor.
In recent years, however, state and local governments have taken actions to move towards imposing excise taxes on Creative Distribution Solutions products. As of December 31, 2023, over half of states, as well as, certain localities have imposed excise taxes on electronic cigarettes and/or liquid nicotine.
Our substantial amount of indebtedness could limit our ability to: • obtain necessary additional financing for working capital, capital expenditures or other purposes in the future; • plan for, or react to, changes in our business and the industries in which we operate; • make future acquisitions or pursue other business opportunities; • react in an extended economic downturn; • pay dividends; and • repurchase stock.
Our substantial amount of indebtedness could limit our ability to: • obtain necessary additional financing for working capital, capital expenditures or other purposes in the future; • plan for, or react to, changes in our business and the industries in which we operate; • make future acquisitions or pursue other business opportunities; • react in an extended economic downturn; • pay dividends; and • repurchase stock. 29 Table of Contents The terms of the agreement governing our indebtedness may restrict our current and future operations, which would adversely affect our ability to respond to changes in our business and to manage our operations.
No assurance can be given that we won't discover additional material weaknesses in the future. We have incurred and we expect to continue to incur substantial accounting and auditing expense and expend significant management time in complying with the requirements of Section 404, including the requirement to have such controls tested by our independent registered public accounting firm.
We have incurred and we expect to continue to incur substantial accounting and auditing expense and expend significant management time in complying with the requirements of Section 404, including the requirement to have such controls tested by our independent registered public accounting firm.
As a result of the above provisions, a proposed transferee of our common stock that is a Restricted Investor may not receive any return on its investment in shares it purchases or owns, as the case may be, and it may sustain a loss.
The liquidity or market value of the shares of our common stock may be adversely impacted by such transfer restrictions. 31 Table of Contents As a result of the above provisions, a proposed transferee of our common stock that is a Restricted Investor may not receive any return on its investment in shares it purchases or owns, as the case may be, and it may sustain a loss.
For instance, on May 4, 2022, the FDA proposed two tobacco products standards related to combusted tobacco products: (1) a ban on menthol as a characterizing flavor of cigarettes; and (2) a ban on all characterizing flavors (including menthol) in cigars.
For instance, on May 4, 2022, the FDA proposed two tobacco products standards related to combusted tobacco products: (1) a ban on menthol as a characterizing flavor of cigarettes; and (2) a ban on all characterizing flavors (including menthol) in cigars, and in May 2023, the FDA proposed additional requirements for tobacco product manufacturing practice regarding the manufacture, design, packing and storage of tobacco products.
If the indebtedness under one of our debt instruments were to be accelerated, it could cause an event of default and/or a cross-acceleration of our obligations under our other debt instruments and there can be no assurance that our assets would be sufficient to repay this indebtedness in full, which could have a material adverse effect on our business, results of operations, and financial condition. 28 Table of Contents If we fail to establish and maintain proper and effective internal control over financial reporting, our operating results and our ability to operate our business could be harmed.
If the indebtedness under one of our debt instruments were to be accelerated, it could cause an event of default and/or a cross-acceleration of our obligations under our other debt instruments and there can be no assurance that our assets would be sufficient to repay this indebtedness in full, which could have a material adverse effect on our business, results of operations, and financial condition.
Although we combat counterfeiting of our products by engaging in certain tactics, such as requiring all sales force personnel to randomly collect our products from retailers in order to be reviewed for authenticity and using a private investigation firm to help perform surveillance of retailers we suspect are selling counterfeit products, no assurance can be given that we will be able to detect or stop sales of all counterfeit products.
If we are unable to compete against these products, our sales volumes may be negatively materially impacted until and after the implementation of stronger enforcement activity. 21 Table of Contents Although we combat counterfeiting of our products by engaging in certain tactics, such as requiring all sales force personnel to randomly collect our products from retailers in order to be reviewed for authenticity and using a private investigation firm to help perform surveillance of retailers we suspect are selling counterfeit products, no assurance can be given that we will be able to detect or stop sales of all counterfeit products.
There can be no assurance that any business acquired by us will be successfully integrated with our operations or prove to be profitable to us. We may incur future liabilities related to acquisitions.
We may be unable to identify, negotiate, and complete suitable acquisition opportunities on reasonable terms. There can be no assurance that any business acquired by us will be successfully integrated with our operations or prove to be profitable to us. We may incur future liabilities related to acquisitions.
Approximately one-half of the states tax MST on a weight-based versus ad valorem system of taxation. Additional states may consider adopting such revised tax structures as well. Tax increases, depending on their parameters, may result in consumers switching between tobacco products or depress overall tobacco consumption, which is likely to result in declines in overall sales volumes.
Additional states may consider adopting such revised tax structures as well. Tax increases, depending on their parameters, may result in consumers switching between tobacco products or may depress overall tobacco consumption, which is likely to result in declines in overall sales volumes.

… 91 more changes not shown on this page.

Item 2. Properties

Properties — owned and leased real estate

1 edited+0 added−0 removed1 unchanged
Biggest changeItem 2. Properties As of December 31, 2022, we operated manufacturing, distribution, office, and warehouse space in the U.S., all of which is leased with the exception of our Dresden, Tennessee manufacturing facility, which is owned. To provide a cost-efficient supply of products to our customers, we maintain centralized management of internal manufacturing and nationwide distribution facilities.
Biggest changeItem 2. Properties As of December 31, 2023, we operated manufacturing, distribution, office, and warehouse space in the U.S., all of which is leased with the exception of our Dresden, Tennessee manufacturing facility, which is owned. To provide a cost-efficient supply of products to our customers, we maintain centralized management of internal manufacturing and nationwide distribution facilities.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

1 edited+0 added−1 removed0 unchanged
Biggest changeItem 3. Legal Proceedings For a description of our material pending legal proceedings, see Note 18, “ Contingencies ” of our Notes to the Consolidated Financial Statements in Part II, Item 8 of this Annual Report on Form 10-K, which is incorporated herein by reference.
Biggest changeItem 3. Legal Proceedings For a description of our material pending legal proceedings, see Note 18, “Contingencies” in Notes to the Consolidated Financial Statements in Part II, Item 8 of this Annual Report on Form 10-K, which is incorporated herein by reference. Also see Item 1A “Risk Factors - We are subject to significant product liability litigation” for additional details.
Removed
Also see ‘Item 1A Risk Factors—We are subject to significant product liability litigation’ for additional details.

Item 4. Mine Safety Disclosures

Mine Safety Disclosures — required of mining issuers

6 edited+0 added−0 removed6 unchanged
Biggest changeItem 4. Mine Safety Disclosures Not applicable. Information about our Executive Officers Listed below are the executive officers of the Company. Our executive officers are appointed by, and serve at the discretion of, our board of directors.
Biggest changeItem 4. Mine Safety Disclosures Not applicable. 37 Table of Contents Information about our Executive Officers Listed below are the executive officers of the Company. Our executive officers are appointed by, and serve at the discretion of, our board of directors.
In addition, he is an Adjunct Professor at Columbia Business School. Mr. Glazek holds a Bachelor of Arts from the University of Michigan and a J.D. from Columbia Law School . Luis Reformina , age 45, was appointed Chief Financial Officer in May 2021 after serving as the Company’s Chief Business Development Officer since October 2020.
In addition, he is an Adjunct Professor at Columbia Business School. Mr. Glazek holds a Bachelor of Arts from the University of Michigan and a J.D. from Columbia Law School . Luis Reformina , age 46, was appointed Chief Financial Officer in May 2021 after serving as the Company’s Chief Business Development Officer since October 2020.
Purdy spent 7 years at Philip Morris, USA where he served in senior sales and sales management positions. Mr. Purdy holds a Bachelor of Arts from California State University, Chico. David Glazek, age 45, was appointed Executive Chair of the Board in January 2023. Mr.
Purdy spent 7 years at Philip Morris, USA where he served in senior sales and sales management positions. Mr. Purdy holds a Bachelor of Arts from California State University, Chico. David Glazek, age 46, was appointed Executive Chair of the Board in January 2023. Mr.
There are no family relationships between any of the executive officers, and there is no arrangement or understanding between any executive officer and any other person pursuant to which the executive officer was selected. Graham Purdy, age 51, has served as our President and CEO since October 2022. Prior to October 2022, Mr.
There are no family relationships between any of the executive officers, and there is no arrangement or understanding between any executive officer and any other person pursuant to which the executive officer was selected. Graham Purdy, age 52, has served as our President and CEO since October 2022. Prior to October 2022, Mr.
Cushman , age 38, has been our Senior Vice President, General Counsel, and Secretary since November 2020 and has served in various roles in our legal department since joining the Company in October 2014, most recently serving as Senior Vice President of External Affairs. Prior to joining the Company, Ms.
Cushman , age 39, has been our Senior Vice President, General Counsel, and Secretary since November 2020 and has served in various roles in our legal department since joining the Company in October 2014, most recently serving as Senior Vice President of External Affairs. Prior to joining the Company, Ms.
Cushman holds a Bachelor of Science in Business Administration, magna cum laude , in business management from the University of Tulsa and a J.D. from Washington and Lee University School of Law. 35 Table of Contents PART II
Cushman holds a Bachelor of Science in Business Administration, magna cum laude , in business management from the University of Tulsa and a J.D. from Washington and Lee University School of Law. 38 Table of Contents PART II

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

5 edited+2 added−1 removed2 unchanged
Biggest changeOn February 24, 2022, the Board increased the approved share repurchase program by $24.6 million bringing total authority at that time to $50.0 million. As of December 31, 2022, we had $27.2 million of remaining authority under the repurchase program. This share repurchase program has no expiration date and is subject to the ongoing discretion of the Board.
Biggest changeOn February 24, 2022, the Board of Directors increased the approved share repurchase program by $24.6 million bringing total authority at that time to $50.0 million. As of December 31, 2023, we had $27.2 million of remaining authority under the repurchase program.
The information presented assumes the investment of $100 in common stock and each of the indices as of the market close on December 31, 2017 and the reinvestment of all dividends on a quarterly basis. Issuer purchases of equity securities.
The information presented assumes the investment of $100 in common stock and each of the indices as of the market close on December 31, 2018 and the reinvestment of all dividends on a quarterly basis. Issuer purchases of equity securities.
On October 25, 2021, the Board increased the approved share repurchase program by $30.7 million bringing the authority at the time back to $50.0 million (including approximately $19.3 million available for repurchases under the Board’s previous authorization).
On October 25, 2021, the Board of Directors increased the approved share repurchase program by $30.7 million bringing the authority at the time back to $50.0 million (including approximately $19.3 million available for repurchases under the Board of Directors’ previous authorization).
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Market Information The principal stock exchange on which Turning Point Brands, Inc.’s common stock, par value $0.01 per share, (the “Common Stock”) is listed is the New York Stock Exchange under the symbol “TPB.” At March 3, 2023, there were 160 holders of record the Company’s Common Stock.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Market Information The principal stock exchange on which Turning Point Brands, Inc.’s common stock, par value $0.01 per share, (the “Common Stock”) is listed is the New York Stock Exchange under the symbol “TPB.” At February 21, 2024, there were 124 holders of record of the Company’s Common Stock.
The last reported sales price of the Company’s Common Stock on March 3, 2023 was $23.46. Dividends. We have a history of paying cash dividends. Future dividend amounts will be considered after reviewing financial results and capital needs and will be declared at the discretion of our Board of Directors. Performance graph.
The last reported sales price of the Company’s Common Stock on February 21, 2024 was $22.88. Dividends. We have a history of paying cash dividends. Future dividend amounts will be considered after reviewing financial results and capital needs and will be declared at the discretion of our Board of Directors. Performance graph.
Removed
Repurchases under our stock repurchase programs have been made through open market transactions, privately negotiated transactions or 10b5-1 repurchase plans. 36 Table of Contents The following table includes information regarding purchases of our common stock made by us during the quarter ended December 31, 2022 in connection with the repurchase program described above: Period Total Number of Shares Purchased Average Price Paid per Share Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs Maximum Number (or Approximate Dollar Value) of Shares that May Yet Be Purchased Under the Plans or Programs October 1 to October 31 41,104 $ 21.11 41,104 $ 28,521,628 November 1 to November 30 36,905 $ 22.02 36,905 $ 27,708,979 December 1 to December 31 23,950 $ 21.34 23,950 $ 27,197,886 Total 101,959 101,959
Added
This share repurchase program has no expiration date and is subject to the ongoing discretion of the Board of Directors. All repurchases to date under our stock repurchase programs have been made through open market transactions, but in the future, we may also purchase shares through privately negotiated transactions or 10b5-1 repurchase plans.
Added
For the quarter ended December 31, 2023, the Company made no purchases of its common stock in connection with the repurchase program described above. 39 Table of Contents

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

102 edited+70 added−37 removed47 unchanged
Biggest changeWe recorded an inventory valuation allowance of $4.5 million and $7.7 million at December 31, 2022 and 2021, respectively. 42 Table of Contents Results of Operations Summary The table and discussion set forth below relates to our consolidated results of operations for the years ended December 31 (in thousands): For the year ended December 31, 2022 2021 % Change 2020 % Change Consolidated Results of Operations Data: Net sales Zig-Zag products $ 190,403 $ 176,491 7.9 % $ 132,812 32.9 % Stoker’s products 130,826 124,280 5.3 % 115,866 7.3 % NewGen products 93,784 144,700 -35.2 % 156,433 -7.5 % Total net sales 415,013 445,471 -6.8 % 405,111 10.0 % Cost of sales 209,475 227,637 -8.0 % 215,121 5.8 % Gross profit Zig-Zag products 106,576 102,739 3.7 % 78,278 31.2 % Stoker’s products 71,254 68,084 4.7 % 61,764 10.2 % NewGen products 27,708 47,011 -41.1 % 49,948 -5.9 % Total gross profit 205,538 217,834 -5.6 % 189,990 14.7 % Selling, general, and administrative expenses 130,024 127,513 2.0 % 125,563 1.6 % Operating income 75,514 90,321 -16.4 % 64,427 40.2 % Interest expense, net 19,524 20,500 -4.8 % 13,487 52.0 % Investment loss (gain) 13,303 6,673 99.4 % (198 ) -3470.2 % Goodwill and intangible impairment loss 27,566 - NM - NM Gain on extinguishment of debt (885 ) (2,154 ) -58.9 % - NM Net periodic benefit cost, excluding service cost - - NM 989 -100.0 % Income before income taxes 16,006 65,302 -75.5 % 50,149 30.2 % Income tax expense 4,849 14,040 -65.5 % 11,957 17.4 % Consolidated net income 11,157 51,262 -78.2 % 38,192 34.2 % Net loss attributable to non-controlling interest (484 ) (797 ) -39.3 % - NM Net income attributable to Turning Point Brands, Inc. $ 11,641 $ 52,059 -77.6 % $ 38,192 36.3 % Comparison of Year Ended December 31, 2022, to Year Ended December 31, 2021 Net Sales .
Biggest changeWe recorded an inventory valuation allowance of $20.6 million and $4.5 million at December 31, 2023 and 2022, respectively. 44 Table of Contents Results of Operations Summary The table and discussion set forth below relates to our consolidated results of operations for the years ended December 31 (in thousands): For the year ended December 31, 2023 2022 % Change 2021 % Change Consolidated Results of Operations Data: Net sales Zig-Zag products $ 180,455 $ 190,403 -5.2 % $ 176,491 7.9 % Stoker’s products 144,609 130,826 10.5 % 124,280 5.3 % Total Zig-Zag and Stoker’s products 325,064 321,229 1.2 % 300,771 6.8 % Creative Distribution Solutions 80,329 93,784 -14.3 % 144,700 -35.2 % Total net sales 405,393 415,013 -2.3 % 445,471 -6.8 % Cost of sales 202,152 209,475 -3.5 % 227,637 -8.0 % Gross profit Zig-Zag products 101,055 106,576 -5.2 % 102,739 3.7 % Stoker’s products 81,887 71,254 14.9 % 68,084 4.7 % Total Zig-Zag and Stoker’s products 182,942 177,830 2.9 % 170,823 4.1 % Creative Distribution Solutions 20,299 27,708 -26.7 % 47,011 -41.1 % Total gross profit 203,241 205,538 -1.1 % 217,834 -5.6 % Selling, general, and administrative expenses 125,009 130,024 -3.9 % 127,513 2.0 % Other operating income, net (4,345 ) – NM – NM Operating income 82,577 75,514 9.4 % 90,321 -16.4 % Interest expense, net 14,645 19,524 -25.0 % 20,500 -4.8 % Investment loss 11,914 13,303 -10.4 % 6,673 99.4 % Other income (4,000 ) – NM – NM Goodwill and intangible impairment loss – 27,566 NM – NM Gain on extinguishment of debt (1,664 ) (885 ) 88.0 % (2,154 ) -58.9 % Income before income taxes 61,682 16,006 285.4 % 65,302 -75.5 % Income tax expense 23,901 4,849 392.9 % 14,040 -65.5 % Consolidated net income 37,781 11,157 238.6 % 51,262 -78.2 % Net loss attributable to non-controlling interest (681 ) (484 ) 40.7 % (797 ) -39.3 % Net income attributable to Turning Point Brands, Inc. $ 38,462 $ 11,641 230.4 % $ 52,059 -77.6 % Comparison of Year Ended December 31, 2023, to Year Ended December 31, 2022 Net Sales .
For information regarding our long-term debt obligations and cash payment obligations thereunder, please see Note 13, “Notes Payable and Long-Term Debt” of our Notes to the Consolidated Financial Statements in Part II, Item 8 of this Annual Report on Form 10-K.
For information regarding our long-term debt obligations and cash payment obligations thereunder, please see Note 13, “Notes Payable and Long-Term Debt” in Notes to the Consolidated Financial Statements in Part II, Item 8 of this Annual Report on Form 10-K.
The Company may redeem the Senior Secured Notes, in whole or in part, at any time prior to February 15, 2023, at the redemption prices (expressed as a percentage of the principal amount to be redeemed) set forth below, plus accrued and unpaid interest, if any, on the Senior Secured Notes to be redeemed to (but not including) the applicable redemption date if redeemed during the period indicated below: On or after February 15, 2023 102.813 % On or after February 15, 2024 101.406 % On or after February 15, 2025 and thereafter 100.000 % If we experience a change of control (as defined in the Senior Secured Notes Indenture), we must offer to repurchase the Senior Secured Notes at a repurchase price equal to 101% of the principal amount of the Notes to be repurchased, plus accrued and unpaid interest.
The Company may redeem the Senior Secured Notes, in whole or in part, at any time on or after February 15, 2023, at the redemption prices (expressed as a percentage of the principal amount to be redeemed) set forth below, plus accrued and unpaid interest, if any, on the Senior Secured Notes to be redeemed to (but not including) the applicable redemption date if redeemed during the period indicated below: On or after February 15, 2023 102.813% On or after February 15, 2024 101.406% On or after February 15, 2025 and thereafter 100.000% If we experience a change of control (as defined in the Senior Secured Notes Indenture), we must offer to repurchase the Senior Secured Notes at a repurchase price equal to 101% of the principal amount of the Notes to be repurchased, plus accrued and unpaid interest.
In this discussion, unless the context requires otherwise, references to “our Company” “we,” “our,” or “us” refer to Turning Point Brands, Inc., and its consolidated subsidiaries. References to “TPB” refer to Turning Point Brands, Inc., without any of its subsidiaries. We were incorporated in 2004 under the name North Atlantic Holding Company, Inc.
In this discussion, unless the context requires otherwise, references to “the Company” “we,” “our,” or “us” refer to Turning Point Brands, Inc., and its consolidated subsidiaries. References to “TPB” refer to Turning Point Brands, Inc., without any of its subsidiaries. We were incorporated in 2004 under the name North Atlantic Holding Company, Inc.
Cash Flows from Operating Activities For the year ended December 31, 2022, net cash provided by operating activities decreased to $30.3 million from $68.2 million for the year ended December 31, 2021, a decrease of $37.9 million or 56%, primarily due to changes in working capital including an increase in inventory.
For the year ended December 31, 2022, net cash provided by operating activities decreased to $30.3 million from $68.2 million for the year ended December 31, 2021, a decrease of $37.9 million or 56%, primarily due to changes in working capital including an increase in inventory.
Cash Flows from Investing Activities For the year ended December 31, 2022, net cash used in investing activities decreased to $18.8 million from $58.8 million for the year ended December 31, 2021, a decrease of $40.0 million or 68%, primarily due to the decrease in acquisitions and investments.
For the year ended December 31, 2022, net cash used in investing activities decreased to $18.8 million from $58.8 million for the year ended December 31, 2021, a decrease of $40.0 million or 68%, primarily due to the decrease in acquisitions and investments.
The Senior Secured Notes Indenture contains covenants that, among other things, limit the ability of the Company and its restricted subsidiaries to: (i) grant or incur liens; (ii) incur, assume or guarantee additional indebtedness; (iii) sell or otherwise dispose of assets, including capital stock of subsidiaries; (iv) make certain investments; (v) pay dividends, make distributions or redeem or repurchase capital stock; (vi) engage in certain transactions with affiliates; and (vii) consolidate or merge with or into, or sell substantially all of our assets to another entity.
The Senior Secured Notes Indenture contains covenants that, among other things, restrict the ability of the Company and its restricted subsidiaries to: (i) grant or incur liens; (ii) incur, assume or guarantee additional indebtedness; (iii) sell or otherwise dispose of assets, including capital stock of subsidiaries; (iv) make certain investments; (v) pay dividends, make distributions or redeem or repurchase capital stock; (vi) engage in certain transactions with affiliates; and (vii) consolidate or merge with or into, or sell substantially all of our assets to another entity.
We sell a wide range of products to adult consumers consisting of staple products with our iconic brands Zig-Zag ® and Stoker’s ® to our next generation products to satisfy evolving consumer preferences. Among other markets, we compete in the alternative smoking accessories and Other Tobacco Products (“OTP”) industries.
We sell a wide range of products to adult consumers consisting of staple products with our iconic brands Zig-Zag ® and Stoker’s ® and our next generation products to fulfill evolving consumer preferences. Among other markets, we compete in the alternative smoking accessories and Other Tobacco Products (“OTP”) industries.
In addition, we have been able to maintain a relatively stable variable cost structure for our products due, in part, to our successful procurement with regard to our tobacco products and, in part, to our existing contractual agreement for the purchase of our premium cigarette papers. 50 Table of Contents
In addition, we have been able to maintain a relatively stable variable cost structure for our products due, in part, to our successful procurement with regard to our tobacco products and, in part, to our existing contractual agreement for the purchase of our premium cigarette papers. 56 Table of Contents
For the year ended December 31, 2022, interest expense, on a net basis, decreased to $19.5 million from $20.5 million for the year ended December 31, 2020, primarily as a result of interest income earned on our cash balance in 2022 that offset the interest expense. Investment Loss .
For the year ended December 31, 2022, interest expense, on a net basis, decreased to $19.5 million from $20.5 million for the year ended December 31, 2021, primarily as a result of interest income earned on our cash balance in 2022 that offset the interest expense. Investment Loss .
Approximately 79% of our production, as measured by net sales, is outsourced to suppliers. The remaining production consists primarily of our moist snuff tobacco operations located in Dresden, Tennessee and Louisville, Kentucky.
Approximately 75% of our production, as measured by net sales, is outsourced to suppliers. The remaining production consists primarily of our moist snuff tobacco operations located in Dresden, Tennessee and Louisville, Kentucky.
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.
Obligations under the Senior Secured Notes are guaranteed by the Company’s existing and future wholly-owned domestic subsidiaries (the “Guarantors”) that guarantee any credit facility (as defined in the indenture governing the Senior Secured Notes or the “Senior Secured Notes Indenture”) or capital markets debt securities of the Company or Guarantors in excess of $15.0 million.
On November 4, 2015, we changed our name to Turning Point Brands, Inc. Many of the amounts and percentages in this discussion have been rounded for convenience of presentation. Overview We are a leading manufacturer, marketer and distributor of branded adult consumer products.
On November 4, 2015, we changed our name to Turning Point Brands, Inc. Many of the amounts and percentages in this discussion have been rounded for convenience of presentation. Overview Turning Point Brands, Inc. is a leading manufacturer, marketer and distributor of branded consumer products.
Gross profit as a percentage of net sales decreased to 29.5% of net sales for the year ended December 31, 2022, from 32.5% of net sales for the year ended December 31, 2021, primarily as a result of product mix and the highly promotional environment. Selling, General and Administrative Expenses .
Gross profit as a percentage of net sales decreased to 29.5% of net sales for the year ended December 31, 2022, from 32.5% of net sales for the year ended December 31, 2021, primarily as a result of product mix and the highly promotional environment. 47 Table of Contents Selling, General and Administrative Expenses .
See “Cautionary Note Regarding Forward-Looking Statements.” Factors that could cause actual results to differ include those risks and uncertainties discussed in “Item 1A Risk Factors.” The following discussion relates to the audited financial statements of Turning Point Brands, Inc., included elsewhere in this Annual Report on Form 10-K.
See “Cautionary Note Regarding Forward-Looking Statements.” Factors that could cause actual results to differ include those risks and uncertainties discussed in Item 1A “Risk Factors.” The following discussion relates to the audited financial statements of Turning Point Brands, Inc., included elsewhere in this Annual Report on Form 10-K.
See Note 10, “Goodwill and Other Intangible Assets” of our Notes to the Consolidated Financial Statements in Part II, Item 8 of this Annual Report on Form 10-K for further information on goodiwll and intangible assets. Gain on Extinguishment of Debt.
See Note 10, “Goodwill and Other Intangible Assets” in Notes to the Consolidated Financial Statements in Part II, Item 8 of this Annual Report on Form 10-K for further information on goodwill and intangible assets. Gain on Extinguishment of Debt.
For the year ended December 31, 2022, overall net sales decreased to $415.0 million from $445.5 million for the year ended December 31, 2021, a decrease of $30.5 million or 6.8%. The decrease in net sales was primarily driven by decreased sales volume in the NewGen segment.
For the year ended December 31, 2022, overall net sales decreased to $415.0 million from $445.5 million for the year ended December 31, 2021, a decrease of $30.5 million or 6.8%. The decrease in net sales was primarily driven by decreased sales volume in the Creative Distribution Solutions segment.
We incurred debt issuance costs attributable to the issuance of the Senior Secured Notes of $6.4 million which are amortized to interest expense using the effective interest method over the expected life of the Senior Secured Notes. 2021 Revolving Credit Facility In connection with the Offering, we also entered into a new $25 million senior secured revolving credit facility (the “ 2021 Revolving Credit Facility”) with the lenders party thereto (the “Lenders”) and Barclays Bank PLC, as administrative agent and collateral agent (in such capacity, the “Agent”).
We incurred debt issuance costs attributable to the issuance of the Senior Secured Notes of $6.4 million which are amortized to interest expense using the straight-line method over the expected life of the Senior Secured Notes. 2021 Revolving Credit Facility In connection with the Offering, we also entered into a new $25.0 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”).
We incurred debt issuance costs attributable to the Convertible Senior Notes of $5.9 million which are amortized to the interest expense using the effective interest method over the expected life of the Convertible Senior Notes. In connection with the Convertible Senior Notes offering, we entered into privately negotiated capped call transactions with certain financial institutions.
The 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.
For the year ended December 31, 2022, Goodwill and intangible impairment loss was $27.6 million primarily as a result of fully impairing the goodwill balance of the NewGen reporting unit. For the year ended December 31, 2021 there was no Goodwill and intangible impairment loss.
For the year ended December 31, 2022, Goodwill and intangible impairment loss was $27.6 million primarily as a result of fully impairing the goodwill balance of the Creative Distribution Solutions reporting unit. For the year ended December 31, 2021 there was no Goodwill and intangible impairment loss.
Our businesses generate solid cash flow which we use to re-invest in our business, finance acquisitions, increase brand support, expand our distribution infrastructure, and strengthen our capital position. We currently ship to approximately 850 distributors with an additional 300 secondary, indirect wholesalers in the U.S. that carry and sell our products.
Our businesses generate solid cash flows which we use to invest in our business, finance acquisitions, increase brand support, expand our distribution infrastructure, and strengthen our capital position. We currently ship to approximately 820 distributors with an additional 650 secondary, indirect wholesalers in the U.S. that carry and sell our products.
Distribution Agreements For a description of our material distribution agreements, see “Item 1 Business—Distribution and Supply Agreements.” Master Settlement Agreement On November 23, 1998, the major U.S. cigarette manufacturers, Philip Morris USA, Inc., Brown & Williamson Tobacco Corporation, Lorillard Tobacco Company and R.J.
Distribution Agreements For a description of our material distribution agreements, see Item 1 “Business - Distribution and Supply Agreements.” 53 Table of Contents Master Settlement Agreement On November 23, 1998, the major U.S. cigarette manufacturers, Philip Morris USA, Inc., Brown & Williamson Tobacco Corporation, Lorillard Tobacco Company and R.J.
As of December 31, 2022, our products were available in approximately 197,000 U.S. retail locations which, with the addition of retail stores in Canada, brings our total North American retail presence to an estimated 217,000 points of distribution. Our sales team targets widespread distribution to all traditional retail channels, including convenience stores, and we have a growing e-commerce business.
Our products are currently available in approximately 197,000 U.S. retail locations which, with the addition of retail stores in Canada, brings our total North American retail presence to an estimated 217,000 points of distribution. Our sales team targets widespread distribution to all traditional retail channels, including convenience stores. We also have a growing e-commerce business.
For the year ended December 31, 2022, net sales in the Zig-Zag Products segment increased to $190.4 million from $176.5 million for the year ended December 31, 2021, an increase of $13.9 million or 7.9%. For the year ended December 31, 2022, Zig-Zag Products volumes increased 6.4%, and price/mix increased 1.5%.
For the year ended December 31, 2022, net sales in the Zig-Zag Products segment increased to $190.4 million from $176.5 million for the year ended December 31, 2021, an increase of $13.9 million or 7.9%.
Due to the factors described above, net income attributable to Turning Point Brands, Inc. for the years ended December 31, 2022 and 2021, was $11.6 million and $52.1 million, respectively. Comparison of Year Ended December 31, 2021, to Year Ended December 31, 2020 Net Sales .
Net Income Attributable to Turning Point Brands, Inc . Due to the factors described above, net income attributable to Turning Point Brands, Inc. for the years ended December 31, 2023 and 2022, was $38.5 million and $11.6 million, respectively. Comparison of Year Ended December 31, 2022, to Year Ended December 31, 2021 Net Sales .
Key Factors Affecting Our Results of Operations We consider the following to be the key factors affecting our results of operations: • Our ability to further penetrate markets with our existing products; • Our ability to introduce new products and product lines that complement our core business; • Decreasing interest in tobacco products among consumers; • Price sensitivity in our end-markets; • Marketing and promotional initiatives, which cause variability in our results; • General economic conditions, including consumer access to disposable income and other conditions affecting purchasing power such as inflation; • Labor and production costs; • Cost and increasing regulation of promotional and advertising activities; • Cost of complying with regulation, including FDA regulations; • Increasing and unpredictable regulation of NewGen products; • Counterfeit and other illegal products in our end-markets; • Currency fluctuations; • Our ability to identify attractive acquisition opportunities; and • Our ability to successfully integrate acquisitions.
Key Factors Affecting Our Results of Operations We consider the following to be the key factors affecting our results of operations: • Our ability to further penetrate markets with our existing products; • Our ability to introduce new products and product lines that complement our core business; • Decreasing interest in some tobacco products among consumers; • Price sensitivity in our end-markets; • Marketing and promotional initiatives, which cause variability in our results; • Cost related to increasing regulation of promotional and advertising activities; • General economic conditions, including consumer access to disposable income and other conditions affecting purchasing power such as inflation and the interest rate environment; • Labor and production costs; • Cost of complying with regulation, including the “deeming regulation”; • Increasing and unpredictable regulation and/or marketing order decisions impacting Creative Distribution Solutions products; • Counterfeit and other illegal products in our end-markets; • Currency fluctuations; • Our ability to identify attractive acquisition opportunities; and • Our ability to successfully integrate acquisitions.
In our NewGen Products segment, we (i) market and distribute vapor products and certain other products without tobacco and/or nicotine; (ii) distribute a wide assortment of products to non-traditional retail via Vapor Beast; and (iii) market and distribute a wide assortment of products to individual consumers via the VaporFi and Direct Vapor B2C online platforms. 38 Table of Contents Our portfolio of brands includes some of the most widely recognized names in the alternative smoking accessories and OTP industries, such as Zig-Zag ® , Stoker’s ® , Vapor Beast ® and VaporFi ® .
In our Creative Distribution Solutions segment, we (i) market and distribute liquid nicotine products and certain other products without tobacco and/or nicotine; (ii) distribute a wide assortment of products to non-traditional retail via VaporBeast; and (iii) market and distribute a wide assortment of products to individual consumers via the VaporFi B2C online platform. 41 Table of Contents Our portfolio of brands includes some of the most widely recognized names in the alternative smoking accessories and OTP industries, such as Zig-Zag ® , Stoker’s ® , Vapor Beast ® and VaporFi ® .
We are scheduled to begin receiving payments as our escrow deposits are released from escrow beginning in 2024. 49 Table of Contents The following table summarizes our escrow deposit balances (in thousands) by sales year as of: Sales Deposits as of December 31, Year 2022 2021 1999 $ 211 $ 211 2000 1,017 1,017 2001 1,673 1,673 2002 2,271 2,271 2003 4,249 4,249 2004 3,714 3,714 2005 4,553 4,553 2006 3,847 3,847 2007 4,167 4,167 2008 3,364 3,364 2009 1,619 1,619 2010 406 406 2011 193 193 2012 199 199 2013 173 173 2014 143 143 2015 101 101 2016 91 91 2017 82 82 Total $ 32,073 $ 32,073 Off-Balance Sheet Arrangements During 2022 , we executed various foreign exchange contracts for the purchase of €28.9 million and sale of €28.9 million with maturity dates ranging from August 2022 to June 2023.
The following table summarizes our escrow deposit balances (in thousands) by sales year as of: Sales Deposits as of December 31, Year 2023 2022 1999 $ 211 $ 211 2000 1,017 1,017 2001 1,673 1,673 2002 2,271 2,271 2003 4,249 4,249 2004 3,714 3,714 2005 4,553 4,553 2006 3,847 3,847 2007 4,167 4,167 2008 3,364 3,364 2009 1,619 1,619 2010 406 406 2011 193 193 2012 199 199 2013 173 173 2014 143 143 2015 101 101 2016 91 91 2017 82 82 Total $ 32,073 $ 32,073 Off-Balance Sheet Arrangements During 2023, we executed various foreign exchange contracts for the purchase of €20.1 million and sale of €15.2 million with maturity dates ranging from July 2023 to September 2024.
At December 31, 2022, we had foreign currency contracts for the purchase of €18.5 million and sale of €18.5 million. The fair value of the foreign currency contracts were based on quoted market prices and resulted in an asset of $1.2 million included in Other current assets and liability of $0.0 million included in Accrued liabilities at December 31, 2022.
The fair value of the foreign currency contracts were based on quoted market prices and resulted in an asset of $1.2 million included in Other current assets and liability of $0.0 million included in Accrued liabilities at December 31, 2022.
See Note 11, “ Other Assets ” of our Notes to the Consolidated Financial Statements in Part II, Item 8 of the Annual Report on Form 10-K for additional information on the investment impairments. Goodwill and Intangible Impairment Loss.
See Note 11, “Other Assets” in Notes to the Consolidated Financial Statements in Part II, Item 8 of this Annual Report on Form 10-K for additional information on the investment impairments. Goodwill and Intangible Impairment Loss.
Selling, general, and administrative expenses for the year ended December 31, 2020, included $2.6 million of stock options, restricted stock and incentives expense, $3.1 million of transaction expenses, $0.5 million of restructuring expenses and $14.4 million of expense related to PMTA.
Selling, general, and administrative expenses for the year ended December 31, 2023, included $6.6 million of stock options, restricted stock and incentives expense, $0.2 million of transaction expenses, $0.4 million of restructuring expenses, $0.6 million of ERP/CRM expenses and $2.1 million of expense related to PMTA.
We had unrestricted cash on hand of $106.4 million and $128.3 million as of December 31, 2022 and 2021, respectively. We had restricted assets of $31.0 million and $34.7 million as of December 31, 2022 and 2021, respectively. Restricted assets consist of escrow deposits under the MSA and insurance deposits.
We had unrestricted cash on hand of $117.9 million and $106.4 million as of December 31, 2023 and 2022, respectively. We had restricted assets of $31.7 million and $31.0 million as of December 31, 2023 and 2022, respectively. Restricted assets consist of escrow deposits under the MSA and insurance deposits.
The three levels of the fair value hierarchy under GAAP are described below: • Level 1 – Inputs to the valuation methodology are unadjusted quoted prices for identical assets or liabilities in active markets at the measurement date. • Level 2 – Inputs to the valuation methodology include: quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in inactive markets; inputs other than quoted prices that are observable for the asset or liability; and inputs that are derived principally from or corroborated by observable market data by correlation or other means. • Level 3 – Unobservable inputs that reflect management’s best estimate of what market participants would use in pricing the asset or liability at the measurement date. 41 Table of Contents Income Taxes We account for income taxes under ASC 740.
GAAP are described below: • Level 1 – Inputs to the valuation methodology are unadjusted quoted prices for identical assets or liabilities in active markets at the measurement date. • Level 2 – Inputs to the valuation methodology include: quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in inactive markets; inputs other than quoted prices that are observable for the asset or liability; and inputs that are derived principally from or corroborated by observable market data by correlation or other means. • Level 3 – Unobservable inputs that reflect management’s best estimate of what market participants would use in pricing the asset or liability at the measurement date.
The OTP industry, which consists of non-cigarette tobacco products, exhibited mid-single-digit consumer unit annualized growth over the three year period ending 2022 as reported by Management Science Associates, Inc. (“MSAi”), a third-party analytics and information company.
The OTP industry, which consists of non-cigarette tobacco products, exhibited low-single-digit consumer unit annualized growth over the four-year period ended 2023 as reported by Management Science Associates, Inc., a third-party analytics and information company.
The capped call transactions have a strike price of $53.64 per and a cap price of $82.86 per, and are exercisable when, and if, the Convertible Senior Notes are converted. We paid $20.53 million for these capped calls and charged that amount to additional paid-in capital.
The capped call transactions have a strike price of $53.45 per share and a cap price of $82.86 per share, and are exercisable when, and if, the Convertible Senior Notes are converted. The Company paid $20.53 million for these capped calls at the time they were entered into and charged that amount to additional paid-in capital.
The decrease in gross profit as a percentage of net sales is a result of product mix including the launch of our CLIPPER lighters business which operates at lower gross profit margins.
The decrease in gross profit as a percentage of net sales is a result of product mix including the launch of our CLIPPER lighter products which have lower gross profit margins.
The following table sets forth the market share and category rank of our core products and demonstrates their industry positions within measured distribution channels: Brand Product TPB Segment Market Share (1) Category Rank (1) Zig-Zag ® Cigarette Papers Zig-Zag Products 35.0% #1 premium, #1 overall Zig-Zag ® MYO Cigar Wraps Zig-Zag Products 59.2% #1 overall Stoker’s ® Moist Snuff Stoker’s Products 6.3% #3 discount, #6 overall Stoker’s ® Chewing Tobacco Stoker’s Products 28.0% #1 discount, #1 overall (1) Market share and category rank data for all products are derived from MSAi data 2022 53 weeks ended 12/31/22.
The following table sets forth the market share and category rank of our core products and demonstrates their industry positions within measured distribution channels: Brand Product TPB Segment Market Share (1) Category Rank (1) Zig-Zag ® Cigarette Papers Zig-Zag Products 34.4% #1 premium, #1 overall Zig-Zag ® MYO Cigar Wraps Zig-Zag Products 55.1% #1 overall Stoker’s ® Moist Snuff Stoker’s Products 6.9% #3 discount, #6 overall Stoker’s ® Chewing Tobacco Stoker’s Products 30.5% #1 discount, #1 overall (1) Market share and category rank data for all products are derived from MSAi data 2023 52 weeks ended 12/30/23.
The increase in gross profit as a percentage of net sales was driven by product mix. For the year ended December 31, 2022, gross profit in the Zig-Zag Products segment increased to $106.6 million from $102.7 million for the year ended December 31, 2021, an increase of $3.8 million or 3.7%.
For the year ended December 31, 2022, gross profit in the Zig-Zag Products segment increased to $106.6 million from $102.7 million for the year ended December 31, 2021, an increase of $3.8 million or 3.7%.
Due to the factors described above, net income attributable to Turning Point Brands, Inc. for the years ended December 31, 2021 and 2020, was $52.1 million and $38.2 million, respectively. EBITDA and Adjusted EBITDA To supplement our financial information presented in accordance with U.S. GAAP, we use non-U.S. GAAP financial measures including EBITDA and Adjusted EBITDA.
Due to the factors described above, net income attributable to Turning Point Brands, Inc. for the years ended December 31, 2022 and 2021, was $11.6 million and $52.1 million, respectively. EBITDA and Adjusted EBITDA To supplement our financial information presented in accordance with generally accepted accounting principles in the United States, or U.S. GAAP, we use non-U.S.
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.
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.
For the year ended December 31, 2021, net cash provided by financing activities was $57.1 million compared to net cash used in financing activities $29.3 million for the year ended December 31, 2020, an increase of $86.4 million or 295%, primarily due to the net proceeds from the Senior Secured Notes partially offset by the repayment in full of the 2018 First Lien Term Loan in the first quarter of 2021 with the proceeds of the Senior Secured Notes and the repurchase of $38.7 million of common stock during 2021. 47 Table of Contents Long-Term Debt Notes payable and long-term debt consisted of the following at December 31, 2022 and 2021, in order of preference: December 31, 2022 December 31, 2021 Senior Secured Notes $ 250,000 $ 250,000 Convertible Senior Notes 162,500 172,500 Gross notes payable and long-term debt 412,500 422,500 Less deferred finance charges (5,743 ) (8,328 ) Net notes payable and long-term debt $ 406,757 $ 414,172 Senior Secured Notes On February 11, 2021, we closed a private offering (the “Offering”) of $250 million aggregate principal amount of our 5.625% senior secured notes due 2026 (the “Senior Secured Notes”).
For the year ended December 31, 2022, net cash used in financing activities was $43.3 million compared to net cash provided by financing activities of $57.1 million for the year ended December 31, 2021, a decrease of $100.4 million or 176%, primarily due to the net proceeds from the Senior Secured Notes partially offset by the repayment in full of the 2018 First Lien Term Loan in the first quarter of 2021. 50 Table of Contents Long-Term Debt Notes payable and long-term debt consisted of the following at December 31, 2023 and 2022, in order of preference: December 31, 2023 December 31, 2022 Senior Secured Notes $ 250,000 $ 250,000 Convertible Senior Notes 118,541 162,500 Gross notes payable and long-term debt 368,541 412,500 Less deferred finance charges (3,183 ) (5,743 ) Less current maturities (58,294 ) – Notes payable and long-term debt $ 307,064 $ 406,757 Senior Secured Notes On February 11, 2021, we closed a private offering (the “Offering”) of $250 million aggregate principal amount of our 5.625% senior secured notes due 2026 (the “Senior Secured Notes”).
(in thousands) Years ended December 31, 2022 2021 2020 Consolidated net income $ 11,641 $ 52,059 $ 38,192 Add: Interest expense, net 19,524 20,500 13,487 Gain on extinguishment of debt (885 ) (2,154 ) - Income tax expense 4,849 14,040 11,957 Depreciation expense 3,388 3,105 3,237 Amortization expense 1,911 1,907 1,781 EBITDA $ 40,428 $ 89,457 $ 68,654 Components of Adjusted EBITDA Corporate and vapor restructuring (a) 3,444 1,026 517 ERP/CRM (b) 1,962 - - Stock options, restricted stock, and incentives expense (c) 5,273 7,557 2,555 Transactional expenses and strategic initiatives (d) 801 1,267 3,087 FDA PMTA (e) 4,554 1,668 14,435 Non-cash asset impairment (f) 41,136 7,100 - Other (g) - - 988 Adjusted EBITDA $ 97,598 $ 108,075 $ 90,236 (a) Represents costs associated with corporate and vape restructuring, including severance.
(in thousands) Years ended December 31, 2023 2022 2021 Consolidated net income $ 38,462 $ 11,641 $ 52,059 Add: Interest expense, net 14,645 19,524 20,500 Gain on extinguishment of debt (1,664 ) (885 ) (2,154 ) Income tax expense 23,901 4,849 14,040 Depreciation expense 3,121 3,388 3,105 Amortization expense 3,237 1,911 1,907 EBITDA $ 81,702 $ 40,428 $ 89,457 Components of Adjusted EBITDA Corporate and CDS restructuring (a) 389 3,444 1,026 ERP/CRM (b) 552 1,962 – Stock options, restricted stock, and incentives expense (c) 6,561 5,273 7,557 Transactional expenses and strategic initiatives (d) 165 801 1,267 FDA PMTA (e) 2,098 4,554 1,668 Non-cash asset impairment (f) 12,177 41,136 7,100 FET Refund (g) (4,345 ) – – Legal settlement (h) (4,000 ) – – Adjusted EBITDA $ 95,299 $ 97,598 $ 108,075 (a) Represents costs associated with corporate and CDS restructuring, including severance.
For the year ended December 31, 2022, net sales in the NewGen products segment decreased to $93.8 million from $144.7 million for the year ended December 31, 2021, a decrease of $50.9 million or 35.2%. The decrease in net sales was primarily the result of declines in the vape distribution businesses as a result of the changing regulatory environment.
For the year ended December 31, 2022, net sales in the Creative Distribution Solutions segment decreased to $93.8 million from $144.7 million for the year ended December 31, 2021, a decrease of $50.9 million or 35.2%.
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 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.
Selling, general, and administrative expenses for the year ended December 31, 2021, included $7.6 million of stock options, restricted stock and incentives expense, $1.3 million of transaction expenses, $0.9 million of restructuring expenses and $2.6 million of expense related to PMTA.
Selling, general, and administrative expenses for the year ended December 31, 2022, included $5.3 million of stock options, restricted stock and incentives expense, $0.8 million of transaction expenses, $3.4 million of restructuring expenses, $2.0 million of ERP/CRM expenses and $4.6 million of expense related to PMTA. Other Operating Income, net.
For the year ended December 31, 2021, net sales in the Stoker’s Products segment increased to $124.3 million from $115.9 million for the year ended December 31, 2020, an increase of $8.4 million or 7.3%. For the year ended December 31, 2022, Stoker’s Products volume increased 1.3% and price/mix increased 6.0%.
For the year ended December 31, 2023, net sales in the Stoker’s Products segment increased to $144.6 million from $130.8 million for the year ended December 31, 2022, an increase of $13.8 million or 10.5%. For the year ended December 31, 2023, Stoker’s Products volume increased 4.2% and price/mix increased 6.3%.
Our three focus segments are led by our iconic, proprietary brands: Zig-Zag ® and CLIPPER® in the Zig-Zag Products segment; Stoker’s ® along with Beech-Nut ® and Trophy ® in the Stoker’s Products segment; and our distribution platforms ( Vapor Beast ® , VaporFi ® and Direct Vapor ® ) in the NewGen segment.
Our segments are led by our core, proprietary brands: Zig-Zag ® and CLIPPER ® in the Zig-Zag Products segment and Stoker’s ® along with Beech-Nut ® and Trophy ® in the Stoker’s Products segment.
The decrease in gross profit as a percentage of net sales is primarily a result of product mix shift including mix of discount loose-leaf products. 43 Table of Contents For the year ended December 31, 2022, gross profit in the NewGen segment decreased to $27.7 million from $47.0 million for the year ended December 31, 2021, a decrease of $19.3 million or 41.1%.
Gross profit as a percentage of net sales decreased to 54.5% of net sales for the year ended December 31, 2022, from 54.8% of net sales for the year ended December 31, 2021. The decrease in gross profit as a percentage of net sales is primarily a result of product mix shift including mix of discount loose-leaf products.
For the year ended December 31, 2021, gross profit in the Stoker’s Products segment increased to $68.1 million from $61.8 million for the year ended December 31, 2020, an increase of $6.3 million or 10.2%.
For the year ended December 31, 2023, gross profit in the Stoker’s Products segment increased to $81.9 million from $71.3 million for the year ended December 31, 2022, an increase of $10.6 million or 14.9%.
These covenants are subject to a number of limitations and exceptions set forth in the Indenture. The Indenture provides for customary events of default.
These covenants are subject to a number of limitations and exceptions set forth in the Senior Secured Notes Indenture. The Senior Secured Notes Indenture provides for customary events of default. We were in compliance with all covenants as of December 31, 2023.
In preparing these consolidated financial statements, we have made our best estimates and judgments of the amounts and disclosures included in the consolidated financial statements.
We base these estimates on our historical experience and other assumptions we believe are appropriate under the circumstances. In preparing these consolidated financial statements, we have made our best estimates and judgments of the amounts and disclosures included in the consolidated financial statements.
The Senior Secured Notes bear interest at a rate of 5.625% and will mature on February 15, 2026. Interest on the Senior Secured Notes is payable semi-annually in arrears on February 15 and August 15 of each year, commencing on August 15, 2021.
The Senior Secured Notes bear interest at a rate of 5.625% and will mature on February 15, 2026.
We believe that EBITDA and Adjusted EBITDA are appropriate measures of operating performance because they eliminate the impact of expenses that do not relate to operating performance. In addition, our debt instruments contain covenants which use Adjusted EBITDA calculations. We define “EBITDA” as net income before interest expense, loss on extinguishment of debt, provision for income taxes, depreciation, and amortization.
In addition, our debt instruments contain covenants which use Adjusted EBITDA calculations. We define “EBITDA” as net income before interest expense, gain (loss) on extinguishment of debt, provision for income taxes, depreciation, and amortization.
Gross profit as a percentage of net sales increased to 54.8% of net sales for the year ended December 31, 2021, from 53.3% of net sales for the year ended December 31, 2020. The increase in gross profit as a percentage of net sales is primarily a result of pricing and strong incremental margin contribution of MST.
Gross profit as a percentage of net sales increased to 56.6% of net sales for the year ended December 31, 2023, from 54.5% of net sales for the year ended December 31, 2022, primarily as a result of the strong incremental margin contribution of MST.
For information regarding our lease obligations and cash payment obligations thereunder, please see Note 16, “Lease Commitments” in the Notes to the Consolidated Financial Statements in Part II, Item 8 of this Annual Report on Form 10-K.
For information regarding our lease obligations and cash payment obligations thereunder, please see Note 16, “Lease Commitments” in the Notes to the Consolidated Financial Statements in Part II, Item 8 of this Annual Report on Form 10-K. 54 Table of Contents In 2023, we made no repurchases of our common stock and have $27.2 million of authorization remaining under our Board approved repurchase program.
Convertible Senior Notes In July 2019 we closed an offering of $172.5 million in aggregate principal amount of our Convertible Senior Notes. The Convertible Senior Notes bear interest at a rate of 2.50% per year, payable semiannually in arrears on January 15 and July 15 of each year, beginning on January 15, 2020.
The Convertible Senior Notes 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.
Gross Profit. For the year ended December 31, 2022, overall gross profit decreased to $205.5 million from $217.8 million for the year ended December 31, 2021, a decrease of $12.3 million or 5.6%. Gross profit as a percentage of net sales increased to 49.5% for the year ended December 31, 2022, from 48.9% for the year ended December 31, 2021.
The decrease in net sales was primarily the result of volume declines as a result of the changing regulatory environment relating to liquid nicotine products. Gross Profit. For the year ended December 31, 2022, overall gross profit decreased to $205.5 million from $217.8 million for the year ended December 31, 2021, a decrease of $12.3 million or 5.6%.
We used the proceeds from the Offering (i) to repay all obligations under and terminate the 2018 First Lien Credit Facility, (ii) to pay related fees, costs, and expenses and (iii) for general corporate purposes.
Interest on the Senior Secured Notes is payable semi-annually in arrears on February 15 and August 15 of each year, commencing on August 15, 2021.We used the proceeds from the Offering (i) to repay all obligations under and terminate the 2018 First Lien Credit Facility, (ii) to pay related fees, costs, and expenses and (iii) for general corporate purposes.
We define “Adjusted EBITDA” as net income before interest expense, loss (gain) on extinguishment of debt, income tax expense, depreciation, amortization, other non-cash items, and other items we do not consider ordinary course in our evaluation of ongoing operating performance. Non-U.S. GAAP measures should not be considered a substitute for, or superior to, financial measures calculated in accordance with U.S.
We define “Adjusted EBITDA” as net income before interest expense, gain (loss) on extinguishment of debt, provision for income taxes, depreciation, amortization, other non-cash items, and other items we do not consider the ordinary course in our evaluation of ongoing operating performance noted in the reconciliation below. 48 Table of Contents Non-U.S.
As of (in thousands) December 31, 2022 December 31, 2021 Current assets $ 151,251 $ 120,849 Current liabilities 41,376 40,336 Working capital $ 109,875 $ 80,513 During the year ended December 31, 2022 and 2021, we invested $7.7 million and $6.2 million, respectively, in capital expenditures.
As of (in thousands) December 31, 2023 December 31, 2022 Current assets $ 149,730 $ 151,251 Current liabilities 100,336 41,376 Working capital $ 49,394 $ 109,875 For the years ended December 31, 2023 and 2022, we invested $5.7 million and $7.7 million, respectively, in capital expenditures.
GAAP. Adjusted EBITDA excludes significant expenses required to be recorded in our financial statements by U.S. GAAP and is subject to inherent limitations. Other companies in our industry may calculate this non-U.S. GAAP measure differently than we do or may not calculate it at all, limiting its usefulness as a comparative measure.
GAAP measures should not be considered a substitute for, or superior to, financial measures calculated in accordance with U.S. GAAP. Adjusted EBITDA excludes significant expenses required to be recorded in our financial statements by U.S. GAAP and is subject to inherent limitations. Other companies in our industry may calculate this non-U.S.
Products We operate in three segments: Zig-Zag Products, Stoker’s Products and NewGen Products. In our Zig-Zag Products segment, we principally market and distribute (i) rolling papers, tubes, and related products; (ii) finished cigars and make-your-own (“MYO”) cigar wraps and (iii) lighters and other accessories.
In our Zig-Zag Products segment, we principally market and distribute (i) rolling papers, tubes, and related products; (ii) finished cigars and make-your-own (“MYO”) cigar wraps and (iii) lighters and other accessories. In addition, we have a majority stake in Turning Point Brands Canada which markets and distributes cannabis accessories and tobacco products throughout Canada.
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).
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 U.S.
In addition, we have a majority stake in Turning Point Brands Canada which markets and distributes cannabis accessories and tobacco products throughout Canada. In our Stoker’s Products segment, we (i) manufacture and market moist snuff tobacco (“MST”) and (ii) contract for and market loose-leaf chewing tobacco products.
In our Stoker’s Products segment, we (i) manufacture and market moist snuff tobacco (“MST”) and (ii) contract for and market loose leaf chewing tobacco products.
Gross profit as a percentage of net sales increased to 32.5% of net sales for the year ended December 31, 2021, from 31.9% of net sales for the year ended December 31, 2020, primarily as a result of increased margins in the vape distribution businesses. Selling, General and Administrative Expenses .
Gross profit as a percentage of net sales decreased to 25.3% of net sales for the year ended December 31, 2023, from 29.5% of net sales for the year ended December 31, 2022, primarily as a result of channel mix. Selling, General and Administrative Expenses .
We had no interest rate swap contracts at December 31, 2022. During 2021, we did not execute any foreign exchange contracts. Future Cash Requirements The Company’s primary future cash requirements will be to fund operations, lease payments, debt service and capital expenditures. The Company’s contractual obligations primarily include long-term debt and lease obligations.
Future Cash Requirements The Company’s primary future cash requirements will be to fund operations, lease payments, debt service and capital expenditures. The Company’s contractual obligations primarily include long-term debt and lease obligations.
For the year ended December 31, 2021, net cash used in investing activities decreased to $58.8 million from $64.8 million for the year ended December 31, 2020, a decrease of $6.0 million or 9.0%, primarily due to the decrease in acquisitions partially offset by the purchase of investments in our MSA escrow account which reflects the change in restricted cash.
Cash Flows from Investing Activities For the year ended December 31, 2023, net cash used in investing activities decreased to $5.9 million from $18.8 million for the year ended December 31, 2022, a decrease of $12.9 million or 69%, primarily due to a decrease in purchases of investments in our MSA escrow account.
For the year ended December 31, 2021, gross profit in the NewGen segment decreased to $47.0 million from $49.9 million for the year ended December 31, 2020, a decrease of $2.9 million or 5.9%. NewGen gross profit includes $1.1 million of tariff expenses in 2022 compared to $10.1 million in 2020.
For the year ended December 31, 2022, gross profit in the Creative Distribution Solutions segment decreased to $27.7 million from $47.0 million for the year ended December 31, 2021, a decrease of $19.3 million or 41.1%.
We believe Adjusted EBITDA provides useful information to management and investors regarding certain financial and business trends relating to our financial condition and results of operations. Adjusted EBITDA is used by management to compare our performance to that of prior periods for trend analyses and planning purposes and is presented to our Board of Directors.
GAAP financial measures including EBITDA and Adjusted EBITDA. We believe Adjusted EBITDA provides useful information to management and investors regarding certain financial and business trends relating to our financial condition and results of operations.
Gross profit as a percentage of net sales decreased to 54.5% of net sales for the year ended December 31, 2022, from 54.8% of net sales for the year ended December 31, 2020.
Gross profit as a percentage of net sales increased to 49.5% for the year ended December 31, 2022, from 48.9% for the year ended December 31, 2021. The increase in gross profit as a percentage of net sales was driven by product mix.
For the year ended December 31, 2021, selling, general and administrative expenses increased to $127.5 million from $125.6 million for the year ended December 31, 2020, an increase of $2.0 million or 1.6%.
For the year ended December 31, 2023, selling, general and administrative expenses decreased to $125.0 million from $130.0 million for the year ended December 31, 2022, a decrease of $5.0 million or 3.9%.
In the fourth quarter 2022, our wholly owned subsidiary purchased $10.0 million in aggregate principal of our Convertible Senior Notes on the open market for $9.0 million that remain in the Treasury and may be redeemed suspect to compliance with applicable securities law. The transaction resulted in a $0.9 million gain on extinguishment of debt.
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.
(f) Represents impairment of goodwill, intangible and investment assets. (g) Represents non-cash pension expense (income) and foreign exchange hedging. 46 Table of Contents Liquidity and Capital Resources Our principal uses for cash are working capital, debt service, and capital expenditures.
(f) Represents impairment of goodwill, intangible and investment assets. (g) Represents a federal excise tax refund included in other operating income, net. (h) Represents other income from litigation settlement. Liquidity and Capital Resources Our principal uses for cash are working capital, debt service, and capital expenditures.
Under the market approach, we select peer sets based on close competitors and review the revenue and EBITDA multiples to determine the fair value. See Note 10, “ Goodwill and Other Intangible Assets ” ” of our Notes to the Consolidated Financial Statements in Part II, Item 8 of the Annual Report on Form 10-K for further information on goodwill.
Impairment exists when carrying value exceeds fair value. The Company’s fair value methodology is primarily based on the relief from royalty approach. See Note 10, “Goodwill and Other Intangible Assets” in Notes to Consolidated Financial Statements in Part II, Item 8 of this Annual Report on Form 10-K for further information on intangible assets.
For the year ended December 31, 2021, net cash provided by operating activities increased to $68.2 million from $43.7 million for the year ended December 31, 2020, an increase of $24.5 million or 56%, primarily due to higher net income due to increased sales combined with the timing of changes in working capital.
Cash Flows from Operating Activities For the year ended December 31, 2023, net cash provided by operating activities increased to $66.9 million from $30.3 million for the year ended December 31, 2022, an increase of $36.6 million or 121%, primarily due to the timing of changes in inventory and other working capital.
We incurred debt issuance costs attributable to the issuance of the 2021 Revolving Credit Facility of $0.5 million which are amortized to interest expense using the effective interest method over the expected life of the 2021 Revolving Credit Facility. The 2021 Revolving Credit Agreement provides for customary events of default.
The Company incurred debt issuance costs attributable to the 2023 ABL Facility of $2.6 million which are amortized to interest expense using the straight-line method over the expected life of the 2023 ABL Facility.
This law took effect April 14, 2022 and requires NTN Products to comply with applicable requirements under the Federal Food, Drug, and Cosmetic Act, such as not selling to persons under 21 years of age, not marketing these products as modified risk tobacco products without FDA’s authorization, and not distributing free samples.
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.
Net loss attributable to non-controlling interest was $0.8 million for the year ended December 31, 2021, compared to $0.0 million for the year ended December 31, 2020. Net Income Attributable to Turning Point Brands, Inc .
The Company’s income tax expense was $4.8 million, or 30.3% of income before income taxes, for the year ended December 31, 2022. Net Loss Attributable to Non-Controlling Interest. Net loss attributable to non-controlling interest was $0.7 million for the year ended December 31, 2023, compared to $0.5 million for the year ended December 31, 2022.
For the year ended December 31, 2021, overall net sales increased to $445.5 million from $405.1 million for the year ended December 31, 2020, an increase of $40.4 million or 10.0%. The increase in net sales was primarily driven by increased sales volume in the Zig-Zag Products segment.
For the year ended December 31, 2023, overall net sales decreased to $405.4 million from $415.0 million for the year ended December 31, 2022, a decrease of $9.6 million or 2.3%. The decrease in net sales was primarily driven by decreased sales volume in the Creative Distribution Solutions segment.
We believe our cash flows from operations and borrowing availability under our New Revolving Credit Facility are adequate to satisfy our operating cash requirements for the foreseeable future. Our working capital, which we define as current assets less cash and current liabilities, increased $29.4 million to $109.9 million at December 31, 2022, compared with $80.5 million at December 31, 2021.
With our strong cash balance, free cash flow generation and borrowing availability under the 2023 ABL Facility, we expect to have ample liquidity to address the remaining balance of the Convertible Senior Notes maturing in 2024, and to satisfy our operating cash requirements for the foreseeable future. 49 Table of Contents Our working capital, which we define as current assets less cash and current liabilities, decreased to $49.4 million at December 31, 2023, compared with $109.9 million at December 31, 2022.

… 129 more changes not shown on this page.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

6 edited+2 added−0 removed2 unchanged
Biggest changeSince the Senior Secured Notes and Convertible Senior Notes bear interest at a fixed rate, we have no financial statement risk associated with changes in interest rates. However, the fair value of the Senior Secured Notes and Convertible Senior Notes change when the market price of our stock fluctuates, or interest rates change. 51 Table of Contents
Biggest changeWe carry the Senior Secured Notes and Convertible Senior Notes at face value. Since the Senior Secured Notes and Convertible Senior Notes bear interest at a fixed rate, we have no financial statement risk associated with changes in interest rates.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk Foreign Currency Sensitivity Our inventory purchases from RTI are denominated in euros. Accordingly, we have exposure to potentially adverse movements in the euro exchange rate. In addition, RTI provides a contractual hedge against catastrophic currency fluctuation in our agreement.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk Foreign Currency Sensitivity Our inventory purchases from RTI and Clipper are denominated in euros. Accordingly, we have exposure to potentially adverse movements in the euro exchange rate. In addition, RTI provides a contractual hedge against catastrophic currency fluctuation in our agreement.
In 2022, 2021, and 2020, we had no customers that accounted for more than 10% of our net sales. We perform periodic credit evaluations of our customers and generally do not require collateral on trade receivables. Historically, we have not experienced significant losses due to customer credit issues.
In 2023, 2022, and 2021, we had no customers that accounted for more than 10% of our net sales. We perform periodic credit evaluations of our customers and generally do not require collateral on trade receivables. Historically, we have not experienced significant losses due to customer credit issues.
A 10% change in the euro to U.S. dollars exchange rate would change pre-tax income by approximately $2.1 million per year. Credit Risk At December 31, 2022 and 2021, we had bank deposits, including MSA escrows, in excess of federally insured limits of approximately $105.2 million and $137.2 million, respectively.
A 10% change in the euro to U.S. dollars exchange rate would change pre-tax income by approximately $2.6 million per year. Credit Risk At December 31, 2023 and 2022, we had bank deposits, including MSA escrows, in excess of federally insured limits of approximately $119.0 million and $105.2 million, respectively.
During 2022 , we executed various foreign exchange contracts for the purchase of €28.9 million and sale of €28.9 million with maturity dates ranging from August 2022 to June 2023. At December 31, 2022, we had foreign currency contracts for the purchase of €18.5 million and sale of €18.5 million.
During 2023, we executed various foreign exchange contracts for the purchase of €20.1 million and sale of €15.2 million with maturity dates ranging from July 2023 to September 2024. At December 31, 2023, we had foreign currency contracts outstanding for the purchase of €15.2 million and sale of €15.2 million.
Interest Rate Sensitivity In February 2021, we issued the Senior Secured Notes in an aggregate principal amount of $250 million. In July 2019, we issued Convertible Senior Notes in an aggregate principal amount of $172.5 million. We carry the Senior Secured Notes and Convertible Senior Notes at face value.
Interest Rate Sensitivity In February 2021, we issued the Senior Secured Notes in an aggregate principal amount of $250 million. In July 2019, we issued Convertible Senior Notes in an aggregate principal amount of $172.5 million, which after total repurchases of $54 million, results in an outstanding principal balance of $118.5 million.
Added
However, the fair value of the Senior Secured Notes and Convertible Senior Notes change when the market price of our stock fluctuates, or interest rates change. In November 2023, the ABL Borrower entered into the 2023 ABL Facility to refinance a portion of the Convertible Senior Notes at or before maturity.
Added
The 2023 ABL Facility is subject to a floating rate. Accordingly, if we make borrowings under the 2023 ABL Facility, we will be exposed to fluctuations in interest rates. 57 Table of Contents

Other TPB 10-K year-over-year comparisons