# Turning Point Brands (TPB) 10-Q SEC filing - Q3 FY2024

- Filed: Nov 7, 2024
- Fiscal quarter: Q3 FY2024
- Calendar quarter: Q3 2024
- Accession: 0001140361-24-045671
- OpenCapital page: https://www.opencapital.sh/filings/0001140361-24-045671
- Markdown URL: https://www.opencapital.sh/filings/0001140361-24-045671.md
- Official SEC filing index: https://www.sec.gov/Archives/edgar/data/1290677/0001140361-24-045671-index.htm

## Filing documents

- [10-Q (ef20034527_10q.htm)](https://www.sec.gov/Archives/edgar/data/1290677/000114036124045671/ef20034527_10q.htm)
- [EXHIBIT 31.1 (ef20034527_ex31-1.htm)](https://www.sec.gov/Archives/edgar/data/1290677/000114036124045671/ef20034527_ex31-1.htm)
- [EXHIBIT 31.2 (ef20034527_ex31-2.htm)](https://www.sec.gov/Archives/edgar/data/1290677/000114036124045671/ef20034527_ex31-2.htm)
- [EXHIBIT 31.3 (ef20034527_ex31-3.htm)](https://www.sec.gov/Archives/edgar/data/1290677/000114036124045671/ef20034527_ex31-3.htm)
- [EXHIBIT 32.1 (ef20034527_ex32-1.htm)](https://www.sec.gov/Archives/edgar/data/1290677/000114036124045671/ef20034527_ex32-1.htm)

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## 10-Q

SEC source: [ef20034527_10q.htm](https://www.sec.gov/Archives/edgar/data/1290677/000114036124045671/ef20034527_10q.htm)

---UNITED STATES  

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549  

FORM 10-Q

(Mark One)

☑ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2024

or

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _______________ to _______________

Commission file number: 001-37763

TURNING POINT BRANDS, INC.

(Exact name of registrant as specified in its charter)

Delaware 20-0709285

(State or other jurisdiction of Incorporation or organization) (I.R.S. Employer Identification No.)

| 5201 Interchange Way, Louisville, KY | 40229 |
| --- | --- |
| (Address of principal executive offices) | (Zip Code) |

(502) 778-4421

(Registrant’s telephone number, including area code)

Former name, former address and former fiscal year, if changed since last report: not applicable

Securities registered pursuant to Section 12(b) of the Act:

Title of each class Trading Symbol(s) Name of each exchange on which registered

Common Stock, $0.01 par value TPB New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes  ☑ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405
 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes  ☑ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company,
 or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☐ Accelerated filer ☑

Non-accelerated filer ☐ Smaller reporting company ☐

Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any
 new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑

At November 1, 2024, there were 17,697,007
 shares outstanding of the registrant’s voting common stock, par value $0.01 per share.

---

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TURNING POINT BRANDS, INC.

TABLE OF CONTENTS

- Page No.
- PART I—FINANCIAL INFORMATION
- ITEM 1 Financial Statements (Unaudited)
- [Consolidated Balance Sheets as of September 30, 2024, and December 31, 2023](#BalanceSheets) 5
- [Consolidated Statements of Income for the three and nine months ended September 30, 2024 and 2023](#Income) 6
- [Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2024 and 2023](#ComprehensiveIncome) 7
- [Consolidated Statements of Cash Flows for the nine months ended September 30, 2024 and 2023](#CashFlows) 8
- [Consolidated Statements of Changes in Stockholders’ Equity for the three months ended September 30, 2024 and 2023](#StockholdersEquity) 9
- [Consolidated Statements of Changes in Stockholders’ Equity for the nine months ended September 30, 2024 and 2023](#Equity) 10
- [Notes to Consolidated Financial Statements](#Notes) 11
- ITEM 2 [Management’s Discussion and Analysis of Financial Condition and Results of Operations](#Managements) 33
- ITEM 3 [Quantitative and Qualitative Disclosures about Market Risk](#QuantitativeandQualitativ) 46
- ITEM 4 [Controls and Procedures](#ControlsandProcedures) 46
- PART II—OTHER INFORMATION
- ITEM 1 [Legal Proceedings](#Item1.) 47
- ITEM 1A [Risk Factors](#Item1A) 47
- ITEM 2 [Unregistered Sales of Equity Securities and Use of Proceeds](#Item2.) 47
- ITEM 3 [Defaults Upon Senior Securities](#Item3.) 47
- ITEM 4 [Mine Safety Disclosures](#Item4.) 47
- ITEM 5 [Other Information](#Item5.) 47
- ITEM 6 [Exhibits](#Item6.) 48
- [Signatures](#Signatures) 49

---

Cautionary Note Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q for the quarter ended September 30, 2024 (this “Quarterly Report”), contains forward-looking statements within
 the meaning of the federal securities laws. Forward-looking statements may generally be identified by the use of words such as “anticipate,” “believe,” “expect,” “intend,” “plan,” and “will” or, in each case, their negative, or other variations or
 comparable terminology. These forward-looking statements include all matters that are not historical facts. By their nature, forward-looking statements involve risks and uncertainties because they relate to events, and depend on circumstances, that
 may or may not occur in the future. As a result, actual events may differ materially from those expressed in, or suggested by, the forward-looking statements. Any forward-looking statement made by Turning Point Brands, Inc. (“TPB”), in this
 Quarterly Report on Form 10-Q speaks only as of the date hereof. New risks and uncertainties come up from time to time, and it is impossible for TPB to predict these events or how they may affect it. TPB has no obligation, and does not intend, to
 update any forward-looking statements after the date hereof, except as required by federal securities laws. Factors that could cause these differences include, but are not limited to:

- 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;
- substantial and increasing regulation and changes in U.S. Food and Drug Administration (“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;
- uncertainty related to the PMTA application process;
- our products are subject to developing and unpredictable regulation, such as court actions that impact obligations;
- increases in state and local regulation of our products have been proposed and/or enacted;
- increases in the taxation 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 or increases to 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;
- 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;
- 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. 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;
- our business may be damaged by events outside of 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.

---

PART I—FINANCIAL INFORMATION

## Item 1. Financial Statements

**Turning Point Brands, Inc.**

### Consolidated Balance Sheets

_(dollars in thousands except share data)_

| ASSETS | (unaudited) / September 30, 2024 | December 31, 2023 |
| --- | --- | --- |
| Current assets: |  |  |
| Cash | $33,557 | $117,886 |
| Accounts receivable, net of allowances of $59 in 2024 and $78 in 2023 | 10,582 | 9,989 |
| Inventories, net | 106,416 | 98,960 |
| Other current assets | 34,197 | 40,781 |
| Total current assets | 184,752 | 267,616 |
| Property, plant, and equipment, net | 26,082 | 25,300 |
| Deferred income taxes | 919 | 1,468 |
| Right of use assets | 10,788 | 11,480 |
| Deferred financing costs, net | 1,984 | 2,450 |
| Goodwill | 136,413 | 136,250 |
| Other intangible assets, net | 78,621 | 80,942 |
| Master Settlement Agreement (MSA) escrow deposits | 29,482 | 28,684 |
| Other assets | 18,968 | 15,166 |
| Total assets | $488,009 | $569,356 |
| LIABILITIES AND STOCKHOLDERS’ EQUITY |  |  |
| Current liabilities: |  |  |
| Accounts payable | $13,436 | $8,407 |
| Accrued liabilities | 30,475 | 33,635 |
| Current portion of long-term debt | – | 58,294 |
| Total current liabilities | 43,911 | 100,336 |
| Notes payable and long-term debt | 248,282 | 307,064 |
| Lease liabilities | 9,057 | 9,950 |
| Total liabilities | $301,250 | $417,350 |
| Commitments and contingencies |  |  |
| Stockholders’ equity: |  |  |
| Preferred stock, $0.01 par value; authorized shares 40,000,000; issued and outstanding shares -0- | – | – |
| Common stock, voting, $0.01 par value; authorized shares, 190,000,000; 20,167,180 issued shares and 17,716,847 outstanding shares at September 30, 2024, and 19,922,137 issued shares and 17,605,677 outstanding shares at December 31, 2023 | 202 | 199 |
| Common stock, nonvoting, $0.01 par value; authorized shares, 10,000,000; issued and outstanding shares -0- | – | – |
| Additional paid-in capital | 123,833 | 119,075 |
| Cost of repurchased common stock (2,450,333 shares at September 30, 2024 and 2,316,460 shares December 31, 2023) | (82,263) | (78,093) |
| Accumulated other comprehensive loss | (2,112) | (2,648) |
| Accumulated earnings | 146,014 | 112,443 |
| Non-controlling interest | 1,085 | 1,030 |
| Total stockholders’ equity | 186,759 | 152,006 |
| Total liabilities and stockholders’ equity | $488,009 | $569,356 |

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

5

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**Turning Point Brands, Inc.**

### Consolidated Statements of Income

_(dollars in thousands except share and per share data) · (unaudited)_

| Line item | Three Months Ended September 30, 2024 | Three Months Ended September 30, 2023 | Nine Months Ended September 30, 2024 | Nine Months Ended September 30, 2023 |
| --- | --- | --- | --- | --- |
| Net sales (1) | $105,617 | $101,722 | $311,187 | $308,273 |
| Cost of sales | 51,918 | 50,100 | 151,735 | 155,556 |
| Gross profit | 53,699 | 51,622 | 159,452 | 152,717 |
| Selling, general, and administrative expenses | 33,169 | 31,385 | 98,568 | 94,093 |
| Other operating income | – | – | (1,674) | – |
| Operating income | 20,530 | 20,237 | 62,558 | 58,624 |
| Interest expense, net | 3,773 | 3,984 | 10,243 | 12,013 |
| Investment (gain) loss | (203) | 2,101 | 2,117 | 10,980 |
| Gain on extinguishment of debt | – | (481) | – | (1,858) |
| Income before income taxes | 16,960 | 14,633 | 50,198 | 37,489 |
| Income tax expense | 4,601 | 3,767 | 12,743 | 9,573 |
| Consolidated net income | 12,359 | 10,866 | 37,455 | 27,916 |
| Net (loss) income attributable to non-controlling interest | (16) | 35 | 66 | (437) |
| Net income attributable to Turning Point Brands, Inc. | $12,375 | $10,831 | $37,389 | $28,353 |
| Basic income per common share: |  |  |  |  |
| Net income attributable to Turning Point Brands, Inc. | $0.70 | $0.62 | $2.11 | $1.61 |
| Diluted income per common share: |  |  |  |  |
| Net income attributable to Turning Point Brands, Inc. | $0.68 | $0.58 | $1.99 | $1.51 |
| Weighted average common shares outstanding: |  |  |  |  |
| Basic | 17,722,855 | 17,595,980 | 17,678,257 | 17,569,493 |
| Diluted | 18,448,720 | 20,098,450 | 19,600,650 | 20,415,786 |

(1) Net sales include excise taxes billed to customers of $0.8 million and $1.0 million for  the three months ended September 30, 2024 and 2023, respectively. Net sales include excise taxes billed to customer of $2.3 million  and $3.4 million for the nine months ended September 30, 2024 and 2023, respectively.

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

6

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**Turning Point Brands, Inc.**

### Consolidated Statements of Comprehensive Income

_(dollars in thousands) · (unaudited)_

| Line item | Three Months Ended September 30, 2024 | Three Months Ended September 30, 2023 |
| --- | --- | --- |
| Consolidated net income | $12,359 | $10,866 |
| Other comprehensive income (loss), net of tax |  |  |
| Unrealized gain (loss) on MSA investments, net of tax of $245 in 2024 and $168 in 2023 | 829 | (527) |
| Foreign currency translation, net of tax of $0 in 2024 and 2023 | 18 | 270 |
| Unrealized gain (loss) on derivative instruments, net of tax of $27 in 2024 and $102 in 2023 | 92 | (320) |
| Unrealized gain on investments, net of tax of $0 in 2024 | 27 | – |
|  | 966 | (577) |
| Consolidated comprehensive income | 13,325 | 10,289 |
| Comprehensive (loss) income attributable to non-controlling interest | (16) | 35 |
| Comprehensive income attributable to Turning Point Brands, Inc. | $13,341 | $10,254 |

| Line item | Nine Months Ended September 30, 2024 | Nine Months Ended September 30, 2023 |
| --- | --- | --- |
| Consolidated net income | $37,455 | $27,916 |
| Other comprehensive income (loss), net of tax |  |  |
| Unrealized gain (loss) on MSA investments, net of tax of $226 in 2024 and $108 in 2023 | 572 | (339) |
| Foreign currency translation, net of tax of $0 in 2024 and 2023 | 5 | 23 |
| Unrealized loss on derivative instruments, net of tax of $26 in 2024 and $361 in 2023 | (79) | (1,136) |
| Unrealized gain on investments, net of tax of $0 in 2024 | 27 | – |
|  | 525 | (1,452) |
| Consolidated comprehensive income | 37,980 | 26,464 |
| Comprehensive income (loss) attributable to non-controlling interest | 66 | (437) |
| Comprehensive income attributable to Turning Point Brands, Inc. | $37,914 | $26,901 |

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

7

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**Turning Point Brands, Inc.**

### Consolidated Statements of Cash Flows

_(dollars in thousands) · (unaudited)_

| Line item | Nine Months Ended September 30, 2024 | Nine Months Ended September 30, 2023 |
| --- | --- | --- |
| Cash flows from operating activities: |  |  |
| Consolidated net income | $37,455 | $27,916 |
| Adjustments to reconcile net income to net cash provided by operating activities: |  |  |
| Gain on extinguishment of debt | – | (1,858) |
| Loss on sale of property, plant, and equipment | 38 | 34 |
| Gain on MSA investments | (14) | – |
| Depreciation and other amortization expense | 3,393 | 2,388 |
| Amortization of other intangible assets | 2,337 | 2,315 |
| Amortization of deferred financing costs | 1,947 | 1,795 |
| Deferred income tax expense | 349 | 694 |
| Stock compensation expense | 5,720 | 4,660 |
| Noncash lease income | (317) | (48) |
| Loss on investments | 2,722 | 11,162 |
| Changes in operating assets and liabilities: |  |  |
| Accounts receivable | (412) | (2,112) |
| Inventories | (7,281) | 3,036 |
| Other current assets | 3,075 | (1,384) |
| Other assets | (1,031) | (5,110) |
| Accounts payable | 5,019 | 2,865 |
| Accrued liabilities and other | (3,679) | (6,348) |
| Net cash provided by operating activities | $49,321 | $40,005 |
| Cash flows from investing activities: |  |  |
| Capital expenditures | $(3,516) | $(4,206) |
| Purchases of investments | (8,865) | (200) |
| Proceeds from sale of investments | 4,520 | – |
| Purchases of non-marketable equity investments | (1,250) | – |
| Proceeds on the sale of property, plant and equipment | 3 | 3 |
| MSA escrow deposits, net | 44 | – |
| Net cash used in investing activities | $(9,064) | $(4,403) |
| Cash flows from financing activities: |  |  |
| Convertible Senior Notes repurchased | – | $(41,794) |
| Payment of Convertible Senior Notes | (118,541) | – |
| Proceeds from call options | – | 114 |
| Payment of financing costs | (133) | – |
| Payment of dividends | (3,644) | (3,354) |
| Exercise of options | 1,341 | 419 |
| Redemption of options | (328) | (346) |
| Redemption of restricted stock units | (840) | – |
| Redemption of performance based restricted stock units | (1,212) | (995) |
| Common stock repurchased | (4,170) | – |
| Net cash used in financing activities | $(127,527) | $(45,956) |
| Net decrease in cash | $(87,270) | $(10,354) |
| Effect of foreign currency translation on cash | $(29) | $22 |
| Cash, beginning of period: |  |  |
| Unrestricted | $117,886 | $106,403 |
| Restricted | 4,929 | 4,929 |
| Total cash at beginning of period | $122,815 | $111,332 |
| Cash, end of period: |  |  |
| Unrestricted | $33,557 | $96,071 |
| Restricted | 1,959 | 4,929 |
| Total cash at end of period | $35,516 | $101,000 |
| Supplemental schedule of noncash investing activities: |  |  |
| Accrued capital expenditures | $23 | $66 |
| Accrued consideration for acquisition of investments | – | $250 |
| Supplemental schedule of noncash financing activities: |  |  |
| Dividends declared not paid | $1,278 | $1,187 |

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

8

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Turning Point Brands, Inc.

Consolidated Statements of Changes in Stockholders’ Equity

For the Three Months Ended September 30, 2024 and 2023

(dollars in thousands except share data)

(unaudited)

| Line item | Voting / Shares | Common / Stock, / Voting | Additional / Paid-In / Capital | Cost of / Repurchased / Common / Stock | Accumulated / Other / Comprehensive / Income (Loss) | Accumulated / Earnings | Non- / Controlling / Interest | Total |
| --- | --- | --- | --- | --- | --- | --- | --- | --- |
| Beginning balance July 1, 2024 | 17,703,166 | $201 | $121,948 | $(81,144) | $(3,072) | $134,917 | $1,095 | $173,945 |
| Unrealized gain on MSA investments, net of tax of $245 | – | – | – | – | 829 | – | – | 829 |
| Unrealized gain on derivative instruments, net of tax of $27 | – | – | – | – | 92 | – | – | 92 |
| Foreign currency translation, net of tax of $0 | – | – | – | – | 12 | – | 6 | 18 |
| Unrealized gain on investments, net of tax of $0 | – | – | – | – | 27 | – | – | 27 |
| Stock compensation expense | – | – | 1,769 | – | – | – | – | 1,769 |
| Exercise of options | 38,104 | 1 | 440 | – | – | – | – | 441 |
| Redemption of options | (9,055) | – | (324) | – | – | – |  | (324) |
| Cost of repurchased common stock | (26,978) | – | – | (1,119) | – | – | – | (1,119) |
| Issuance of restricted stock units | 11,610 | – | – | – | – | – | – | – |
| Dividends | – | – | – | – | – | (1,278) | – | (1,278) |
| Net income | – | – | – | – | – | 12,375 | (16) | 12,359 |
| Ending balance September 30, 2024 | 17,716,847 | $202 | $123,833 | $(82,263) | $(2,112) | $146,014 | $1,085 | $186,759 |
| Beginning balance July 1, 2023 | 17,595,579 | $199 | $115,272 | $(78,093) | $(3,181) | $93,873 | $1,176 | $129,246 |
| Unrealized loss on MSA investments, net of tax of $168 | – | – | – | – | (527) | – | – | (527) |
| Unrealized loss on derivative instruments, net of tax of $102 | – | – | – | – | (320) | – | – | (320) |
| Foreign currency translation, net of tax of $0 | – | – | – | – | 173 | – | 97 | 270 |
| Stock compensation expense | – | – | 1,824 | – | – | – | – | 1,824 |
| Exercise of options | 843 | – | 13 | – | – | – | – | 13 |
| Settlement of call options, net of tax of $11 | – | – | 34 | – | – | - | - | 34 |
| Dividends | – | – | – | – | – | (1,187) | – | (1,187) |
| Net income | – | – | – | – | – | 10,831 | 35 | 10,866 |
| Ending balance September 30, 2023 | 17,596,422 | $199 | $117,143 | $(78,093) | $(3,855) | $103,517 | $1,308 | $140,219 |

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

9

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Turning Point Brands, Inc.

Consolidated Statements of Changes in Stockholders’ Equity

For the Nine Months Ended September 30, 2024 and 2023

(dollars in thousands except share data)

(unaudited)

| Line item | Voting / Shares | Common / Stock, / Voting | Additional / Paid-In / Capital | Cost of / Repurchased / Common Stock | Accumulated / Other / Comprehensive / Income (Loss) | Accumulated / Earnings | Non- / Controlling / Interest | Total |
| --- | --- | --- | --- | --- | --- | --- | --- | --- |
| Beginning balance January 1, 2024 | 17,605,677 | $199 | $119,075 | $(78,093) | $(2,648) | $112,443 | $1,030 | $152,006 |
| Unrealized gain on MSA investments, net of tax of $226 | – | – | – | – | 572 | – | – | 572 |
| Unrealized loss on derivative instruments, net of tax of $26 | – | – | – | – | (79) | – | – | (79) |
| Foreign currency translation, net of tax of $0 | – | – | – | – | 16 | – | (11) | 5 |
| Unrealized gain on investments, net of tax of $0 | – | – | – | – | 27 | – | – | 27 |
| Stock compensation expense | – | – | 5,720 | – | – | – | – | 5,720 |
| Exercise of options | 99,551 | 1 | 1,340 | – | – | – | – | 1,341 |
| Redemption of options | (9,223) | – | (328) | – | – | – | – | (328) |
| Cost of repurchased common stock | (133,873) | – | – | (4,170) | – | – | – | (4,170) |
| Issuance of performance based restricted stock units | 129,323 | 1 | – | – | – | – | – | 1 |
| Redemption of performance based restricted stock units | (48,177) | – | (1,212) | – | – | – | – | (1,212) |
| Issuance of restricted stock units | 101,650 | 1 | 78 | – | – | – | – | 79 |
| Redemption of restricted stock units | (28,081) | – | (840) | – | – | – | – | (840) |
| Dividends | – | – | – | – | – | (3,818) | – | (3,818) |
| Net income | – | – | – | – | – | 37,389 | 66 | 37,455 |
| Ending balance September 30, 2024 | 17,716,847 | $202 | $123,833 | $(82,263) | $(2,112) | $146,014 | $1,085 | $186,759 |
| Beginning balance January 1, 2023 | 17,485,163 | $198 | $113,242 | $(78,093) | $(2,393) | $78,691 | $1,735 | $113,380 |
| Unrealized loss on MSA investments, net of tax of $108 | – | – | – | – | (339) | – | – | (339) |
| Unrealized loss on derivative instruments, net of tax of $361 | – | – | – | – | (1,136) | – | – | (1,136) |
| Foreign currency translation, net of tax of $0 | – | – | – | – | 13 | – | 10 | 23 |
| Stock compensation expense | – | – | 4,660 | – | – | – | – | 4,660 |
| Exercise of options | 30,214 | – | 419 | – | – | – | – | 419 |
| Redemption of options | (15,985) | – | (346) | – | – | – | – | (346) |
| Issuance of performance based restricted stock units | 140,324 | 1 | 77 | – | – | – | – | 78 |
| Redemption of performance based restricted stock units | (43,294) | – | (995) | – | – | – | – | (995) |
| Settlement of call options, net of tax of $28 | – | – | 86 | – | – | – | – | 86 |
| Dividends | – | – | – | – | – | (3,527) | – | (3,527) |
| Net income | – | – | – | – | – | 28,353 | (437) | 27,916 |
| Ending balance September 30, 2023 | 17,596,422 | $199 | $117,143 | $(78,093) | $(3,855) | $103,517 | $1,308 | $140,219 |

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

10

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Turning Point Brands, Inc.

Notes to Consolidated Financial Statements

(dollars in thousands, except where designated and per share data)

### Note 1. Business and Basis of Presentation

Description of Business

Turning Point Brands, Inc., including its subsidiaries (collectively referred to herein as the “Company,” “we,” “our,” or “us”), is a leading manufacturer, marketer
 and distributor of branded consumer products. The Company sells a wide range of products to adult consumers consisting of staple products with its iconic brands Zig-Zag® and Stoker’s® and its next generation products to fulfill
 evolving consumer preferences. Its segments are led by its core proprietary and iconic brands: Zig-Zag® and Stoker’s® along with FRE®, Beech-Nut® and Trophy®. The Company’s products are available in more than 217,000 retail outlets in North America. The Company operates three segments: (i) Zig-Zag products, (ii) Stoker’s products, and (iii) Creative Distribution Solutions (“CDS”, formerly
 known as NewGen).

Basis of Presentation

The accompanying
 unaudited, interim, consolidated financial statements have been prepared in accordance with the accounting practices described in the Company’s audited, consolidated financial statements as of and for the year ended December 31, 2023. In the opinion
 of management, the unaudited, interim, consolidated financial statements included herein contain all adjustments necessary to present fairly the financial position, results of operations, and cash flows of the Company for the periods presented. Such
 adjustments, other than nonrecurring adjustments separately disclosed, are of a normal and recurring nature. The operating results for interim periods are not necessarily indicative of results to be expected for a full year or future interim periods.
 The unaudited, interim, consolidated financial statements should be read in conjunction with the Company’s audited, consolidated financial statements and accompanying notes as of and for the year ended December 31, 2023. The accompanying interim,
 consolidated financial statements are presented in accordance with the rules and regulations of the Securities and Exchange Commission (the “SEC”) and, accordingly, do not include all the disclosures required by generally accepted accounting
 principles in the United States (“GAAP”) with respect to annual financial statements.

Recent accounting pronouncements

Issued but not yet adopted

In November 2023, the Financial Accounting Standards Board (“FASB”) issued guidance that enhances reportable segment disclosures by requiring disclosure of significant reportable segment
 expenses and other items regularly provided to the Chief Operating Decision Maker (“CODM”) and included within measures of a segment’s profit or loss. Additional requirements include the title and position of the CODM and an explanation of how
 the CODM uses the reported measure of a segment’s profit or loss to assess performance and allocate resources, and the amount and composition of other segment items necessary to reconcile segment revenue, significant expenses, and the reported
 measure of profit or loss. The guidance also expands interim disclosure requirements such that nearly all annual quantitative segment disclosures will be made on an interim basis. This guidance must be applied retrospectively to all prior
 periods presented and will become effective for the Company beginning with its fiscal 2024 annual financial statements and interim periods starting in fiscal 2025, with early adoption permitted. The Company is currently evaluating the impact of
 this guidance and expects that enhanced disclosures will likely be required upon adoption.  

In December 2023, the FASB issued guidance which enhances income tax disclosures to require reporting entities to disclose annual income taxes paid, net of refunds, disaggregated by federal, state, and foreign taxes and to provide additional
 disaggregated information for individual jurisdictions under certain conditions. The guidance also requires disclosure of amounts and percentages in the annual rate reconciliation table, rather than
 amounts or percentages, and will eliminate certain existing disclosure requirements related to uncertain tax positions and unrecognized deferred tax liabilities. This guidance will be effective for the
 Company beginning with its fiscal 2025 annual financial statements, with early adoption permitted. The guidance may be applied prospectively, while retrospective application is permitted. The Company is currently assessing the impact of this
 guidance and expects its incremental disclosures will likely be provided on a prospective basis upon adoption.

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### Note 2. Summary of Significant Accounting Policies

Consolidation

The consolidated financial statements include the accounts of the Company, its subsidiaries, all of which are wholly-owned, and variable interest entities for which the
 Company is considered the primary beneficiary. All significant intercompany transactions have been eliminated.

Revenue Recognition

The Company recognizes revenues in accordance with Accounting Standards Codification (“ASC”) 606, Revenue from Contracts with Customers (Topic 606),
 which includes excise taxes and shipping and handling charges billed to customers, net of cash discounts for prompt payment, sales returns and incentives, upon delivery of goods to the customer – at which time the Company’s performance obligation is
 satisfied - at an amount that the Company expects to be entitled to in exchange for those goods in accordance with the five-step analysis outlined in Topic 606: (i) identify the contract with the customer, (ii) identify the performance obligations in
 the contract, (iii) determine the transaction price, (iv) allocate the transaction price to the performance obligations, and (v) recognize revenue when (or as) performance obligations are satisfied. The Company includes in its transaction price excise taxes on smokeless tobacco, cigars or other nicotine products billed to
 customers, and excludes sales taxes and value-added taxes imposed at the time of sale.

The Company records an allowance for sales returns, based principally on historical volume and return rates, which is included in accrued
 liabilities on the consolidated balance sheets. The Company records sales incentives, which consist of consumer incentives and trade promotion activities, as a reduction in revenues (a portion of which is based on amounts estimated to be due to
 wholesalers, retailers and consumers at the end of the period) based principally on historical volume and utilization rates. Expected payments for sales incentives are included in accrued liabilities on the consolidated balance sheets.

A further requirement of ASC 606 is for entities to disaggregate revenue recognized from contracts with customers into categories that depict how
 the nature, amount, timing, and uncertainty of revenue and cash flows are affected by economic factors. The Company’s management views business performance through segments that closely resemble the performance of major product lines. Thus, the
 primary and most useful disaggregation of the Company’s contract revenue for decision making purposes is the disaggregation by segment which can be found in Note 16, “Segment Information”. An additional disaggregation of contract revenue by sales
 channel can be found within Note 16 as well.

Shipping Costs

The Company records shipping costs incurred as a component of
 selling, general, and administrative expenses. Shipping costs incurred were approximately $5.5 million and $5.1 million for the three months
 ending September 30, 2024 and 2023, respectively. Shipping costs incurred were approximately $16.3 million and $17.0 million for the nine months ending September 30, 2024 and 2023, respectively.  

Inventories

Inventories are stated at the lower of cost or net realizable value using the first-in, first-out 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.

Fair Value

GAAP establishes a framework for measuring fair value. That framework provides a fair value hierarchy that prioritizes the inputs to valuation
 techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3).

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

- 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.

12

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Derivative Instruments

The Company enters into foreign currency forward contracts to hedge a portion of its exposure to changes in foreign currency exchange rates on inventory
 purchase commitments. The Company accounts for its forward contracts under the provisions of ASC
 815, Derivatives and Hedging. Under the Company’s policy, the Company may hedge up to 100% of its
 anticipated purchases of inventory in the denominated invoice currency over a forward period not to exceed twelve months. The
 Company may also, from time to time, hedge up to 100% of its non-inventory purchases (e.g., production equipment) in the denominated
 invoice currency. Forward contracts that qualify as hedges are adjusted to their fair value through other comprehensive income as determined by market prices on the measurement date, except any hedge ineffectiveness which is recognized currently in
 income. Gains and losses on these forward contracts are reclassified from other comprehensive income into inventory as the related inventories are received and are transferred to net income as inventory is sold. Changes in fair value of any
 contracts that do not qualify for hedge accounting or are not designated as hedges are recognized currently in income.

Risks and Uncertainties

Manufacturers and sellers of tobacco products are subject to regulation at the federal, state, and local levels. Such regulations include, among
 others, labeling requirements, limitations on advertising, and prohibition of sales to minors. The tobacco industry is likely to continue to be heavily regulated. There can be no assurance as to the ultimate content, timing, or effect of any
 regulation of tobacco products by any federal, state, or local legislative or regulatory body, nor can there be any assurance that any such legislation or regulation would not have a material adverse effect on the Company’s financial position,
 results of operations, or cash flows. In a number of states targeted flavor bans have been proposed or enacted legislatively or by the administrative process. Depending on the number and location of such bans, that legislation or regulation could
 have a material adverse effect on the Company’s financial position, results of operations or cash flows. The U.S. Food and Drug Administration (“FDA”) continues to consider various restrictive regulations around our products, including targeted flavor bans; however, the details, timing, and ultimate
 implementation of such measures remain unclear.

The tobacco
 industry has experienced, and is experiencing, significant product liability litigation. Most tobacco liability lawsuits have been brought against manufacturers and sellers of cigarettes for injuries allegedly caused by smoking or exposure to
 smoke. However, several lawsuits have been brought against manufacturers and sellers of smokeless products for injuries to health allegedly caused by use of smokeless products. Typically, such claims assert that use of smokeless products is
 addictive and causes oral cancer. Additionally, several lawsuits have been brought against manufacturers and distributors of Creative Distribution Solutions products due to malfunctioning devices. There can be no assurance the Company will not sustain losses in connection with such lawsuits and that such losses will
 not have a material adverse effect on the Company’s financial position, results of operations, or cash flows.

Master Settlement Agreement (MSA)

Pursuant

 to the Master Settlement Agreement (the “MSA”) entered into in November 1998 by most states (represented by their attorneys general acting through the National Association of Attorneys General) and subsequent states’ statutes, a “cigarette
 manufacturer” (which is defined to include a manufacturer of make-your-own (“MYO”) cigarette tobacco) has the option of either becoming a signatory to the MSA or opening, funding, and maintaining an escrow account to have funds available for
 certain potential tobacco-related liabilities with sub-accounts on behalf of each settling state. Such companies are entitled to direct the investment of the escrowed funds and withdraw any appreciation but cannot withdraw the principal for twenty-five years from the year of each annual deposit, except to withdraw funds deposited pursuant to an individual state’s escrow statute to pay a
 final judgement to that state’s plaintiffs in the event of such a final judgement against the Company. The Company chose to open and fund an escrow account as its method of compliance. It is the Company’s policy to record amounts on deposit in the
 escrow account for prior years as a non-current asset. As of September 30, 2024, the Company had on deposit approximately $32.1 million, the fair value of which was approximately $29.5
 million. At December 31, 2023, the Company had on deposit approximately $32.1 million, the fair value of which was approximately $28.7 million. The Company discontinued its generic category of MYO in 2019 and its Zig-Zag branded MYO cigarette smoking tobacco in 2017. Thus, pending a change in MSA legislation, the Company has no remaining product lines covered by the MSA and will not be required to make future escrow deposits.  

The Company has chosen to invest a portion of the MSA escrow, from time to time, in U.S. Government securities including TIPS, Treasury Notes, and
 Treasury Bonds. These investments are classified as available-for-sale and carried at fair value. Realized losses are prohibited under the MSA; any investment in an unrealized loss position will be held until the value is recovered, or until
 maturity.

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Fair values for the U.S. Governmental agency obligations are Level 2 in the fair value hierarchy. The following tables
 show cost and estimated fair value of the assets held in the MSA account, respectively, as well as the maturities of the U.S. Governmental agency obligations held in such account for the periods indicated.

| Line item | As of September 30, 2024 / Cost | As of September 30, 2024 / Gross / Unrealized / Gains (Losses) | As of September 30, 2024 / Estimated / Fair / Value | As of December 31, 2023 / Cost | As of December 31, 2023 / Gross / Unrealized / Losses | As of December 31, 2023 / Estimated / Fair / Value |
| --- | --- | --- | --- | --- | --- | --- |
| Cash and cash equivalents | $1,959 | – | $1,959 | $1,929 | – | $1,929 |
| U.S. Governmental agency obligations (unrealized position < 12 months) | 2,170 | 57 | 2,227 | – | – | – |
| U.S. Governmental agency obligations (unrealized position > 12 months) | 27,944 | (2,648) | 25,296 | 30,144 | (3,389) | 26,755 |
|  | $32,073 | $(2,591) | $29,482 | $32,073 | $(3,389) | $28,684 |

| Maturities: | As of / September 30, 2024 |
| --- | --- |
| Less than one year | $2,250 |
| One to five years | 14,771 |
| Five to ten years | 11,138 |
| Greater than ten years | 1,955 |
| Total | $30,114 |

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

| Sales Year | Deposits as of / September 30, 2024 | Deposits as of / December 31, 2023 |
| --- | --- | --- |
| 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 |

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### Note 3. Derivative Instruments

Foreign Currency

During the nine months ended September 30, 2024, the Company executed various foreign exchange contracts for the purchase and sale of €1.5 million with maturity dates ranging from October to December 2024.

At September 30, 2024, the Company had foreign currency contracts outstanding for the purchase of €1.5
 million and sale of €1.5 million. The foreign currency contracts’ fair value at September 30, 2024, resulted in an asset of $0.0 million included in Other current assets and a liability of $0.0 million included in Accrued liabilities. At December 31, 2023, the Company had foreign currency contracts outstanding for the purchase of €15.2 million and sale of €15.2 million. The foreign currency
 contracts’ fair value at December 31, 2023, resulted in an asset of $0.3 million included in Other current assets and a liability of $0.1 million included in Accrued liabilities.

### Note 4. Fair Value of Financial Instruments

The estimated fair value amounts have been determined by the Company using the methods and assumptions described below. However, considerable
 judgment is required to interpret market data to develop estimates of fair value. Accordingly, the estimates presented herein are not necessarily indicative of the amounts the Company could realize in a current market exchange. The use of different
 market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts.

Cash and Cash Equivalents

Cash and cash equivalents are, by definition, short-term. Thus, the carrying amount is a reasonable estimate of fair value.

Accounts Receivable

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

Long-Term Debt

The Company’s Senior Secured Notes (as defined in Note 10) bear interest at a rate of 5.625% per year. As of September 30, 2024, the fair value approximated $249.0 million, with a carrying value of $250 million. As of December 31, 2023, the fair value of the Senior Secured
 Notes approximated $234.9 million, with a carrying value of $250
 million.  

The Convertible Senior Notes (as defined in Note 10) matured on July 15, 2024 and were retired with
 cash. As of
 December 31, 2023, the fair value of the Convertible Senior Notes without the conversion feature approximated $114.7 million, with a carrying value of $118.5 million.

See Note 10, “Notes Payable and Long-Term Debt”, for further information regarding the Company’s long-term debt.

### Note 5. Inventories

The components of inventories are as follows:

| Line item | September 30, 2024 | December 31, 2023 |
| --- | --- | --- |
| Raw materials and work in process | $7,324 | $5,201 |
| Leaf tobacco | 37,761 | 34,894 |
| Finished goods - Zig-Zag products | 40,267 | 41,783 |
| Finished goods - Stoker’s products | 12,753 | 8,090 |
| Finished goods - Creative Distribution Solutions | 6,394 | 7,281 |
| Other | 1,917 | 1,711 |
| Inventories | $106,416 | $98,960 |

The inventory valuation allowance was $19.9
 million as of September 30, 2024 and $20.6 million as of December 31, 2023.

15

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In December 2023, a third-party warehouse in Tennessee used to store some of the Company’s leaf tobacco incurred significant tornado damage
 resulting in damage to the leaf tobacco. As a result, the Company recorded a $15.2 million inventory reserve related to its leaf tobacco
 inventory which is included in Other operating income, net in the consolidated statement of income for the quarter ended December 31, 2023. The leaf tobacco inventory is covered by the Company’s stock throughput insurance policy and the Company
 believes the inventory loss is probable of being fully recovered under the policy. The Company has not incurred, and does not expect to incur, any delays in customer deliveries as a result of the damage.

### Note 6. Other Current Assets Other current assets consist of: 

| Line item | September 30, 2024 | December 31, 2023 |
| --- | --- | --- |
| Inventory deposits | $6,118 | $5,707 |
| Insurance deposit | – | 3,000 |
| Prepaid taxes | 877 | 153 |
| Settlement receivable | – | 4,000 |
| Insurance recovery receivable | 15,181 | 15,181 |
| Other | 12,021 | 12,740 |
| Total | $34,197 | $40,781 |

### Note 7. Property, Plant, and Equipment Property, plant, and equipment consists of: 

| Line item | September 30, 2024 | December 31, 2023 |
| --- | --- | --- |
| Land | $22 | $22 |
| Buildings and improvements | 4,217 | 3,956 |
| Leasehold improvements | 7,955 | 5,440 |
| Machinery and equipment | 30,258 | 29,751 |
| Furniture and fixtures | 8,204 | 8,391 |
| Gross property, plant and equipment | 50,656 | 47,560 |
| Accumulated depreciation | (24,574) | (22,260) |
| Property, plant and equipment, net | $26,082 | $25,300 |

### Note 8. Other Assets

Other assets consist of:

| Line item | September 30, 2024 | December 31, 2023 |
| --- | --- | --- |
| Non-marketable equity investments | $1,887 | $2,405 |
| Debt security investments | 6,274 | 6,750 |
| Capitalized software | 6,347 | 5,923 |
| Available-for-sale marketable securities | 4,372 | – |
| Other | 88 | 88 |
| Total | $18,968 | $15,166 |

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Debt and Non-Marketable Equity Investments

The Company
 records its non-marketable equity investments without a readily determinable fair value, that are not accounted for under the equity method, at cost, with adjustments for impairment and observable price changes. Should assumptions
 underlying the determination of the fair values of the Company’s non-marketable equity and debt security investments change, it could result in material future impairment charges.

In January 2024, the Company invested $0.8
 million to acquire an 18.744% stake in Teaza Energy, LLC (“TeaZa”). TeaZa is an innovative brand of flavorful oral pouch
 products that can be dipped or sipped, designed as a health-conscious alternative to high energy drinks and other conventional oral stimulants. The investment was comprised of $0.5 million in cash and a $0.3 million payable to be offset against
 the Company’s allocated portion of future profit distributions. The Company also has options to purchase, at fair value, up to 51.744%
 of the equity interest in TeaZa between September 30, 2024 and January 31, 2025, and up to 100% of the equity interest from
 February 1, 2025, to June 30, 2026. The Company accounts for its investment in TeaZa using the equity method of accounting.

In July 2021, the Company invested $8.0 million in Old Pal Holding
 Company, LLC (“Old Pal”). In July 2022, the Company invested an additional $1.0 million in Old Pal. The Company invested in
 the form of a convertible note which includes additional follow-on investment rights. Interest on the convertible note is payable annually in arrears in July of each year. The accrued interest of $0.2 million, $0.3 million and $0.3 million was rolled into the convertible note in
 July 2022, 2023 and 2024, respectively, resulting in a total investment of $9.8 million. Old Pal is a leading brand in the
 cannabis lifestyle space that operates a non-plant touching licensing model. The convertible note bears an interest rate of 3.0% per year and matures July 31, 2027. Interest and principal not paid to date are receivable at maturity. Old Pal has the option to extend the maturity date of the convertible note
 in one-year increments. The interest rate is subject
 to change based on Old Pal reaching certain sales thresholds. The weighted average interest rate on the convertible note was 3.0% for the three and nine months ended September 30, 2024 and 2023. Old Pal has the option to convert the note into shares once sales reach a certain threshold. The conditions
 required to allow Old Pal to convert the note were not met as of September 30, 2024. Additionally, the Company has the right to convert the note into shares at any time. The Company has classified the debt security with Old Pal as
 available for sale. The Company reports interest income on available for sale debt securities in interest income in our Consolidated Statements of Income. The Company performs a qualitative assessment on a quarterly basis to determine
 if the fair value of the investment could be less than the amortized cost basis. In addition, the Company utilizes a third-party to perform a quantitative assessment to determine fair value using a Monte Carlo simulation (Level 3) when
 indicated, and at least bi-annually. In the second quarter of 2023, based on a quantitative assessment of the fair value, the Company determined the fair value to be $7.7 million and recorded an allowance for credit losses of $0.3 million which is included in investment loss for the nine months ended September 30, 2023. In the
 fourth quarter of 2023, the Company determined the fair value to be $6.9 million and recorded an allowance for credit losses of $1.0 million included in investment loss at December 31, 2023. In the second quarter of 2024, based upon a quantitative fair value assessment, the Company determined the fair value to be $6.3 million and recorded an allowance for credit losses of $0.8 million included in investment loss for the nine months ended September 30, 2024. The Company has recorded an accrued interest
 receivable of $0.1 million and $0.1 million at September 30, 2024 and December 31, 2023, respectively, in Other current assets on our Consolidated Balance Sheets.

 In April 2021, the Company invested in Docklight Brands, Inc. In the first half of 2023, based on Docklight’s financial results, a decline in the revenue multiples for comparable
 public companies, and a significant change in Docklight’s business model, the Company deemed the investment in Docklight was fully impaired resulting in a loss of $8.7 million which was recorded in investment loss for the nine months ended September 30, 2023. Fair value for all periods presented was determined using a valuation derived from
 relevant revenue multiples (Level 3).

In October 2020, the Company acquired a 20%
 stake in Wild Hempettes, LLC. In the third quarter of 2023, based on Wild Hempettes financial
 results, the Company deemed its investment in Wild Hempettes to be impaired resulting in a $2.2 million impairment charge included in investment loss for the three and nine months ended September 30, 2023. In June 2024, the Company reached an agreement to
 return its 20% equity stake to Wild Hempettes for no consideration resulting in an impairment charge of $0.3 million recorded in investment loss for the nine
 months ended September 30, 2024. The investment was returned in the third quarter of 2024. The Company accounted for its 20% share of Wild Hempettes using the equity method of accounting. Fair value for the Company’s share of investment in Wild Hempettes was determined
 using a valuation derived from relevant revenue multiples (Level 3).

In
 October 2020, the Company invested in BOMANI Cold Buzz, LLC (“Bomani”). In the second quarter of 2024, due to market conditions in the cold brew, alcohol-infused caffeinated beverages industry, the Company has determined that the fair
 value of Bomani is zero, and thus recorded a $1.8 million impairment which is included in investment loss for the nine months ended September 30, 2024.

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Available-for-Sale Marketable Securities

In December 2023, the Company formed a captive insurance company, Interchange, IC, incorporated in the District of Columbia, to write a portion of its
 insurance coverage, including with respect to general product, and officer and director liability coverages under deductible reinsurance policies. Interchange, IC is a fully licensed captive insurance company holding a certificate of authority
 from the District of Columbia Department of Insurance, Securities and Banking. Interchange, IC is a wholly-owned subsidiary of Turning Point Brands and is consolidated in the Company’s financial statements.

The investments held within the captive are not available for operating activities and are carried at fair value on the consolidated balance sheet. They consist of
 money market, stocks, corporate bonds, government securities and real estate investment trusts. The Company believes any investments held with gross unrealized losses to be temporary and not the result of credit risk.

The Company’s captive investments are summarized in the following table (excludes money market funds):

_As of September 30, 2024_

| Line item | Amortized / Cost | Gross / Unrealized / Gains (Losses) | Estimated / Fair / Value |
| --- | --- | --- | --- |
| Stocks | $747 | $(21) | $726 |
| Corporate bonds | 2,383 | 27 | 2,410 |
| U.S. Governmental agency obligations | 900 | – | 900 |
| Real estate investment trusts | 334 | 2 | 336 |
|  | $4,364 | $8 | $4,372 |

The following table summarizes the fair value of the Company’s captive investments by contractual maturity.

_September 30, 2024_

| Line item | As of |
| --- | --- |
| Due within one year | $2,231 |
| Due in one to five years | 179 |
| Due after ten years | 900 |
| Stocks and real estate investment trusts | 1,062 |
| Total investments at fair value | $4,372 |

### Note 9. Accrued Liabilities

Accrued liabilities consist of:

| Line item | September 30, 2024 | December 31, 2023 |
| --- | --- | --- |
| Accrued payroll and related items | $7,493 | $7,085 |
| Customer returns and allowances | 6,264 | 5,239 |
| Taxes payable | 2,024 | 3,821 |
| Lease liabilities | 2,830 | 2,678 |
| Accrued interest | 1,943 | 6,682 |
| Other | 9,921 | 8,130 |
| Total | $30,475 | $33,635 |

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### Note 10. Notes Payable and Long-Term Debt

Notes payable and long-term debt consists of the following in order of preference:

| Line item | September 30, 2024 | December 31, 2023 |
| --- | --- | --- |
| Senior Secured Notes | $250,000 | $250,000 |
| Convertible Senior Notes | – | 118,541 |
| Gross notes payable and long-term debt | 250,000 | 368,541 |
| Less deferred finance charges | (1,718) | (3,183) |
| Less current maturities | – | (58,294) |
| Notes payable and long-term debt | $248,282 | $307,064 |

The components of interest expense, net consists of the following:

| Line item | Three Months Ended September 30, 2024 | Three Months Ended September 30, 2023 | Nine Months Ended September 30, 2024 | Nine Months Ended September 30, 2023 |
| --- | --- | --- | --- | --- |
| Interest expense | $4,594 | $5,221 | $15,199 | $15,911 |
| Interest income | (821) | (1,237) | (4,956) | (3,898) |
| Interest expense, net | $3,773 | $3,984 | $10,243 | $12,013 |

Senior Secured Notes

On February 11, 2021, the Company closed a private offering (the “Offering”) of $250.0 million aggregate principal amount of its 5.625% senior secured notes due
 2026 (the “Senior Secured Notes” or the “Notes”). The Senior Secured Notes bear interest at a rate of 5.625% and will mature on February 15, 2026. 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 Company used the proceeds from the Offering (i) to repay all obligations under and terminate the 2018 First Lien Credit Facility, (ii) to pay related fees, costs, and expenses and (iii) for general corporate purposes.

Obligations under the Senior Secured Notes are guaranteed by the Company’s existing
 and future wholly-owned domestic subsidiaries (the “Guarantors”) that guarantee any credit facility (as defined in the indenture governing the Senior Secured Notes or the “Senior Secured Notes Indenture”) or capital markets debt securities of the
 Company or Guarantors in excess of $15.0 million.
 The Senior Secured Notes and the related guarantees are secured by first-priority liens on substantially all of the assets of the Company and the Guarantors, subject to certain exceptions.

The Company may redeem the Senior Secured Notes, in whole or in part, at any time 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, 2024 101.406%

On or after February 15, 2025 and thereafter 100.000%

If the Company experiences a change of control (as defined in the Senior Secured Notes Indenture), the Company must offer to repurchase the Senior
 Secured Notes at a repurchase price equal to 101% of the principal amount of the Notes to be repurchased, plus accrued and unpaid
 interest.

The 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. These covenants are subject to a
 number of limitations and exceptions set forth in the Senior Secured Notes Indenture. For instance, the Company is generally permitted to make restricted payments, including the
 payment of dividends to shareholders, provided that, at the time of payment, or as a result of payment, the Company is not in default on its debt covenants; however, there are earnings and market capitalization requirements that if not met could
 limit the aggregate amount of quarterly dividends payable during a fiscal year. The Senior Secured Notes Indenture provides for customary events of default. The Company was in compliance with all covenants as of September 30, 2024.  

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

19

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2021 Revolving Credit Facility

In connection with the Offering, the Company also entered into a $25.0
 million senior secured revolving credit facility (the “2021 Revolving Credit Facility”) with the lenders party thereto and Barclays Bank PLC, as administrative agent and collateral agent (in such
 capacity, the “Agent”). On May 10, 2023, the Company and certain of its subsidiaries, as guarantors, entered into an amendment (the “Amendment”) to the 2021 Revolving Credit Facility (as amended, the “Amended Revolving Credit Facility”).
 The Amendment includes certain modifications to the 2021 Revolving Credit Facility relating to the replacement of the London Inter-Bank Offered Rate with a Secured Overnight Financing Rate (“SOFR”) as the interest rate benchmark under the 2021
 Revolving Credit Facility and adjusts certain other provisions to reflect current documentation standards and other agreed modifications.

On November 7, 2023, in
 connection with the entry by a subsidiary of the Company in a new asset-backed revolving credit facility, the Company terminated the Amended Revolving Credit Facility. See “2023 ABL Facility” below.

 The Company incurred debt issuance costs attributable to the issuance of the Amended Revolving Credit Facility of $0.5 million, with the remaining $0.2 million written off to gain on debt
 extinguishment upon termination of the facility.

2023 ABL Facility

On November 7, 2023, TPB Specialty Finance, LLC, a wholly-owned
 subsidiary of the Company (the “ABL Borrower”), entered into a new $75.0 million asset-backed revolving credit facility (the “2023 ABL
 Facility”), with the several lenders thereunder, and Barclays Bank Plc, as administrative agent (the “Administrative Agent”) and as collateral agent (the “Collateral Agent”) and First-Citizens Bank & Trust Company as additional collateral
 agent (the “Additional Collateral Agent”). Under the 2023 ABL Facility, the ABL Borrower may draw up to $75.0 million under Revolving
 Credit Loans and Last In Last Out (“LILO”) Loans. The 2023 ABL Facility includes a $40.0 million accordion feature. In connection with
 the 2023 ABL Facility, Turning Point Brands contributed certain existing inventory to the ABL Borrower. The 2023 ABL Facility is secured on a first priority basis (subject to customary exceptions) by all assets of the ABL Borrower.

The 2023 ABL Facility contains customary borrowing conditions including a
 borrowing base equal to the sum of (a) the lesser of (1) 85% of the lower of (A) the market value (on a first in first out
 basis) of the sum of eligible inventory, plus eligible in-transit inventory of the ABL Borrower and (B) 85% of the cost of the sum of
 eligible inventory, plus eligible in-transit inventory of the ABL Borrower and (2) 85% of the net orderly liquidation value (“NOLV”)
 percentage of the lower of (1)(A) or (1)(B); plus (b) 85% of the face value of all eligible accounts of the ABL Borrower minus (c) the
 amount of all eligible reserves. The 2023 ABL Facility also includes a LILO borrowing base equal to the sum of (a) the lesser of: (1) 10%
 of the lower of (A) the market value (on a first in first out basis) of the sum of eligible inventory, plus eligible in-transit inventory of the ABL Borrower and (B) the cost of the sum of eligible inventory, plus eligible in-transit inventory
 and (2) 10% of the NOLV percentage of the lower of (1)(A) or (1)(B); plus (b) 10% of the face amount of eligible account; minus (c) the amount of all eligible reserves.

Amounts borrowed under the 2023 ABL Facility are subject to an interest rate margin per annum equal to (a) from and after the closing date until the last day of the first full fiscal quarter ended after the closing date, (i) 1.25% per annum, in the case base rate loans, and (ii) 2.25%
 per annum, in the case of revolving credit loans that are SOFR Loans, (b)(i) 2.25% per annum, in the case of LILO loans that are base
 rate loans, and (ii) 3.25% per annum, in the case of LILO loans that are SOFR loans, (c) on the first day of each fiscal quarter, the
 applicable interest rate margins will be determined from the pricing grid below based upon the historical excess availability for the most recent fiscal quarter ended immediately prior to the relevant date, as calculated by the Administrative
 Agent.

| Level | Historical Excess Availability | Applicable Margin for SOFR Loans | Applicable Margin for Base Rate Loans |
| --- | --- | --- | --- |
| I | Greater than or equal to 66.66% | 1.75% | 0.75% |
| II | Less than 66.66%, but greater than or equal to 33.33% | 2.00% | 1.00% |
| III | Less than 33.33% | 2.25% | 1.25% |

20

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The 2023 ABL Facility also requires the Company and its restricted subsidiaries
 to maintain a fixed charge coverage ratio of at least 1.00 to 1.00 as of the end of any four consecutive fiscal quarters if excess availability shall be less than the greater of (a) 12.5% of the line cap and (b) $9.4 million, at any time and continuing until
 excess availability is equal to or exceeds the greater of (i) 12.5% of the line and (ii) $9.4 million for thirty (30) consecutive calendar days; provided
 that such $9.4 million level shall automatically increase in proportion to the amount of any increase in the aggregate revolving credit
 commitments thereunder in connection with any incremental facility.

The 2023 ABL Facility shall mature on the earlier of (x) November 7, 2027 and (y) the date that is 91 days prior to the maturity date of any material debt of the ABL Borrower or the Company or any of its restricted subsidiaries (subject to customary extensions agreed by
 the lenders thereunder); provided that clause (y) shall not apply to the extent that on any applicable date of determination (on any date prior to the date set forth in clause (y)), (A) the sum of (x) cash that is held in escrow for the
 repayment of such material debt pursuant to arrangements satisfactory to the Administrative Agent, (y) cash that is held in accounts with the Administrative Agent and/or the Additional Collateral Agent, plus (z) excess availability, is
 sufficient to repay such material debt and (B) the ABL Borrower has excess availability of at least $15.0 million after giving effect
 to such repayment of material debt, including any borrowings under the commitments in connection therewith.

 The Company has not drawn any borrowings under the 2023 ABL
 Facility but has letters of credit of approximately $2.3 million outstanding under the facility and has an available balance of $58.8 million based on the borrowing base as of September 30, 2024.

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

Convertible Senior Notes  

In July 2019, the Company closed an offering of $172.5
 million in aggregate principal amount of its 2.50% Convertible Senior Notes due July 15, 2024 (the “Convertible Senior Notes”). The Convertible Senior Notes were senior unsecured obligations of the Company and were retired with cash on July 15, 2024.

In the
 first half and third quarter of 2023, a wholly owned subsidiary of the Company repurchased $29.0 million and $15.0 million, respectively, in aggregate principal amount of the Convertible Senior Notes on the open market resulting in gains on extinguishment of
 debt of $1.3 million and $0.6
 million, respectively. Including amounts repurchased in 2022, a total of $54.0 million in aggregate principal amount of the
 Convertible Senior Notes had been repurchased as of September 30, 2023. The repurchased notes were retired on July 1, 2024, with no
 principal amounts remaining outstanding or held by third parties as of September 30, 2024. As of December 31, 2023, $118.5
 million aggregate principal was recorded in current liabilities on the Company’s Consolidated Balance Sheet.

### Note 11. Leases

The Company’s leases consist primarily of leased property for manufacturing, warehouse, corporate offices and retail space as well as vehicle leases. At lease inception, the Company recognizes a lease right of use asset and lease liability calculated as the present value of future minimum lease payments. Some leases may require payment of other components such
 as taxes, insurance, maintenance and operating expenses. When payments related to these other components are considered fixed, they are included in the determination of the lease liability due to the Company’s election to combine lease and non-lease
 components and account for them as a single lease component. Otherwise, they are recognized as variable payments, along with variable payments not based on a rate or index, in the period in which the obligation for those payments is incurred.

In general, the Company does not recognize any renewal periods within the lease terms as there are no significant barriers to ending the lease at the
 initial term. Leases with an initial term of 12 months or less are not recorded on the balance sheet. Lease expense for these leases is recognized on a straight-line basis over the lease term.

21

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The components of lease expense consisted of the following:

| Line item | Three Months Ended September 30, 2024 | Three Months Ended September 30, 2023 | Nine Months Ended September 30, 2024 | Nine Months Ended September 30, 2023 |
| --- | --- | --- | --- | --- |
| Operating lease cost |  |  |  |  |
| Cost of sales | $123 | $125 | $376 | $382 |
| Selling, general and administrative | 473 | 496 | 1,413 | 1,520 |
| Variable lease cost | 287 | 301 | 871 | 933 |
| Short-term lease cost | – | 7 | – | 20 |
| Total | $883 | $929 | $2,660 | $2,855 |

| Line item | Three Months Ended September 30, 2024 | Three Months Ended September 30, 2023 | Nine Months Ended September 30, 2024 | Nine Months Ended September 30, 2023 |
| --- | --- | --- | --- | --- |
| Financing lease cost |  |  |  |  |
| Selling, general and administrative | $261 | $397 | $585 | $1,083 |
| Interest expense, net | 81 | – | 116 | – |
| Variable lease cost | 22 | – | 58 | – |
| Total | $364 | $397 | $759 | $1,083 |

| Line item | September 30, 2024 | December 31, 2023 |
| --- | --- | --- |
| Assets: |  |  |
| Right of use assets - Operating | $7,665 | $8,950 |
| Right of use assets - Financing | 3,123 | 2,530 |
| Total lease assets | $10,788 | $11,480 |
| Liabilities: |  |  |
| Current lease liabilities - Operating (1) | $1,797 | $1,991 |
| Current lease liabilities - Financing (1) | 1,033 | 687 |
| Long-term lease liabilities - Operating | 6,954 | 8,374 |
| Long-term lease liabilities - Financing | 2,103 | 1,576 |
| Total lease liabilities | $11,887 | $12,628 |

(1) Reported within accrued liabilities on the balance sheets.

| Right of use assets obtained in exchange for lease obligations | Nine Months Ended September 30, 2024 | Nine Months Ended September 30, 2023 |
| --- | --- | --- |
| Operating leases | – | $143 |
| Finance leases | $1,413 | $1,970 |

22

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### Note 12. Income Taxes

The Company’s effective income tax rate for the three and nine months ended September 30, 2024 was 27.1% and 25.4%,
 respectively. The Company’s effective income tax rate for the three and nine months ended September 30, 2023 was 25.7% and 25.5%, respectively.

The Company follows the provisions of ASC 740-10-25, which prescribes a recognition threshold and measurement attribute for the financial statement
 recognition and measurement of a tax position taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more-likely-than-not to be sustained upon examination by taxing authorities. The amount
 recognized is measured as the largest amount of benefit that is greater than 50 percent likely of being realized upon ultimate settlement. The Company has determined that the Company did not have any uncertain tax positions requiring recognition
 under the provisions of ASC 740-10-25. The Company’s policy is to recognize interest and penalties accrued on uncertain tax positions, if any, as part of interest expense. The Company files income tax returns in the U.S. federal jurisdiction and
 various state jurisdictions. In general, the Company is no longer subject to U.S. federal and state tax examinations for years prior to 2021.

### Note 13. Share Incentive Plans

On March 22, 2021, the Company’s Board of Directors adopted the Turning Point Brands, Inc. 2021 Equity Incentive Plan (the “2021 Plan”), pursuant to which awards may be
 granted to employees, non-employee directors, and consultants. In addition, the 2021 Plan provides for the granting of nonqualified stock options to employees of the Company or any subsidiary of the Company. Pursuant to the 2021 Plan, 1,290,000 shares, plus 100,052 shares
 remaining available for issuance under the 2015 Equity Incentive Plan (the “2015 Plan”), of TPB Common Stock are reserved for issuance as awards to employees, non-employee directors, and consultants as compensation for past or future services or the
 attainment of certain performance goals. The 2021 Plan is scheduled to terminate on March 21, 2031. The 2021 Plan is administered by the compensation committee (the “Committee”) of the Company’s Board of Directors. The Committee determines the
 vesting criteria for the awards, with such criteria to be specified in the award agreement. As of September 30, 2024, net of forfeitures, there were 384,037 Restricted Stock Units (“RSUs”), 132,703 options and 75,244 Performance Based Restricted Stock Units (“PRSUs”) granted under the 2021 Plan. There are 798,068 shares available for future grant under the 2021 Plan.

On April 28, 2016, the Board of Directors of the Company adopted the 2015 Plan, pursuant to which awards could have been granted to employees,
 non-employee directors, and consultants. In addition, the 2015 Plan provided for the granting of nonqualified stock options to employees of the Company or any subsidiary of the Company. Upon adoption of the 2021 Plan,
 the 2015 Plan was terminated, and the Company determined no additional grants would be made under the 2015 Plan. However, all awards issued under the 2015 Plan that have not been previously terminated or
 forfeited remain outstanding and continue unaffected. There are no shares available for grant
 under the 2015 Plan.

On February 8, 2006, the Board of Directors of the Company
 adopted the 2006 Equity Incentive Plan (the “2006 Plan”) of North Atlantic Holding Company, Inc., pursuant to which nonqualified stock options and restricted stock awards may be granted to employees. Upon the adoption of the Company’s 2015 Equity
 Incentive Plan in connection with its IPO, the Company determined no additional grants would be made under the 2006 Plan. However, all awards issued under the 2006 Plan that had not been previously terminated or forfeited remained outstanding and
 continued unaffected. There are no shares available for grant under the 2006 Plan and all outstanding options have been exercised as of
 September 30, 2024.

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

| Line item | Stock / Option / Shares | Weighted / Average / Exercise / Price | Weighted / Average / Grant Date / Fair Value |
| --- | --- | --- | --- |
| Outstanding, December 31, 2022 | 683,214 | $29.74 | $9.24 |
| Granted | 77,519 | 20.71 | 6.45 |
| Exercised | (33,851) | 13.30 | 4.24 |
| Forfeited | (69,931) | 27.51 | 9.11 |
| Outstanding, December 31, 2023 | 656,951 | $29.79 | $9.18 |
| Granted | 54,289 | 27.19 | 9.21 |
| Exercised | (99,551) | 13.48 | 4.64 |
| Forfeited | (35,388) | 37.77 | 11.94 |
| Outstanding, September 30, 2024 | 576,301 | $31.63 | $9.80 |

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Under the 2006, 2015 and 2021 Plans, the total intrinsic value of options exercised during the nine months ended September 30, 2024 and 2023, was $2.0 million, and $0.2 million, respectively.

At September 30, 2024, under the 2015 and 2021 Plans, the risk-free interest rate is
 based on the U.S. Treasury rate for the expected life at the time of grant. The expected volatility is based on the average long-term historical volatilities of peer companies. We intend to continue to consistently use the same group of publicly
 traded peer companies to determine expected volatility until sufficient information regarding volatility of our share price becomes available or until the selected companies are no longer suitable for this purpose. Due to our limited trading history,
 we are using the simplified method presented by SEC Staff Accounting Bulletin No. 107 to calculate expected holding periods, which represent the periods of time for which options granted are expected to be outstanding. We will continue to use this
 method until we have sufficient historical exercise experience to give us confidence in the reliability of our calculations. The fair values of these options were determined using the Black-Scholes option pricing model.

The following table outlines the assumptions based on the number of options granted under the 2015 Plan.

| Line item | February 10, 2017 | May 17, 2017 | March 7, 2018 | March 20, 2019 | March 18, 2020 | February 18, 2021 |
| --- | --- | --- | --- | --- | --- | --- |
| Number of options granted | 40,000 | 93,819 | 98,100 | 155,780 | 155,000 | 100,000 |
| Options outstanding at September 30, 2024 | 20,000 | 32,136 | 49,267 | 122,544 | 64,723 | 79,550 |
| Number exercisable at September 30, 2024 | 20,000 | 32,136 | 49,267 | 122,544 | 64,723 | 79,550 |
| Exercise price | $13.00 | $15.41 | $21.21 | $47.58 | $14.85 | $51.75 |
| Remaining lives | 2.36 | 2.63 | 3.44 | 4.47 | 5.47 | 6.39 |
| Risk free interest rate | 1.89% | 1.76% | 2.65% | 2.34% | 0.79% | 0.56% |
| Expected volatility | 27.44% | 26.92% | 28.76% | 30.95% | 35.72% | 28.69% |
| Expected life | 6.000 | 6.000 | 6.000 | 6.000 | 6.000 | 6.000 |
| Dividend yield | – | – | 0.83% | 0.42% | 1.49% | 0.55% |
| Fair value at grant date | $3.98 | $4.60 | $6.37 | $15.63 | $4.41 | $13.77 |

The following table outlines the assumptions based on the number of options granted under the 2021 Plan.

| Line item | May 17, 2021 | March 14, 2022 | April 29, 2022 | May 12, 2023 | March 11, 2024 |
| --- | --- | --- | --- | --- | --- |
| Number of options granted | 7,500 | 100,000 | 14,827 | 77,519 | 54,289 |
| Options outstanding at September 30, 2024 | 7,500 | 62,500 | 6,273 | 77,519 | 54,289 |
| Number exercisable at September 30, 2024 | 7,500 | 41,782 | 4,203 | 77,519 | 40,717 |
| Exercise price | $45.05 | $30.46 | $31.39 | $20.71 | $27.19 |
| Remaining lives | 6.63 | 7.46 | 7.58 | 8.62 | 9.45 |
| Risk free interest rate | 0.84% | 2.10% | 2.92% | 3.41% | 4.06% |
| Expected volatility | 31.50% | 35.33% | 35.33% | 34.51% | 35.09% |
| Expected life | 6.000 | 6.000 | 6.000 | 5.186 | 5.186 |
| Dividend yield | 0.63% | 1.01% | 0.98% | 1.61% | 1.26% |
| Fair value at grant date | $13.23 | $10.23 | $11.07 | $6.45 | $9.21 |

The Company has recorded compensation expense related to the options based on the
 provisions of ASC 718 under which the fixed portion of such expense is determined as the fair value of the options on the date of grant and amortized over the vesting period. The Company recorded compensation expense related to the options of
 approximately $0.1 million and $0.2
 million for the three months ended September 30, 2024 and 2023, respectively. For the nine months ended September 30, 2024 and 2023, compensation expense related to the options was approximately $0.5
 million and $0.6 million, respectively. Total unrecognized compensation expense related to options at September 30, 2024 is $0.1 million, which will be expensed over 0.25 years.

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PRSUs are restricted stock units subject to both performance-based and service-based
 vesting conditions. The number of shares of TPB Common Stock a recipient will receive upon vesting of a PRSU will be calculated by reference to certain performance metrics related to the Company’s performance over a five-year period. PRSUs will vest on the
 measurement date, which is no more than 65 days after the performance
 period provided the applicable service and performance conditions are satisfied. As of September 30, 2024, there are 380,645 PRSUs outstanding. The

 following table outlines the PRSUs granted and outstanding as of September 30, 2024.

| Line item | March 18, 2020 | February 18, 2021 | March 14, 2022 | May 4, 2023 | March 1, 2024 | April 1, 2024 |
| --- | --- | --- | --- | --- | --- | --- |
| Number of PRSUs granted | 94,000 | 100,000 | 49,996 | 133,578 | 111,321 | 8,242 |
| PRSUs outstanding at September 30, 2024 | 71,710 | 71,790 | 35,574 | 94,670 | 98,659 | 8,242 |
| Fair value as of grant date | $14.85 | $51.75 | $30.46 | $22.25 | $26.52 | $29.12 |
| Remaining lives | 0.25 | 1.25 | 2.25 | 1.25 | 2.25 | 2.25 |

The Company recorded compensation expense related to the PRSUs of approximately $0.8 million and $0.8 million in the
 consolidated statements of income for the three months ended September 30, 2024 and 2023, respectively, based on the probability of achieving the performance condition. The Company recorded compensation expense related to the PRSUs of approximately
 $2.5 million and $1.9
 million in the consolidated statements of income for the nine months ended September 30, 2024 and 2023, respectively, based on the probability of achieving the performance condition. Total unrecognized compensation expense related to these awards
 at September 30, 2024, is $3.5 million which will be expensed over the service periods based on the probability of achieving the
 performance condition.

The
 Company has granted 234,420 RSUs which are outstanding and vest over one to five years. The following table outlines the RSUs granted and outstanding as of September 30,
 2024.

| Line item | March 14, 2022 | March 14, 2022 | April 29, 2022 | May 5, 2023 | March 1, 2024 | March 11, 2024 | April 1, 2024 | May 8, 2024 |
| --- | --- | --- | --- | --- | --- | --- | --- | --- |
| Number of RSUs granted | 50,004 | 28,726 | 4,522 | 130,873 | 105,257 | 18,389 | 5,495 | 16,905 |
| RSUs outstanding at September 30, 2024 | 34,616 | 9,481 | 1,913 | 71,731 | 89,681 | 4,598 | 5,495 | 16,905 |
| Fair value as of grant date | $30.46 | $30.46 | $31.39 | $22.25 | $26.52 | $27.19 | $29.12 | $33.13 |
| Remaining lives | 2.25 | 0.25 | 2.25 | 1.50 | 2.50 | 0.25 | 2.50 | 0.50 |

The Company has recorded compensation expense related to the RSUs based on the
 provisions of ASC 718 under which the fixed portion of such expense is determined as the fair value of the RSUs on the date of grant and amortized over the vesting period. The Company recorded compensation expense related to the RSUs of
 approximately $0.9 million and $0.8
 million for the three months ended September 30, 2024 and 2023. The Company recorded compensation expense related to the RSUs of approximately $2.7 million and $2.2 million for the nine months ended September
 30, 2024 and 2023, respectively. Total unrecognized compensation
 expense related to RSUs at September 30, 2024, is $3.0 million, which will
 be expensed over 2.01 years.

### Note 14. Contingencies

On October 9, 2020, a purported stockholder of Turning Point Brands, Inc., Paul-Emile Berteau, filed a complaint in the Delaware Court of Chancery relating to the
 merger of Standard Diversified, Inc. (“SDI”) with a TPB subsidiary (“Merger Sub”)pursuant to the Agreement and Plan of Merger and Reorganization, dated as of April 7, 2020, by and among TPB, SDI and Merger Sub. The parties attended a mediation in late November 2022 where a settlement was reached.
 On December 12, 2023, the Court approved the settlement and dismissed the action with prejudice. As of December 31, 2023, the Company recorded a $4.0 million receivable in other current assets, and a corresponding gain on settlement in other income on its Consolidated Statement of Income for the year ended December 31, 2023. These funds were received in January 2024.

Other major tobacco companies are defendants in product liability claims. In a number
 of these cases, the amounts of punitive and compensatory damages sought are significant and, if such a claim were brought against the Company, could have a material adverse effect on our business and results of operations. The Company is subject to
 several lawsuits alleging personal injuries resulting from malfunctioning vaporizer devices or batteries and may be subject to claims in the future relating to our other Creative Distribution Solutions products. The Company is still evaluating these claims and the potential defenses to them. For example, the Company did not design or
 manufacture the products at issue; rather, the Company was merely the distributor. Nonetheless, there can be no assurance that the Company will prevail in these cases, and they could have a material adverse effect on the financial position, results
 of operations or cash flows of the Company.

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 We have several subsidiaries engaged in making, distributing, and selling liquid nicotine products. As a result of the overall publicity and controversy surrounding the industry generally, many companies have
 received informational subpoenas from various regulatory bodies and in some jurisdictions regulatory lawsuits have been filed regarding marketing practices and possible underage sales. We expect that our subsidiaries will be subject to some

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

The potential losses associated with any such lawsuits are not currently reasonably estimable and therefore are not accrued.

### Note 15. Income Per Share

The Company calculates earnings per share using the treasury stock method for its options and non-vested restricted stock
 units, and the if-converted method for its Convertible Senior Notes.

The following is a reconciliation of the numerators and denominators of the basic and diluted EPS computations of net income:

| Line item | Three Months Ended September 30, 2024 / Income | Three Months Ended September 30, 2024 / Shares | Three Months Ended September 30, 2024 / Per / Share | Three Months Ended September 30, 2023 / Income | Three Months Ended September 30, 2023 / Shares | Three Months Ended September 30, 2023 / Per / Share |
| --- | --- | --- | --- | --- | --- | --- |
| Basic EPS: |  |  |  |  |  |  |
| Numerator |  |  |  |  |  |  |
| Net income attributable to Turning Point Brands, Inc. | $12,375 |  |  | $10,831 |  |  |
| Denominator |  |  |  |  |  |  |
| Weighted average |  | 17,722,855 | $0.70 |  | 17,595,980 | $0.62 |
| Diluted EPS: |  |  |  |  |  |  |
| Numerator |  |  |  |  |  |  |
| Net income attributable to Turning Point Brands, Inc. | $12,375 |  |  | $10,831 |  |  |
| Interest expense related to Convertible Senior Notes, net of tax | 143 |  |  | 743 |  |  |
| Diluted net income attributable to Turning Point Brands. Inc. | $12,518 |  |  | $11,574 |  |  |
| Denominator |  |  |  |  |  |  |
| Basic weighted average |  | 17,722,855 |  |  | 17,595,980 |  |
| Convertible Senior Notes |  | 345,562 |  |  | 2,311,086 |  |
| Stock options and restricted stock units (1) |  | 380,303 |  |  | 191,384 |  |
|  |  | 18,448,720 | $0.68 |  | 20,098,450 | $0.58 |

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| Line item | Nine Months Ended September 30, 2024 / Income | Nine Months Ended September 30, 2024 / Shares | Nine Months Ended September 30, 2024 / Per / Share | Nine Months Ended September 30, 2023 / Income | Nine Months Ended September 30, 2023 / Shares | Nine Months Ended September 30, 2023 / Per / Share |
| --- | --- | --- | --- | --- | --- | --- |
| Basic EPS: |  |  |  |  |  |  |
| Numerator |  |  |  |  |  |  |
| Net income attributable to Turning Point Brands, Inc. | $37,389 |  |  | $28,353 |  |  |
| Denominator |  |  |  |  |  |  |
| Weighted average |  | 17,678,257 | $2.11 |  | 17,569,493 | $1.61 |
| Diluted EPS: |  |  |  |  |  |  |
| Numerator |  |  |  |  |  |  |
| Net income attributable to Turning Point Brands, Inc. | $37,389 |  |  | $28,353 |  |  |
| Interest expense related to Convertible Senior Notes | 1,566 |  |  | 2,546 |  |  |
| Diluted net income attributable to Turning Point Brands. Inc. | $38,955 |  |  | $30,899 |  |  |
| Denominator |  |  |  |  |  |  |
| Basic weighted average |  | 17,678,257 |  |  | 17,569,493 |  |
| Convertible Senior Notes |  | 1,594,546 |  |  | 2,637,252 |  |
| Stock options and restricted stock units (1) |  | 327,847 |  |  | 209,041 |  |
|  |  | 19,600,650 | $1.99 |  | 20,415,786 | $1.51 |

(1) There                  were 0.2 million and 0.3  million outstanding stock options not included in the computation of diluted earnings per share in the three months ended September 30, 2024 and 2023, respectively, and 0.2 million and 0.3 million in the nine months ended September 30,  2024 and 2023, respectively, because the effect would have been antidilutive.

### Note 16. Segment Information

In accordance with ASC 280, Segment Reporting, the Company has three reportable segments:
 (1) Zig-Zag products; (2) Stoker’s products; and (3) Creative Distribution Solutions. The Zig-Zag products segment markets and distributes (a) rolling papers, tubes, and related products; (b) finished cigars and MYO cigar wraps; and (c) lighters
 and other accessories. The Stoker’s products segment (a) manufactures and markets moist snuff, (b) contracts for and markets loose leaf chewing tobacco products, and (c) FRE, its modern oral product. The Creative Distribution Solutions segment (a)
 markets and distributes liquid nicotine products and certain other products without tobacco and/or nicotine; (b) distributes a wide assortment of products to non-traditional retail outlets via Beast
 Distribution (formerly known as VaporBeast); and (c) markets and distributes a wide assortment of products to individual consumers via the Company’s B2C online platform. Products in the
 Zig-Zag products and Stoker’s products segments are distributed primarily through wholesale distributors in the U.S. and Canada while products in the Creative Distribution Solutions segment are distributed primarily through e-commerce to
 non-traditional retail outlets and direct to consumers in the U.S. Corporate unallocated includes the costs and assets of the Company not assigned to one of the three reportable segments and includes corporate overhead expense, including executive management, finance, legal and information technology salaries, and professional services, such as audit, external legal costs
 and information technology services, as well as costs related to the FDA premarket tobacco product application.

The accounting policies of these segments are the same as those of the Company. Corporate costs are not directly charged to the three reportable segments in the ordinary course of operations. The Company evaluates the performance of its segments and allocates resources to them
 based on operating income.

27

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The tables below present financial information about reportable segments:

| Line item | Three Months Ended September 30, 2024 | Three Months Ended September 30, 2023 | Nine Months Ended September 30, 2024 | Nine Months Ended September 30, 2023 |
| --- | --- | --- | --- | --- |
| Net sales |  |  |  |  |
| Zig-Zag products | $49,324 | $46,754 | $146,502 | $135,363 |
| Stoker’s products | 41,380 | 36,916 | 120,491 | 106,634 |
| Total Zig-Zag and Stoker’s products | $90,704 | $83,670 | $266,993 | $241,997 |
| Creative Distribution Solutions | 14,913 | 18,052 | 44,194 | 66,276 |
| Total | $105,617 | $101,722 | $311,187 | $308,273 |
| Gross profit |  |  |  |  |
| Zig-Zag products | $27,327 | $26,745 | $81,736 | $75,557 |
| Stoker’s products | 23,071 | 20,572 | 67,410 | 60,005 |
| Total Zig-Zag and Stoker’s products | $50,398 | $47,317 | $149,146 | $135,562 |
| Creative Distribution Solutions | 3,301 | 4,305 | 10,306 | 17,155 |
| Total | $53,699 | $51,622 | $159,452 | $152,717 |
| Operating income (loss) |  |  |  |  |
| Zig-Zag products | $17,378 | $16,672 | $53,637 | $47,313 |
| Stoker’s products | 17,162 | 15,703 | 50,420 | 45,375 |
| Total Zig-Zag and Stoker’s products | $34,540 | $32,375 | $104,057 | $92,688 |
| Creative Distribution Solutions | (278) | (460) | (388) | 261 |
| Total segment operating income | $34,262 | $31,915 | $103,669 | $92,949 |
| Corporate unallocated (1)(2) | (13,732) | (11,678) | (41,111) | (34,325) |
| Total | $20,530 | $20,237 | $62,558 | $58,624 |
| Interest expense, net | 3,773 | 3,984 | 10,243 | 12,013 |
| Investment (gain) loss | (203) | 2,101 | 2,117 | 10,980 |
| Gain on extinguishment of debt | – | (481) | – | (1,858) |
| Income before income taxes | $16,960 | $14,633 | $50,198 | $37,489 |
| Capital expenditures |  |  |  |  |
| Zig-Zag products | $212 | $3 | $2,659 | $1,088 |
| Stoker’s products | 5 | 1,211 | 857 | 3,118 |
| Total Zig-Zag and Stoker’s products | $217 | $1,214 | $3,516 | $4,206 |
| Creative Distribution Solutions | – | – | – | – |
| Total | $217 | $1,214 | $3,516 | $4,206 |
| Depreciation and amortization |  |  |  |  |
| Zig-Zag products | $481 | $269 | $1,096 | $803 |
| Stoker’s products | 1,191 | 795 | 2,999 | 2,210 |
| Total Zig-Zag and Stoker’s products | $1,672 | $1,064 | $4,095 | $3,013 |
| Creative Distribution Solutions | 513 | 562 | 1,635 | 1,690 |
| Total | $2,185 | $1,626 | $5,730 | $4,703 |

(1) Includes corporate costs that are not allocated to any of the three reportable segments.

(2) Includes costs related to PMTA of $1.2 million and $0.3 million for the three months ended  September 30, 2024 and 2023, respectively. Includes costs related to PMTA of $3.1 million and $1.1 million for the nine months ended September 30, 2024 and 2023, respectively.

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| Line item | September 30, 2024 | December 31, 2023 |
| --- | --- | --- |
| Assets |  |  |
| Zig-Zag products | $234,741 | $177,135 |
| Stoker’s products | 187,281 | 174,994 |
| Corporate unallocated (1) | 38,608 | 190,223 |
| Total Zig-Zag and Stoker’s products | $460,630 | $542,352 |
| Creative Distribution Solutions | 27,379 | 27,004 |
| Total | $488,009 | $569,356 |

(1) Includes cash and assets not assigned to the three reportable segments. All goodwill has been allocated to the reportable segments.

Revenue Disaggregation—Sales Channel

Revenues of the Zig-Zag products and Stoker’s products segments are primarily comprised of sales made to wholesalers while Creative Distribution
 Solutions sales are made business-to-business and business-to-consumer primarily through the Company’s online platforms. Creative Distribution Solutions net sales are broken out by sales channel below.  

| Line item | Creative Distribution Solutions / Three Months Ended / September 30, 2024 | Creative Distribution Solutions / Three Months Ended / September 30, 2023 | Creative Distribution Solutions / Nine Months Ended / September 30, 2024 | Creative Distribution Solutions / Nine Months Ended / September 30, 2023 |
| --- | --- | --- | --- | --- |
| Business to Business | $13,661 | $16,089 | $40,155 | $58,620 |
| Business to Consumer | 1,243 | 1,912 | 3,974 | 7,247 |
| Other | 9 | 51 | 65 | 409 |
| Total | $14,913 | $18,052 | $44,194 | $66,276 |

Net Sales—Domestic vs. Foreign

The following table shows a breakdown of consolidated net sales between domestic and foreign customers.

| Line item | Three Months Ended / September 30, 2024 | Three Months Ended / September 30, 2023 | Nine Months Ended / September 30, 2024 | Nine Months Ended / September 30, 2023 |
| --- | --- | --- | --- | --- |
| Domestic | $97,634 | $93,533 | $287,663 | $285,514 |
| Foreign | 7,983 | 8,189 | 23,524 | 22,759 |
| Total | $105,617 | $101,722 | $311,187 | $308,273 |

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### Note 17. Additional Information with Respect to Unrestricted Subsidiaries

Under the terms of the Senior Secured Notes Indenture and Senior Secured Notes, the Company has designated its subsidiaries, South Beach Brands LLC, TPB Beast LLC
 and Intrepid Brands, LLC as “Unrestricted Subsidiaries”. South Beach Brands LLC is a holding company under which the Company’s liquid nicotine business TPB Beast LLC operating as Creative Distribution Solutions sits. The Company designated
 Interchange, IC as an “Unrestricted Subsidiary” as of April 1, 2024. The Company is required under the terms of the Senior Secured Notes Indenture and the Senior Secured Notes to present additional information that reflects the financial
 condition and results of operations of the Company and its Restricted Subsidiaries separate from the financial condition and results of operations of the Company’s Unrestricted Subsidiaries as of and for the periods presented. This additional
 information is below.

Income Statements for the Three and Nine Months Ended September 30, 2024 and 2023 (unaudited):

| Line item | Three Months Ended September 30 / 2024 / Company and Restricted Subsidiaries | Three Months Ended September 30 / 2024 / Unrestricted Subsidiaries | Three Months Ended September 30 / 2024 / Consolidated | Three Months Ended September 30 / 2023 / Company and Restricted Subsidiaries | Three Months Ended September 30 / 2023 / Unrestricted Subsidiaries | Three Months Ended September 30 / 2023 / Consolidated |
| --- | --- | --- | --- | --- | --- | --- |
| Net sales | $90,704 | $14,913 | $105,617 | $83,670 | $18,052 | $101,722 |
| Cost of sales | 40,306 | 11,612 | 51,918 | 36,353 | 13,747 | 50,100 |
| Gross profit | 50,398 | 3,301 | 53,699 | 47,317 | 4,305 | 51,622 |
| Selling, general, and administrative expenses | 29,748 | 3,421 | 33,169 | 26,620 | 4,765 | 31,385 |
| Other operating (income) expense | (5) | 5 | – | – | – | – |
| Operating income (loss) | 20,655 | (125) | 20,530 | 20,697 | (460) | 20,237 |
| Interest expense (income), net | 3,978 | (205) | 3,773 | 3,984 | – | 3,984 |
| Investment (gain) loss | (143) | (60) | (203) | 2,101 | – | 2,101 |
| Gain on extinguishment of debt | – | – | – | (481) | – | (481) |
| Income (loss) before income taxes | 16,820 | 140 | 16,960 | 15,093 | (460) | 14,633 |
| Income tax expense | 4,563 | 38 | 4,601 | 3,885 | (118) | 3,767 |
| Consolidated net income (loss) | 12,257 | 102 | 12,359 | 11,208 | (342) | 10,866 |
| Net (loss) income attributable to non-controlling interest | (16) | – | (16) | 35 | – | 35 |
| Net income (loss) attributable to Turning Point Brands, Inc. | $12,273 | $102 | $12,375 | $11,173 | $(342) | $10,831 |

| Line item | Nine Months Ended September 30, 2024 / Company and Restricted Subsidiaries | Nine Months Ended September 30, 2024 / Unrestricted Subsidiaries | Nine Months Ended September 30, 2024 / Consolidated | Nine Months Ended September 30, 2023 / Company and Restricted Subsidiaries | Nine Months Ended September 30, 2023 / Unrestricted Subsidiaries | Nine Months Ended September 30, 2023 / Consolidated |
| --- | --- | --- | --- | --- | --- | --- |
| Net sales | $266,993 | $44,194 | $311,187 | $241,997 | $66,276 | $308,273 |
| Cost of sales | 117,847 | 33,888 | 151,735 | 106,435 | 49,121 | 155,556 |
| Gross profit | 149,146 | 10,306 | 159,452 | 135,562 | 17,155 | 152,717 |
| Selling, general, and administrative expenses | 88,352 | 10,216 | 98,568 | 77,199 | 16,894 | 94,093 |
| Other operating income | (1,682) | 8 | (1,674) | – | – | – |
| Operating income | 62,476 | 82 | 62,558 | 58,363 | 261 | 58,624 |
| Interest expense (income), net | 10,499 | (256) | 10,243 | 12,013 | – | 12,013 |
| Investment loss (gain) | 2,334 | (217) | 2,117 | 10,980 | – | 10,980 |
| Gain on extinguishment of debt | – | – | – | (1,858) | – | (1,858) |
| Income before income taxes | 49,643 | 555 | 50,198 | 37,228 | 261 | 37,489 |
| Income tax expense | 12,602 | 141 | 12,743 | 9,506 | 67 | 9,573 |
| Consolidated net income | 37,041 | 414 | 37,455 | 27,722 | 194 | 27,916 |
| Net income (loss) attributable to non-controlling interest | 66 | – | 66 | (437) | – | (437) |
| Net income attributable to Turning Point Brands, Inc. | $36,975 | $414 | $37,389 | $28,159 | $194 | $28,353 |

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Balance Sheet as of September 30, 2024 (unaudited):

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Balance Sheet as of December 31, 2023:

ASSETS Company and      Restricted   Subsidiaries Unrestricted   Subsidiaries Eliminations Consolidated

Current assets:

Cash $25,978 $7,579 $– $33,557

Accounts receivable, net 10,582 – – 10,582

Inventories 100,022 6,394 – 106,416

Other current assets 31,990 2,207 – 34,197

Total current assets 168,572 16,180 – 184,752

Property, plant, and equipment, net 26,067 15 – 26,082

Deferred income taxes 919 – – 919

Right of use assets 10,719 69 – 10,788

Deferred financing costs, net 1,984 – – 1,984

Goodwill 136,413 – – 136,413

Other intangible assets, net 65,593 13,028 – 78,621

Master Settlement Agreement (MSA) escrow deposits 29,482 – – 29,482

Other assets 13,879 5,089 – 18,968

Investment in unrestricted subsidiaries 61,446 – (61,446) –

Total assets $515,074 $34,381 $(61,446) $488,009

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities:

Accounts payable $12,369 $1,067 $– $13,436

Accrued liabilities 28,909 1,566 – 30,475

Total current liabilities 41,278 2,633 – 43,911

Notes payable and long-term debt 248,282 – – 248,282

Lease liabilities 9,057 – – 9,057

Total liabilities 298,617 2,633 – 301,250

Commitments and contingencies 

Stockholders’ equity:

Total Turning Point Brands, Inc. Stockholders’ Equity/Net parent investment in unrestricted subsidiaries 215,372 31,748 (61,446) 185,674

Non-controlling interest 1,085 – – 1,085

Total stockholders’ equity 216,457 31,748 (61,446) 186,759

Total liabilities and stockholders’ equity $515,074 $34,381 $(61,446) $488,009

Note 18. Dividends and Share Repurchases

A dividend of $0.07 per common share
 was paid on October 4, 2024, to shareholders of record at the close of business on September 13, 2024.

The Company currently pays a quarterly cash dividend. Dividends are considered restricted payments under the Senior Secured Notes Indenture. The Company is generally
 permitted to make restricted payments provided that, at the time of payment, or as a result of payment, the Company is not in default on its debt covenants; however, there are earnings and market capitalization requirements that if not met could limit the aggregate amount of restricted, quarterly dividends during a fiscal year.

On February 25, 2020, the Company’s Board of Directors approved a $50.0 million share repurchase program which is intended for opportunistic execution based upon a variety of factors including market dynamics. The program is subject to the ongoing discretion of the Board of Directors. On October 25, 2021, the Board of Directors increased the approved share repurchase program by $30.7 million, and by an additional $24.6
 million on February 24, 2022, in each case bringing the aggregate approval back to $50.0 million. On November 6, 2024, the Board of Directors of the Company increased the Company’s share repurchase authorization by $77.9
 million to an aggregate amount of $100.0 million. The total number of shares repurchased for the three months ended September 30,
 2024 was 26,978 shares for a total cost of $1.1
 million and an average price per share of $41.46. The total number of shares repurchased for the nine months ended September 30, 2024 was
 133,873 shares for a total cost of $4.2
 million at an average price per share of $31.15.

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## Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

You should read the following discussion of the historical financial conditions and results of operations in conjunction with our consolidated financial statements and
 accompanying notes, which are included elsewhere in this Quarterly Report on Form 10-Q. In addition, this discussion includes forward-looking statements which are subject to risks and uncertainties that may result in actual results differing from
 statements we make. See “Cautionary Note Regarding Forward-Looking Statements.” Factors that could cause actual results to differ include those risks and uncertainties discussed in “Risk Factors.”

The following Management’s Discussion and Analysis (“MD&A”) relates to the unaudited financial statements of Turning Point Brands, Inc., included elsewhere in this
 Quarterly Report on Form 10-Q. The MD&A is intended to enable the reader to understand the Company’s financial condition and results of operations, including any material changes in the Company’s financial condition and results of operations
 since December 31, 2023, and as compared with the three and nine months ended September 30, 2024. The MD&A is provided as a supplement to and should be read in conjunction with the unaudited consolidated financial statements and notes thereto
 included in this Quarterly report on Form 10-Q, as well as “Management’s Discussion and Analysis of Financial Condition and Results of Operations” contained in the Annual Report on Form 10-K for the fiscal year ended December 31, 2023 (the “2023
 Annual Report”).

In this MD&A, 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. 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. We sell a wide range of products to adult consumers consisting of staple products with
 our iconic brands Zig-Zag® and Stoker’s® and our next generation products to fulfill evolving consumer preferences. Among other markets, we compete in the alternative smoking accessories
 and Other Tobacco Products (“OTP”) industries. The alternative smoking accessories market is a dynamic market experiencing robust secular growth driven by cannabinoid legalization in the U.S. and Canada, and positively evolving consumer
 perception and acceptance in North America. The OTP industry, which consists of non-cigarette tobacco products, exhibited low-single-digit consumer unit annualized growth over the four-year period ended 2023 as reported by Management Science
 Associates, Inc. a third-party analytics and information company. Our segments are led by our core proprietary and iconic brands: Zig-Zag® in the Zig-Zag products segment and Stoker’s® along with FRE®, Beech-Nut® and Trophy® in the Stoker’s products segment.
 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. Under the leadership of a senior management team with extensive experience in the consumer products, alternative smoking accessories
 and tobacco industries, we have grown and diversified our business through new product launches, category expansions, and acquisitions while concurrently improving operational efficiency.

We believe there are meaningful opportunities to grow through investing in organic growth, acquisitions and joint ventures across all product categories. Our products are currently available in
 approximately 197,000 U.S. retail locations which, with the addition of retail stores in Canada, brings our total North American retail presence to an estimated 217,000 points of distribution. Our sales team targets widespread distribution to all
 traditional retail channels, including convenience stores, and we have a growing e-commerce business.

Products

We operate in three segments: Zig-Zag products, Stoker’s products and Creative Distribution Solutions (“CDS”). 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 is a specialty marketing and
 distribution firm focused on building brands in the Canadian cannabis accessories, tobacco and alternative products categories. In our Stoker’s products segment, we (i) manufacture and market moist snuff tobacco (“MST”) and (ii) contract for and
 market FRE, our modern oral product; and (iii) contract for and market loose leaf chewing tobacco products. 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 Beast Distribution (formerly known as VaporBeast), and (iii) market and distribute a wide assortment of products to individual consumers via the
 Company’s B2C online platform.

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Operations

Our core Zig-Zag products and Stoker’s products segments primarily generate revenues from the sale of our products to wholesale distributors who, in turn, resell the products to retail
 operations. Our acquisition of Vapor Beast in 2016 expanded our revenue streams as we began selling directly to non-traditional retail outlets. Our acquisition of IVG in 2018 enhanced our B2C revenue stream with the addition of an online
 platform. Our net sales, which include federal excise taxes, consist of gross sales net of cash discounts, returns, and selling and marketing allowances.

We rely on long-standing relationships with high-quality, established manufacturers to provide the majority of our produced products. Approximately 75% of our production, as measured by net sales, is
 outsourced to suppliers. The remaining production consists primarily of our moist snuff tobacco operations located in Dresden, Tennessee and Louisville, Kentucky. Our principal operating expenses include the cost of raw materials used to
 manufacture the limited number of our products which we produce in-house; the cost of finished products, which are generally purchased goods; federal excise taxes; legal expenses; and compensation expenses, including benefits and costs of salaried
 personnel.

Key Factors Affecting Our Results of Operations

We consider the following to be the key factors affecting our results of operations:

ASSETS Company and      Restricted   Subsidiaries Unrestricted   Subsidiaries Eliminations Consolidated

Current assets:

Cash $116,725 $1,161 $– $117,886

Accounts receivable, net 9,989 – – 9,989

Inventories, net 91,679 7,281 – 98,960

Other current assets 36,937 3,844 – 40,781

Total current assets 255,330 12,286 – 267,616

Property, plant, and equipment, net 25,142 158 – 25,300

Deferred income taxes 1,468 – – 1,468

Right of use assets 11,359 121 – 11,480

Deferred financing costs, net 2,450 – – 2,450

Goodwill 136,250 – – 136,250

Other intangible assets, net 66,490 14,452 – 80,942

Master Settlement Agreement (MSA) escrow deposits 28,684 – – 28,684

Other assets 15,166 – – 15,166

Investment in unrestricted subsidiaries 48,229 – (48,229) –

Total assets $590,568 $27,017 $(48,229) $569,356

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities:

Accounts payable $7,781 $626 $– $8,407

Accrued liabilities 32,052 1,583 – 33,635

Current portion of long-term debt 58,294 – – 58,294

Total current liabilities 98,127 2,209 – 100,336

Notes payable and long-term debt 307,064 – – 307,064

Lease liabilities 9,898 52 – 9,950

Total liabilities 415,089 2,261 – 417,350

Commitments and contingencies 

Stockholders’ equity:

Total Turning Point Brands, Inc. Stockholders’ Equity/Net parent investment in unrestricted subsidiaries 174,449 24,756 (48,229) 150,976

Non-controlling interest 1,030 – – 1,030

Total stockholders’ equity 175,479 24,756 (48,229) 152,006

Total liabilities and stockholders’ equity $590,568 $27,017 $(48,229) $569,356

- 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;
- Costs and 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”, as well as the unpredictable nature of the regulatory regimes;
- 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.

Critical Accounting Policies and Uses of Estimates

There have been no material changes to our critical accounting policies and estimates from the information provided in “Management’s Discussion and Analysis of Financial Condition and Results of
 Operations” included in our 2023 Annual Report on Form 10-K.

Recent Accounting Pronouncements

See Item 1 of Part I, “Notes to Consolidated Financial Statements - Note 1 - Business and Basis of Presentation - Recent Accounting Pronouncements.”

Results of Operations

Comparison of the Three Months Ended September 30, 2024, to the Three Months Ended September 30, 2023

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The table and discussion set forth below displays our consolidated results of operations (in thousands):

| Line item | Three Months Ended September 30, 2024 | Three Months Ended September 30, 2023 | Three Months Ended September 30, / % Change |
| --- | --- | --- | --- |
| Consolidated Results of Operations Data: |  |  |  |
| Net sales |  |  |  |
| Zig-Zag products | $49,324 | $46,754 | 5.5% |
| Stoker’s products | 41,380 | 36,916 | 12.1% |
| Total Zig-Zag and Stoker’s products | 90,704 | 83,670 | 8.4% |
| Creative Distribution Solutions | 14,913 | 18,052 | -17.4% |
| Total net sales | 105,617 | 101,722 | 3.8% |
| Cost of sales | 51,918 | 50,100 | 3.6% |
| Gross profit |  |  |  |
| Zig-Zag products | 27,327 | 26,745 | 2.2% |
| Stoker’s products | 23,071 | 20,572 | 12.1% |
| Total Zig-Zag and Stoker’s products | 50,398 | 47,317 | 6.5% |
| Creative Distribution Solutions | 3,301 | 4,305 | -23.3% |
| Total gross profit | 53,699 | 51,622 | 4.0% |
| Selling, general, and administrative expenses | 33,169 | 31,385 | 5.7% |
| Operating income (loss) |  |  |  |
| Zig-Zag products | 17,378 | 16,672 | 4.2% |
| Stoker’s products | 17,162 | 15,703 | 9.3% |
| Creative Distributions Solutions | (278) | (460) | -39.6% |
| Total segment operating income | 34,262 | 31,915 | 7.4% |
| Corporate unallocated | (13,732) | (11,678) | 17.6% |
| Total operating income | 20,530 | 20,237 | 1.4% |
| Interest expense, net | 3,773 | 3,984 | -5.3% |
| Investment (gain) loss | (203) | 2,101 | -109.7% |
| Gain on extinguishment of debt | – | (481) | NM |
| Income before income taxes | 16,960 | 14,633 | 15.9% |
| Income tax expense | 4,601 | 3,767 | 22.1% |
| Consolidated net income | 12,359 | 10,866 | 13.7% |
| Net (loss) income attributable to non-controlling interest | (16) | 35 | -145.7% |
| Net income attributable to Turning Point Brands, Inc. | $12,375 | $10,831 | 14.3% |

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Net Sales: For the three months ended September 30, 2024, consolidated net sales increased $3.9 million, or 3.8% compared to the prior year period, driven by an
 increase in the Zig-Zag and Stoker’s products segments, partially offset by a decline in the Creative Distribution Solutions segment.

For the three months ended September 30, 2024, net sales in the Zig-Zag products segment increased $2.6 million, or 5.5% compared to the prior year period. The increase in net sales was driven
 primarily by $1.4 million of growth in our cigar products, $1.2 million of growth in our U.S. papers and wraps, and $0.5 million of growth in our Canadian products business, partially offset by a decline of $0.8 million in our Clipper lighter
 business.

For the three months ended September 30, 2024, net sales in the Stoker’s products segment increased $4.5 million, or 12.1% compared to the prior year period. For the three months ended September
 30, 2024, sales volume of Stoker’s products increased 2.9% as compared with the prior year period contributing $1.1 million to the increase, and price/product mix increased 9.2% which contributed $3.4 million to the increase. The increase in net
 sales was driven by $3.9 million of growth in our modern oral product FRE and $0.8 million of growth of Stoker’s® MST, partially offset by a $0.3 million decline in net sales of loose-leaf chewing tobacco.

For the three months ended September 30, 2024, net sales in the Creative Distribution Solutions segment decreased $3.1 million, or 17.4% compared to the prior year period. The decrease in net
 sales was primarily the result of lower sales volumes in the liquid nicotine distribution business, contributing $3.1 million to the decrease, and our strategic decision to eliminate certain unprofitable brands and to focus on a narrower set of
 products.

Gross Profit: For the three months ended September 30, 2024, consolidated gross profit increased $2.1 million, or 4.0% compared to the prior year period. Gross
 profit as a percentage of net sales increased slightly to 50.8% for the three months ended September 30, 2024, compared to 50.7% for the three months ended September 30, 2023. The overall increase in gross profit was driven by increased margins in
 the Stoker’s products segment, partially offset by decreased margins in the Creative Distribution Solutions segment.

For the three months ended September 30, 2024, gross profit in the Zig-Zag products segment increased $0.6 million, or 2.2% compared to the prior year period. Gross profit as a percentage of net
 sales decreased to 55.4% of net sales for the three months ended September 30, 2024, from 57.2% of net sales for the three months ended September 30, 2023, driven primarily by growth in U.S. papers and Canadian products, which generate higher
 margins, offset by higher net sales of cigar products which generate lower margins than other products in the segment.

For the three months ended September 30, 2024, gross profit in the Stoker’s products segment increased $2.5 million, or 12.1% compared to the prior year period. Gross profit as a percentage of
 net sales increased slightly to 55.8% of net sales for the three months ended September 30, 2024, from 55.7% of net sales for the three months ended September 30, 2023, primarily driven by Stoker’s MST net sales growth at higher margins, and higher
 net sales of FRE, though at lower margins than other products in the segment.

For the three months ended September 30, 2024, gross profit in the Creative Distribution Solutions segment decreased $1.0 million, or 23.3% compared to the prior year period. Gross profit as a
 percentage of net sales decreased to 22.1% of net sales for the three months ended September 30, 2024, from 23.8% of net sales for the three months ended September 30, 2023, primarily as a result of sales channel mix as business-to-business net
 sales, which generates lower margins than business-to-consumer sales, increased to 83% of net segment sales for the three months ended September 30, 2024 from 77% of net segment sales for the three months ended September 30, 2023.

Selling, General, and Administrative Expenses: For the three months ended September 30, 2024, selling, general, and administrative expenses increased $1.8
 million, or 5.7% compared to the prior year period. Selling, general and administrative expenses in the three months ended September 30, 2024, included $1.8 million of stock options, restricted stock and incentives expense, $1.2 million of expense
 related to PMTA, $0.9 million of transaction costs, $0.2 million of expense related to the implementation of the new ERP and CRM systems, and $0.2 million of expense related to corporate restructuring. Selling, general and administrative expenses
 in the three months ended September 30, 2023, included $1.8 million of stock options, restricted stock and incentives expense, $0.3 million of expense related to PMTA, $0.2 million of expense related to corporate restructuring, $0.1 million of
 transaction costs and $0.1 million of expense related to the new ERP and CRM systems.

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Operating Income (Loss): For the three months ended September 30, 2024, consolidated operating income increased $0.3 million, or 1.4% compared to the prior
 year period. Operating income as a percentage of net sales decreased to 19.4% of net sales for the three months ended September 30, 2024 from 19.9% of net sales for the three months ended September 30, 2023, primarily driven by decreased gross
 profit in the Creative Distribution Solutions segment, partially offset by increased gross profit in the Zig-Zag and Stoker’s products segments.

For the three months ended September 30, 2024, operating income in the Zig-Zag products segment increased $0.7 million, or 4.2% compared to the prior year period. Operating income as a percentage
 of net sales increased to 16.5% of net sales for the three months ended September 30, 2024 from 16.4% of net sales for the three months ended September 30, 2023, primarily driven by increased gross profit in our Canadian products business, U.S.
 papers and cigar products, combined with lower operational costs.

For the three months ended September 30, 2024, operating income in the Stoker’s products segment increased $1.5 million, or 9.3% compared to the prior year period. Operating income
 as a percentage of net sales increased to 16.2% of net sales for the three months ended September 30, 2024 from 15.4% of net sales for the three months ended September 30, 2023, primarily driven by Stoker’s MST net sales growth at higher
 margins, and higher net sales of FRE which represented a higher percentage of the segment’s sales compared to the prior year period and has lower margins than other products in the segment.

For the three months ended September 30, 2024, operating loss in the Creative Distribution Solutions segment decreased $0.2 million, or 39.6% compared to the prior year period. Operating loss as
 a percentage of net sales decreased to (0.3)% of net sales for the three months ended September 30, 2024, from (0.5)% of net sales for the three months ended September 30, 2023, primarily driven by cost savings that were not matched by the decline
 in net revenue. The decline in revenue was expected in light of our decision to focus on more profitable products.

Included in consolidated operating income are costs of the Company which are not assigned to one of the three reportable segments and includes: (i) corporate overhead
 expense, including executive management, finance, legal and information technology salaries, and professional services, such as audit, external legal costs and information technology services, as well as (ii) costs related to the FDA premarket
 tobacco product application. For the three months ended September 30, 2024, unallocated costs were $13.7 million compared to $11.7 million in the prior year period, an increase of $2.1 million or 17.6%.

Interest Expense, net: For the three months ended September 30, 2024, interest expense, net decreased $0.2 million compared to the prior year period as a
 result of the repurchase of $15.0 million of Convertible Senior Notes in the third quarter of 2023, the maturity of the Convertible Senior Notes in the third quarter of 2024, and increased interest income on cash deposits due to rising interest
 rates.

Investment (Gain) Loss: For the three months ended September 30, 2024, we had an investment gain of $0.2 million compared to a $2.1 million loss for the three
 months ended September 30, 2023. The change is primarily the result of no impairments recognized on our investments in the third quarter of 2024, compared to an impairment charge recognized on our investment in Wild Hempettes for $2.2 million in
 the third quarter of 2023.

Gain on Extinguishment of Debt: There was no gain or loss on extinguishment of debt for the three months ended September 30, 2024 compared to a $0.6 million
 gain on extinguishment of debt for the three months ended September 30, 2023 as a result of repurchasing $15.0 million of Convertible Senior Notes in the third quarter of 2023.

Income Tax Expense: Our income tax expense of $4.6 million was 27.1% of income before income taxes for the three months ended September 30, 2024. Our
 effective income tax rate was 25.7% for the three months ended September 30, 2023.

Net Income (Loss) Attributable to Non-Controlling Interest: Net income (loss) attributable to non-controlling interest was $0.0 million for the three months
 ended September 30, 2024 and 2023.

Net Income Attributable to Turning Point Brands, Inc.: Due to the factors described above, net income attributable to Turning Point Brands, Inc. for the three
 months ended September 30, 2024 and 2023, was $12.4 million and $10.8 million, respectively.

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Comparison of the Nine Months Ended September 30, 2024, to the Nine Months Ended September 30, 2023

The table and discussion set forth below displays our consolidated results of operations (in thousands):

| Line item | Nine Months Ended September 30, 2024 | Nine Months Ended September 30, 2023 | Nine Months Ended September 30, / % Change |
| --- | --- | --- | --- |
| Consolidated Results of Operations Data: |  |  |  |
| Net sales |  |  |  |
| Zig-Zag products | $146,502 | $135,363 | 8.2% |
| Stoker’s products | 120,491 | 106,634 | 13.0% |
| Total Zig-Zag and Stoker’s products | 266,993 | 241,997 | 10.3% |
| Creative Distribution Solutions | 44,194 | 66,276 | -33.3% |
| Total net sales | 311,187 | 308,273 | 0.9% |
| Cost of sales | 151,735 | 155,556 | -2.5% |
| Gross profit |  |  |  |
| Zig-Zag products | 81,736 | 75,557 | 8.2% |
| Stoker’s products | 67,410 | 60,005 | 12.3% |
| Total Zig-Zag and Stoker’s products | 149,146 | 135,562 | 10.0% |
| Creative Distribution Solutions | 10,306 | 17,155 | -39.9% |
| Total gross profit | 159,452 | 152,717 | 4.4% |
| Selling, general, and administrative expenses | 98,568 | 94,093 | 4.8% |
| Other operating income | (1,674) | – | NM |
| Operating income (loss) |  |  |  |
| Zig-Zag products | 53,637 | 47,313 | 13.4% |
| Stoker’s products | 50,420 | 45,375 | 11.1% |
| Creative Distribution Solutions | (388) | 261 | -248.7% |
| Total segment operating income | 103,669 | 92,949 | 11.5% |
| Corporate unallocated | (41,111) | (34,325) | 19.8% |
| Total operating income | 62,558 | 58,624 | 6.7% |
| Interest expense, net | 10,243 | 12,013 | -14.7% |
| Investment loss | 2,117 | 10,980 | -80.7% |
| Gain on extinguishment of debt | – | (1,858) | NM |
| Income before income taxes | 50,198 | 37,489 | 33.9% |
| Income tax expense | 12,743 | 9,573 | 33.1% |
| Consolidated net income | 37,455 | 27,916 | 34.2% |
| Net income (loss) attributable to non-controlling interest | 66 | (437) | -115.1% |
| Net income attributable to Turning Point Brands, Inc. | $37,389 | $28,353 | 31.9% |

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Net Sales: For the nine months ended September 30, 2024, consolidated net sales increased $2.9 million, or 0.9% compared to the prior year period, driven by an
 increase in the Zig-Zag and Stoker’s products segments, partially offset by a decline in the Creative Distribution Solutions segment.

For the nine months ended September 30, 2024, net sales in the Zig-Zag products segment increased $11.1 million, or 8.2% compared to the prior year period. The increase in net sales was driven
 primarily by $6.2 million of growth in U.S. papers and wraps, $5.2 million of growth in cigars, $1.9 million of growth in our Canadian products business and $2.1 million of growth in the alternative smoking accessories market, partially offset by
 declines of $4.0 million in our Clipper lighter business.

For the nine months ended September 30, 2024, net sales in the Stoker’s products segment increased $13.9 million, or 13.0% compared to the prior year period. For the nine months ended September
 30, 2024, sales volume of Stoker’s products increased 2.9% as compared with the prior year period contributing $3.1 million to the increase, and price/product mix increased 10.1% which contributed $10.8 million to the increase. The increase in net
 sales was driven primarily by $9.0 million of growth in modern oral product FRE and $5.8 million of growth in Stoker’s MST, partially offset by a $0.9 million decline in loose-leaf chewing tobacco.

For the nine months ended September 30, 2024, net sales in the Creative Distribution Solutions segment decreased $22.1 million, or 33.3% compared to the prior year period. The decrease in net
 sales was primarily the result of reduced sales volumes in the liquid nicotine distribution business contributing $22.4 million to the decrease, and our strategic decision to eliminate certain unprofitable brands and to focus on a narrower set of
 products.

Gross Profit: For the nine months ended September 30, 2024, consolidated gross profit increased $6.7 million, or 4.4% compared to the prior year period. Gross
 profit as a percentage of net sales increased to 51.2% for the nine months ended September 30, 2024, compared to 49.5% for the nine months ended September 30, 2023, primarily driven by increased margins as the Creative Distribution Solutions
 segment became a smaller part of the overall company.

For the nine months ended September 30, 2024, gross profit in the Zig-Zag products segment increased $6.2 million, or 8.2% compared to the prior year period. Gross profit as a percentage of net
 sales remained steady at 55.8% of net sales for the nine months ended September 30, 2024 and 2023. Net sales increased in U.S. papers and wraps products which generate a higher gross margin than cigars, while net sales in Clipper products declined.

For the nine months ended September 30, 2024, gross profit in the Stoker’s products segment increased $7.4 million, or 12.3% compared to the prior year period. Gross profit as a percentage of net
 sales decreased to 55.9% of net sales for the nine months ended September 30, 2024, from 56.3% of net sales for the nine months ended September 30, 2023, as a result of product mix as the growth in our modern oral product FRE, which generates lower
 margins as compared with other products in the Stoker’s products segment, outpaced the growth of MST.

For the nine months ended September 30, 2024, gross profit in the Creative Distribution Solutions segment decreased $6.8 million, or 39.9% compared to the prior year period. Gross profit as a
 percentage of net sales decreased to 23.3% of net sales for the nine months ended September 30, 2024, from 25.9% of net sales for the nine months ended September 30, 2023, primarily as a result of sales channel mix as business-to-business net
 sales, which generate lower margins than business-to-consumer sales, increased to 83% of net segment sales for the nine months ended September 30, 2024 from 78% of net segment sales for the nine months ended September 30, 2023.

Selling, General, and Administrative Expenses: For the nine months ended September 30, 2024, selling, general, and administrative expenses increased $4.5
 million, or 4.8%, compared to the prior year period. Selling, general and administrative expenses in the nine months ended September 30, 2024, included $5.7 million of stock options, restricted stock and incentives expense, $3.1 million of expense
 related to PMTA, $1.7 million of expense related to corporate restructuring, $1.0 million related to transaction costs and $0.8 million of expense related to the implementation of the new ERP and CRM systems. Selling, general and administrative
 expenses in the nine months ended September 30, 2023, included $4.7 million of stock options, restricted stock and incentives expense, $1.1 million of expense related to PMTA, $0.4 million of expense related to the implementation of the new ERP and
 CRM systems, $0.2 million of expense related to corporate restructuring and $0.2 million related to transaction costs.

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Other Operating Income: For the nine months ended September 30, 2024, other operating income increased $1.7 million compared to the prior year period due to a
 federal excise tax refund of $1.7 million received in the first half of 2024.

Operating Income (Loss): For the nine months ended September 30, 2024, consolidated operating income increased $3.9 million, or 6.7% compared to the prior year
 period. Operating income as a percentage of net sales increased to 20.1% of net sales for the nine months ended September 30, 2024 from 19.0% of net sales for the nine months ended September 30, 2023, primarily driven by increased gross profit in
 the Zig-Zag and Stoker’s products segments partially offset by decreased gross profit in the Creative Distribution Solutions segment.

For the nine months ended September 30, 2024, operating income in the Zig-Zag products segment increased $6.3 million, or 13.4% compared to the prior year period. Operating income
 as a percentage of net sales increased to 17.2% of net sales for the nine months ended September 30, 2024 from 15.3% of net sales for the nine months ended September 30, 2023, primarily driven by increased gross profit in our Canadian
 products business and U.S. papers and wraps products.

For the nine months ended September 30, 2024, operating income in the Stoker’s products segment increased $5.0 million, or 11.1% compared to the prior year period. Operating income
 as a percentage of net sales increased to 16.2% of net sales for the nine months ended September 30, 2024 from 14.7% of net sales for the nine months ended September 30, 2023, primarily driven by Stoker’s MST net sales growth at higher
 margins and higher net sales of FRE.

For the nine months ended September 30, 2024, operating income in the Creative Distribution Solutions segment decreased $0.6 million, or 248.7% compared to the prior year period driven by a
 decline in gross profit that was not matched with cost savings. Operating income (loss) as a percentage of net sales remained steady at (0.1)% of net sales for the nine months ended September 30, 2024 and 2023.

Included in consolidated operating income are costs of the Company which are not assigned to one of the three reportable segments and includes: (i) corporate overhead
 expense, including executive management, finance, legal and information technology salaries, and professional services, such as audit, external legal costs and information technology services, as well as (ii) costs related to the FDA premarket
 tobacco product application. For the nine months ended September 30, 2024, unallocated costs were $41.1 million compared to $34.3 million in the prior year period, an increase of $6.8 million or 19.8%, primarily driven by an increase of $2.0
 million related to PMTA, an increase of $1.5 million of restructuring expense, an increase of $1.1 million of stock compensation expense and an increase of $0.8 million of transaction costs.

Interest Expense, net: For the nine months ended September 30, 2024, interest expense, net decreased $1.8 million compared to the prior year period as a result
 of the repurchases of $44.0 million of Convertible Senior Notes in 2023, the maturity of the Convertible Senior Notes in the third quarter of 2024, and increased interest income on cash as a result of rising interest rates.

Investment Loss: For the nine months ended September 30, 2024, investment loss decreased to $2.1 million compared to $11.0 million for the nine months ended
 September 30, 2023. The change is primarily the result of impairment charges recognized on our investments in Bomani for $1.8 million and Old Pal for $0.8 million for the nine months ended September 30, 2024, compared to impairment charges in
 Docklight for $8.7 million and Wild Hempettes for $2.2 million for the nine months ended September 30, 2023.

Gain on Extinguishment of Debt: There was no gain or loss on extinguishment of debt for the nine months ended September 30, 2024 compared to a gain on
 extinguishment of debt of $1.9 million for the nine months ended September 30, 2023 as a result of repurchasing $44.0 million of Convertible Senior Notes through the third quarter of 2023.

Income Tax Expense: Our income tax expense of $12.7 million was 25.4% of income before income taxes for the nine months ended September 30, 2024. Our
 effective income tax rate was 25.5% for the nine months ended September 30, 2023.

Net Income (Loss) Attributable to Non-Controlling Interest: Net income attributable to non-controlling interest was $0.1 million for the nine months ended
 September 30, 2024 compared to a $0.4 million loss for the nine months ended September 30, 2023.

Net Income Attributable to Turning Point Brands, Inc.: Due to the factors described above, net income attributable to Turning Point Brands, Inc. for the nine
 months ended September 30, 2024 and 2023, was $37.4 million and $28.4 million, respectively.

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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. GAAP financial measures
 including EBITDA and Adjusted EBITDA. We believe Adjusted EBITDA provides useful information to management and investors regarding certain financial and business trends relating to our financial condition and results of operations. Adjusted
 EBITDA is used by management to compare our performance to that of prior periods for trend analyses and planning purposes and is presented to our Board of Directors. We believe that EBITDA and Adjusted EBITDA are appropriate measures of operating
 performance because they eliminate the impact of expenses that do not relate to operating performance. In addition, our debt instruments contain covenants which use Adjusted EBITDA calculations.

We define “EBITDA” as net income before interest expense, gain (loss) on extinguishment of debt, provision for income taxes, depreciation, and amortization. We define “Adjusted EBITDA” as net income
 before interest expense, gain (loss) on extinguishment of debt, provision for income taxes, depreciation, amortization, other non-cash items, and other items we do not consider the ordinary course in our evaluation of ongoing operating performance
 noted in the reconciliation below. Among other items that we adjust Adjusted EBITDA for is FDA PMTA expense. The Company believes it is appropriate to adjust for this spend as the costs are incurred in connection with what we view as a
 non-traditional regulatory process that requires applications be submitted for covered products that are already on the market. As a result, Company’s management believes it is most appropriate to assess the performance of the Company’s business –
 the sale of our various products - without regard to these costs and believes that adjusting for these costs provides investors and the public markets with the most meaningful metrics to assess performance of the business.

Non-U.S. 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. GAAP measure differently than we do or may not calculate it at all, limiting its
 usefulness as a comparative measure. The tables below provide reconciliations between net income and Adjusted EBITDA.

| (in thousands) | Three Months Ended September 30, 2024 | Three Months Ended September 30, 2023 | Nine Months Ended September 30, 2024 | Nine Months Ended September 30, 2023 |
| --- | --- | --- | --- | --- |
| Net income attributable to Turning Point Brands, Inc. | $12,375 | $10,831 | $37,389 | $28,353 |
| Add: |  |  |  |  |
| Interest expense, net | 3,773 | 3,984 | 10,243 | 12,013 |
| Gain on extinguishment of debt | – | (481) | – | (1,858) |
| Income tax expense | 4,601 | 3,767 | 12,743 | 9,573 |
| Depreciation expense | 981 | 782 | 2,709 | 2,317 |
| Amortization expense | 1,204 | 844 | 3,021 | 2,386 |
| EBITDA | $22,934 | $19,727 | $66,105 | $52,784 |
| Components of Adjusted EBITDA |  |  |  |  |
| Corporate and CDS restructuring (a) | 186 | 190 | 1,730 | 190 |
| ERP/CRM (b) | 154 | 138 | 781 | 414 |
| Stock options, restricted stock, and incentives expense (c) | 1,769 | 1,824 | 5,720 | 4,660 |
| Transactional expenses and strategic initiatives (d) | 873 | 76 | 1,000 | 162 |
| FDA PMTA (e) | 1,242 | 275 | 3,080 | 1,095 |
| Non-cash asset impairment (f) | – | 2,173 | 2,722 | 11,162 |
| FET Refund (g) | – | – | (1,674) | – |
| Adjusted EBITDA | $27,158 | $24,403 | $79,464 | $70,467 |

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

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

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

(d) Represents the fees incurred for transaction expenses.

(e) Represents costs associated with applications related to FDA premarket tobacco product application (“PMTA”). The PMTA regime requires the Company to submit an application to the FDA to  receive marketing authorization to continue to sell certain of its product lines with continued sales permitted during the pendency of the applications. The application is a onetime resource-intensive process for each covered product line;  however, due to the nature of the implementation process for those product lines already in the market, applications can take multiple years to complete rather than the typical one-time submission. The Company currently has only two product  lines currently subject to the PMTA process, having utilized other regulatory pathway options available for our other product lines. The Company does not expect to submit additional PMTA applications for any new product lines after the  submission for the remaining two are complete.

(f) Represents impairment of investment assets.

(g) Represents a federal excise tax refund included in other operating income.

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Liquidity and Capital Resources

As of September 30, 2024, we have $33.6 million of cash on hand and have $58.8 million of availability under the 2023 ABL Facility. Our principal uses for cash are working capital, debt service,
 and capital expenditures.

Our Convertible Senior Notes matured on July 15, 2024 and were retired with cash. We have no borrowings outstanding under our ABL as of September 30, 2024.

Our adjusted working capital, which we define as current assets less cash and current liabilities, increased $57.9 million compared to the prior year end. The increase in working capital is
 primarily a result of a $60.2 million decrease in current liabilities due to the July 15, 2024 maturity of our Convertible Senior Notes which were retired with cash on that date. With our strong cash balance, free cash flow generation and borrowing
 availability under the 2023 ABL Facility, we expect to have ample liquidity to satisfy our operating cash requirements for the foreseeable future.

| (in thousands) | As of / September 30, 2024 | As of / December 31, 2023 |
| --- | --- | --- |
| Current assets | $151,195 | $149,730 |
| Current liabilities | 43,911 | 100,336 |
| Adjusted working capital | $107,284 | $49,394 |

Our cash flows from operations as reflected in the Consolidated Statements of Cash Flows are summarized as follows:

| (in thousands) / Cash provided by (used in): | Nine Months Ended September 30, 2024 | Nine Months Ended September 30, 2023 |
| --- | --- | --- |
| Operating activities | $49,321 | $40,005 |
| Investing activities | $(9,064) | $(4,403) |
| Financing activities | $(127,527) | $(45,956) |

Cash Flows from Operating Activities

For the nine months ended September 30, 2024, net cash provided by operating activities was $49.3 million, an increase of $9.3 million compared to the prior year period, primarily
 due to an increase in net income, net of non-cash items of $4.6 million, and an increase in the change in other current assets of $4.5 million. The primary drivers of non-cash items were a $8.4 million decrease in loss on investments
 compared to the prior year period, partially offset by a $1.1 million increase in stock compensation expense and a $1.8 million decrease in gains on extinguishment of debt compared to the prior year period. The increase in cash from other current
 assets was primarily driven by the Berteau settlement receivable of $4.0 million and an insurance deposit receivable of $3.0 million, both received in cash in the nine months ended September 30, 2024.

Cash Flows from Investing Activities

For the nine months ended September 30, 2024, net cash used in investing activities was $9.1 million, an increase of $4.7 million compared to the prior year period, primarily due to the net
 purchase of $4.3 million in investments by our captive insurance subsidiary.

Cash Flows from Financing Activities

For the nine months ended September 30, 2024, net cash used in financing activities was $127.5 million, an increase of $81.6 million compared to the prior year period, primarily due to a $118.5
 million cash payment for retirement of the Convertible Senior Notes and for the repurchase of common stock of $4.2 million during the period in 2024, partially offset by $41.8 million in repurchases of Convertible Senior Notes that occurred during
 the same period in 2023.

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Dividends and Share Repurchase

A dividend of $0.07 per common share was paid on October 4, 2024, to shareholders of record at the close of business on September 13, 2024.

On February 25, 2020, our Board of Directors approved a $50.0 million
 share repurchase program, which is intended for opportunistic execution based upon a variety of factors including market dynamics. The program is subject to the ongoing discretion of the Board of Directors. On October 25, 2021, the Board of
 Directors increased the approved share repurchase program by $30.7 million, and by $24.6 million on February 24, 2022, in each case bringing the aggregate approval back to $50.0 million. On November 6, 2024, the Board of Directors of the
 Company increased the Company’s share repurchase authorization by $77.9 million to an aggregate amount of $100.0 million. In the three and nine months ended September 30, 2024, the Company repurchased $1.1 million and $4.2 million of common
 stock, respectively.

Long-Term Debt

Notes payable and long-term debt consisted of the following at September 30, 2024 and December 31, 2023, in order of preference:

| Line item | September 30, 2024 | December 31, 2023 |
| --- | --- | --- |
| Senior Secured Notes | $250,000 | $250,000 |
| Convertible Senior Notes | – | 118,541 |
| Gross notes payable and long-term debt | 250,000 | 368,541 |
| Less deferred finance charges | (1,718) | (3,183) |
| Less current maturities | – | (58,294) |
| Notes payable and long-term debt | $248,282 | $307,064 |

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

Obligations under the Senior Secured Notes are guaranteed by the Company’s existing and future wholly-owned domestic subsidiaries (the “Guarantors”) that guarantee any credit facility (as
 defined in the indenture governing the Senior Secured Notes or the “Senior Secured Notes Indenture”) or capital markets debt securities of the Company or Guarantors in excess of $15.0 million. The Senior Secured Notes and the related guarantees
 are secured by first-priority liens on substantially all of the assets of the Company and the Guarantors, subject to certain exceptions.

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

43

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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. These covenants are subject to a number of limitations and exceptions set forth in the Senior Secured
 Notes Indenture. For instance, the Company is generally permitted to make restricted payments, including the payment of dividends to shareholders, provided that, at the time of payment, or as a result of payment, the Company is not in default on
 its debt covenants; however, there are earnings and market capitalization requirements that if not met could limit the aggregate amount of quarterly dividends payable during a fiscal year. The Senior Secured Notes Indenture provides for customary
 events of default. We were in compliance with all covenants as of September 30, 2024.

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 $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”). This facility was terminated in November 2023 in connection with the entry by a subsidiary of the Company in a new asset-backed revolving credit facility.
 See “2023 ABL Facility” below. We incurred debt issuance costs attributable to the issuance of the 2021 Revolving Credit Facility of $0.5 million, with the remaining $0.2 million written off to gain on debt extinguishment upon termination of the
 facility in November 2023.

2023 ABL Facility

On November 7, 2023, TPB Specialty Finance, LLC, a wholly-owned subsidiary of the Company (the “ABL Borrower”), entered into a new $75.0 million asset-backed revolving credit facility (the
 “2023 ABL Facility”), with the several lenders thereunder, and Barclays Bank Plc, as administrative agent (the “Administrative Agent”) and as collateral agent (the “Collateral Agent”) and First-Citizens Bank & Trust Company as additional
 collateral agent (the “Additional Collateral Agent”). Under the 2023 ABL Facility, the ABL Borrower may draw up to $75.0 million under Revolving Credit Loans and Last In Last Out (“LILO”) Loans. The 2023 ABL Facility includes a $40.0 million
 accordion feature. In connection with the 2023 ABL Facility, Turning Point Brands contributed certain existing inventory to the ABL Borrower. The 2023 ABL Facility is secured on a first priority basis (subject to customary exceptions) by all
 assets of the ABL Borrower.

The 2023 ABL Facility contains customary borrowing conditions including a borrowing base equal to the sum of (a) the lesser of (1) 85% of the lower of (A) the market value (on a first in first
 out basis) of the sum of eligible inventory, plus eligible in-transit inventory of the ABL Borrower and (B) 85% of the cost of the sum of eligible inventory, plus eligible in-transit inventory of the ABL Borrower and (2) 85% of the net orderly
 liquidation value (“NOLV”) percentage of the lower of (1)(A) or (1)(B); plus (b) 85% of the face value of all eligible accounts of the ABL Borrower minus (c) the amount of all eligible reserves. The 2023 ABL Facility also includes a LILO
 borrowing base equal to the sum of (a) the lesser of: (1) 10% of the lower of (A) the market value (on a first in first out basis) of the sum of eligible inventory, plus eligible in-transit inventory of the ABL Borrower and (B) the cost of the
 sum of eligible inventory, plus eligible in-transit inventory and (2) 10% of the NOLV percentage of the lower of (1)(A) or (1)(B); plus (b) 10% of the face amount of eligible account; minus (c) the amount of all eligible reserves.

Amounts borrowed under the 2023 ABL Facility are subject to an interest rate margin per annum equal to (a) from and after the closing date until the last day of the first full fiscal quarter
 ended after the closing date, (i) 1.25% per annum, in the case base rate loans, and (ii) 2.25% per annum, in the case of revolving credit loans that are SOFR Loans, (b)(i) 2.25% per annum, in the case of LILO loans that are base rate loans, and
 (ii) 3.25% per annum, in the case of LILO loans that are SOFR loans, (c) on the first day of each fiscal quarter, the applicable interest rate margins will be determined from the pricing grid below based upon the historical excess availability for
 the most recent fiscal quarter ended immediately prior to the relevant date, as calculated by the Administrative Agent.

| Level | Historical Excess Availability | Applicable Margin for SOFR Loans | Applicable Margin for Base Rate Loans |
| --- | --- | --- | --- |
| I | Greater than or equal to 66.66% | 1.75% | 0.75% |
| II | Less than 66.66%, but greater than or equal to 33.33% | 2.00% | 1.00% |
| III | Less than 33.33% | 2.25% | 1.25% |

44

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The 2023 ABL Facility also requires the Company and its restricted subsidiaries to maintain a fixed charge coverage ratio of at least 1.00 to 1.00 as of the end of any four consecutive fiscal
 quarters if excess availability is less than the greater of (a) 12.5% of the line cap and (b) $9.4 million, at any time and continuing until excess availability is equal to or exceeds the greater of (i) 12.5% of the line and (ii) $9.4 million for
 thirty (30) consecutive calendar days with the $9.4 million level automatically increased in proportion to the amount of any increase in the aggregate revolving credit commitments thereunder in connection with any incremental facility.

The 2023 ABL Facility will mature on the earlier of (x) November 7, 2027 and (y) the date that is 91 days prior to the maturity date of any material debt of the ABL Borrower or the Company or
 any of its restricted subsidiaries (subject to customary extensions agreed by the lenders thereunder); provided that clause (y) will not apply to the extent that on any applicable date of determination (on any date prior to the date set forth in
 clause (y)), (A) the sum of (x) cash that is held in escrow for the repayment of such material debt pursuant to arrangements satisfactory to the Administrative Agent, (y) cash that is held in accounts with the Administrative Agent and/or the
 Additional Collateral Agent, plus (z) excess availability, is sufficient to repay such material debt and (B) the ABL Borrower has excess availability of at least $15.0 million after giving effect to such repayment of material debt, including any
 borrowings under the commitments in connection therewith.

The Company has not drawn any borrowings under the 2023 ABL Facility but has letters of credit of approximately $2.3 million outstanding under the facility and has an available balance of $58.8
 million based on the borrowing base as of September 30, 2024.

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

Convertible Senior Notes

In July 2019, the Company closed an offering of $172.5 million in aggregate principal amount of its 2.50% Convertible Senior Notes due July 15, 2024 (the “Convertible Senior Notes”). The
 Convertible Senior Notes bear interest at a rate of 2.50% per year, payable semiannually in arrears on January 15 and July 15 of each year, beginning on January 15, 2020. The Convertible Senior Notes are senior unsecured obligations of the Company.

In 2023, a wholly owned subsidiary of the Company repurchased $44.0 million in aggregate principal amount of the Convertible Senior Notes on the open market resulting in a gain on the
 extinguishment of debt for $1.9 million for the nine months ended September 30, 2023. Including amounts repurchased in 2022, a total of $54.0 million of repurchased notes were retired on July 1, 2024, with no principal amounts remaining outstanding
 as of September 30, 2024.

Off-balance Sheet Arrangements

During the nine months ended September 30, 2024, we executed and have outstanding various foreign exchange contracts for the purchase and sale of €1.5 million with maturity dates ranging from
 October to December 2024. The fair value of the foreign currency contracts were based on quoted market prices and resulted in an asset of $0.0 million included in Other current assets and a liability of $0.0 million included in Accrued liabilities
 at September 30, 2024. During 2023, we executed various foreign exchange contracts for the purchase of €20.1 million and sale of €15.2 million. At December 31, 2023, we had foreign currency contracts outstanding for the purchase of €15.2 million
 and sale of €15.2 million. The fair value of the foreign currency contracts were based on quoted market prices and resulted in an asset of $0.3 million included in Other current assets and a liability of $0.1 million included in Accrued liabilities
 at December 31, 2023.

Inflation

Inflation in general, coupled with increases in gas prices have had a substantial negative effect on the purchasing power of consumers. While historically, we have been able to increase prices at
 a rate equal to or greater than that of inflation, doing so would be difficult in the current inflationary environment. However, we have implemented price increases in areas where doing so has been feasible. In addition, we have been able to
 maintain a relatively stable variable cost structure for our products due, in part, to our successful procurement regarding our tobacco products and, in part, to our existing contractual agreement for the purchase of our premium cigarette papers.

45

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## Item 3.Quantitative and Qualitative Disclosures about Market Risk

Foreign Currency Sensitivity

During the quarter ended September 30, 2024, there have been no material changes in our exposure to exchange rate fluctuation risk, as reported within our 2023 Annual Report on Form 10-K. Please
 refer to our ‘Quantitative and Qualitative Disclosures about Market Risk’ included in our 2023 Annual Report on Form 10-K filed with the SEC.

Credit Risk

There have been no material changes in our exposure to credit risk, as reported within our 2023 Annual Report on Form 10-K, during the nine months ended September 30, 2024. Please refer to our
 ‘Quantitative and Qualitative Disclosures about Market Risk’ included in our 2023 Annual Report on Form 10-K filed with the SEC.

Interest Rate Sensitivity

In February 2021, we issued the Senior Secured Notes in an aggregate principal amount of $250 million. We carry the Senior Secured Notes at face value. Since the Senior Secured Notes bear
 interest at a fixed rate, we have no financial statement risk associated with changes in interest rates. Our remaining debt instrument is the 2023 ABL Facility, which has no borrowing outstanding.

## Item 4. Controls and Procedures

We have carried out an evaluation under the supervision, and with the participation of, our management including our Chief Executive Officer (“CEO”), Chief Financial Officer (“CFO”), and Chief
 Accounting Officer (“CAO”), of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act of 1934), as of September 30, 2024. Based upon the
 evaluation, our CEO, CFO, and CAO concluded our disclosure controls and procedures are not effective as of such date solely due to material weaknesses in internal controls over financial reporting that were disclosed in our Annual Report on Form
 10-K for the fiscal year ended December 31, 2023.

As previously described in Part II, Item 9A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2023, during our evaluation of the effectiveness of our internal control over
 financial reporting as of December 31, 2023, we concluded that our internal control over financial reporting was not effective solely due to the existence of the following material weakness:

We did not design and maintain effective internal controls related to our 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. Our business process controls (automated and manual) that are dependent on the affected ITGCs were also deemed
 ineffective because they could have been adversely impacted. We believe that these control deficiencies were a result of: IT control processes lacking sufficient documentation such that the successful operation of ITGCs was overly dependent upon
 knowledge and actions of certain individuals with IT expertise and inherent system limitations.

The material weakness did not result in any identified misstatements to our financial statements, and there were no changes to previously released financial results. The material weakness will
 not be considered remediated until the applicable controls operate for a sufficient period of time, and management has concluded through testing that these controls are operating effectively.

Remediation Plan

While our remediation plan may evolve and expand, management has been implementing and continues to implement measures designed to ensure that control deficiencies contributing to the material
 weakness are remediated, such that these controls are designed, implemented, and operating effectively. The remediation actions include: (i) completion of the current implementation of a new ERP system in 2025; (ii) utilizing third-party
 consultants to help review, plan and implement systems and tools designed to assist with remediation processes; (iii) developing and maintaining documentation underlying ITGCs; (iv) implementing an IT management review and testing plan to monitor
 ITGCs with a specific focus on systems supporting our financial reporting processes; and (v) enhanced quarterly reporting on the remediation measures to the Audit Committee of the Board of Directors.

We believe that these actions will ultimately remediate the material weakness. The material weakness will not be considered remediated, however, until the applicable controls operate for a
 sufficient period of time and management has concluded, through testing, that these controls are operating effectively.

46

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PART II—OTHER INFORMATION

## Item 1. Legal Proceedings

For a description of our material pending legal proceedings, please see Contingencies in Note 14 to the Notes to the Consolidated Financial Statements in Part I, Item 1 of this Quarterly Report.

See ‘Risk Factors—We are subject to significant product liability litigation’; please see our 2023 Annual Report on Form 10-K for additional details.

## Item 1A.Risk Factors

In addition to the other information set forth in this report, carefully consider the factors discussed in the ‘Risk Factors’ section contained in our 2023 Annual Report on Form 10-K. There have
 been no material changes to the Risk Factors set forth in the 2023 Annual Report on Form 10-K.

## Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

On February 25, 2020, the Company’s Board of Directors approved a $50.0
 million share repurchase program, which is intended for opportunistic execution based upon a variety of factors including market dynamics. 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). On February 24, 2022, the Board of Directors increased the
 approved share repurchase program by $24.6 million bringing total authority at that time back to $50.0 million. On November 6, 2024, the Board of Directors of
 the Company increased the Company’s share repurchase authorization by
 $77.9 million to an aggregate amount of $100.0 million. 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.

The following table includes information regarding purchases of our common stock made by us during the quarter ended September 30, 2024 in connection with the repurchase program described above.

| Period | Total Number of Shares Purchased (1) | Average Price Paid per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs |
| --- | --- | --- | --- | --- |
| July 1 to July 31 | – | – | – | $24,146,985 |
| August 1 to August 31 | 9,055 | $35.64 | – | $24,146,985 |
| September 1 to September 30 | 26,978 | $41.46 | 26,978 | $23,028,477 |
| Total | 36,033 |  | 26,978 |  |

(1) The total number of shares purchased includes shares withheld by the Company in an amount equal to the statutory withholding taxes for holders who vested in stock-based awards, which totaled 9,055 shares in  August. Shares withheld by the Company to cover statutory withholdings taxes are repurchased pursuant to the applicable plan and not the authorization under the share repurchase program.

## Item 3. Defaults Upon Senior Securities

Not applicable.

## Item 4. Mine Safety Disclosures

Not applicable.

## Item 5. Other Information

Not applicable.

47

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## Item 6. Exhibits

| Exhibit No. | Description |
| --- | --- |
| 31.1 | Rule 13a-14(a)/15d-14(a) Certification of Graham Purdy.* |
| 31.2 | Rule 13a-14(a)/15d-14(a) Certification of Andrew Flynn.* |
| 31.3 | Rule 13a-14(a)/15d-14(a) Certification of Brian Wigginton.* |
| 32.1 | Section 1350 Certifications pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.* |
| 101 | XBRL (eXtensible Business Reporting Language). The following materials from Turning Point Brands, Inc.’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2024, filed on November 7, 2024, formatted in Inline XBRL (iXBRL): (i) consolidated balance sheets, (ii) consolidated statements of income, (iii) consolidated statements of comprehensive income, (iv) consolidated statements of cash flows, and (v) the notes to consolidated financial statements.* |
| 104 | Cover Page Interactive Data File (formatted in iXBRL and included in Exhibit 101).* |

\* Filed or furnished herewith

48

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Signatures

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

- TURNING POINT BRANDS, INC.
- By: /s/ Graham Purdy
- Name: Graham Purdy
- Title: President and Chief Executive Officer

By: /s/ Andrew Flynn

Name: Andrew Flynn

- Title: Chief Financial Officer
- By: /s/ Brian Wigginton
- Name: Brian Wigginton

Title: Chief Accounting Officer

Date: November 7, 2024

 49

---

---

## EXHIBIT 31.1

SEC source: [ef20034527_ex31-1.htm](https://www.sec.gov/Archives/edgar/data/1290677/000114036124045671/ef20034527_ex31-1.htm)

---

Exhibit 31.1

CERTIFICATIONS

I, Graham Purdy, certify that:

1.    I have reviewed this Quarterly Report on Form 10-Q of Turning Point Brands, Inc.;

2.    Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make
 the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material
 respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.    The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as
 defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal controls over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)  Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our
 supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)  Designed such internal control over financial reporting, or caused such internal control over financial reporting to be
 designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)  Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our
 conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)  Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the
 registrant’s most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial
 reporting; and

5.    The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial
 reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a)  All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting
 which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b)  Any fraud, whether or not material, that involves management or other employees who have a significant role in the
 registrant’s internal control over financial reporting.

Date: November 7, 2024 By: /s/ Graham Purdy

Graham Purdy

President and Chief Executive Officer

(Principal Executive Officer)

---

---

## EXHIBIT 31.2

SEC source: [ef20034527_ex31-2.htm](https://www.sec.gov/Archives/edgar/data/1290677/000114036124045671/ef20034527_ex31-2.htm)

---

Exhibit 31.2

CERTIFICATIONS

I, Andrew Flynn, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Turning Point Brands, Inc.;

2.    Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make
 the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.    Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material
 respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.    The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as
 defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal controls over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)  Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our
 supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)  Designed such internal control over financial reporting, or caused such internal control over financial reporting to be
 designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)  Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our
 conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)  Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the
 registrant’s most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial
 reporting; and

5.    The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial
 reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a)  All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting
 which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b)  Any fraud, whether or not material, that involves management or other employees who have a significant role in the
 registrant’s internal control over financial reporting.

Date: November 7, 2024 By: /s/ Andrew Flynn

Andrew Flynn

Chief Financial Officer

(Principal Financial Officer)

---

---

## EXHIBIT 31.3

SEC source: [ef20034527_ex31-3.htm](https://www.sec.gov/Archives/edgar/data/1290677/000114036124045671/ef20034527_ex31-3.htm)

---

Exhibit 31.3

CERTIFICATIONS

I, Brian Wigginton, certify that:

1.    I have reviewed this Quarterly Report on Form 10-Q of Turning Point Brands, Inc.;

2.    Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make
 the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.    Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material
 respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.    The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as
 defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal controls over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)  Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our
 supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)  Designed such internal control over financial reporting, or caused such internal control over financial reporting to be
 designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)  Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our
 conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)  Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the
 registrant’s most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial
 reporting; and

5.    The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial
 reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a)  All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting
 which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b)  Any fraud, whether or not material, that involves management or other employees who have a significant role in the
 registrant’s internal control over financial reporting.

Date: November 7, 2024 By: /s/ Brian Wigginton

Brian Wigginton

Chief Accounting Officer

---

---

## EXHIBIT 32.1

SEC source: [ef20034527_ex32-1.htm](https://www.sec.gov/Archives/edgar/data/1290677/000114036124045671/ef20034527_ex32-1.htm)

---

Exhibit 32.1

CERTIFICATIONS PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report on Form 10-Q of Turning Point Brands, Inc. (the "Company") for the quarterly period ended September 30, 2024, as filed with the Securities and Exchange
 Commission on the date hereof (the "Report"), we, Graham Purdy, President and Chief Executive Officer, Andrew Flynn, Chief Financial Officer, and Brian Wigginton, Chief Accounting Officer, of the Company, certify, pursuant to 18 U.S.C. Section
 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company for the periods presented therein.

Date: November 7, 2024 By: /s/ Graham Purdy

Graham Purdy

President and Chief Executive Officer

(Principal Executive Officer)

Date: November 7, 2024 By: /s/ Andrew Flynn

Andrew Flynn

Chief Financial Officer

(Principal Financial Officer)

Date: November 7, 2024 By: /s/ Brian Wigginton

Brian Wigginton

Chief Accounting Officer

---