Turning Point Brands Archives - Green Market Report

StaffOctober 11, 2021
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4min17580

In a big “oops we goofed,”  the Food and Drug Administration (FDA)  took back its September 14 Marketing Denial Order for some of Turning Point Brands, Inc.  (NYSE: TPB) vape products. Turning Point said all of its proprietary vape products, including its Solace branded e-liquids, will continue to be marketed while they remain under review. They are currently under a pending Premarket Tobacco Product Applications (“PMTAs”) review.

Turning Point said that in its rescission letter the FDA stated, “Upon further review of the administrative record, FDA found relevant information that was not adequately assessed. Specifically, your applications did contain randomized controlled trials comparing tobacco-flavored ENDS to flavored ENDS as well as several cross-sectional surveys evaluating patterns of use, likelihood of use, and perceptions in current smokers, current ENDS users, former tobacco users, and never users, which require further review.” The letter further clarified that “at present, in light of the unusual circumstances, FDA has no intention of initiating an enforcement action against” the products.

“We are encouraged by the FDA’s decision to reconsider our product applications and look forward to engaging the agency as our PMTAs are reviewed,” said Larry Wexler, President and CEO, Turning Point Brands. “It is important that the PMTA process is transparent, purposeful, and evidence-based. Our organization dedicated significant time and resources in filing our applications in accordance with agency guidance. We remain hopeful that the depth and range of our studies and data will persuade the FDA that the continued marketing of our vapor products is appropriate for the protection of the public health and that the agency will ultimately preserve a diverse vapor market for the more than 30 million American adult smokers who may wish to transition from combustible cigarettes to lower risk alternatives.”

Turning Point had been selling vape products under the label Solace with flavors like Peach, Mango, and Marshmallow Crispy. These sugary flavors have been very popular with underage consumers and were a big selling point for the competitor Juul. Solace noted on its website that Federal law required e-liquid companies to submit a Premarket Tobacco Product Application (PMTA) to the U.S. Food and Drug Administration (FDA) in order to continue selling products in the United States. These applications require that e-liquid companies demonstrate that products are “appropriate for the protection of public health.”

Turning Point has reported spending $14 million in 2020 on the PMTA application according to the company’s annual filing. In 2019, the company spent  $2.2 million on the PMTA. Turning Point also said that as a result of the rescission letter, it withdrew both the petition for relief and motion to stay that it had filed with the 6th Circuit Court of Appeals.


Debra BorchardtSeptember 17, 2021
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5min11410

Turning Point Brands, Inc. (NYSE: TPB), the owner of ZigZag rolling papers announced that the Food and Drug Administration (FDA) had issued a Marketing Denial Order or MDO in response to a Premarket Tobacco Product Application (“PMTA”) covering some of the company’s vapor products. Turning Point bought the Solace vape company in 2019.  The company’s stock was slipping in early trading in response and was lately selling at $46.35.

Turning Point has reported spending $14 million in 2020 on the PMTA application according to the company’s annual filing. In 2019, the company spent  $2.2 million on the PMTA.

“While we believe the FDA’s current conclusion is misguided, we will continue our dialogue with the agency in search of a path forward,” said Larry Wexler, President, and CEO, Turning Point Brands. “As we explore options for appealing this decision, we are hopeful that the agency reaffirms its commitment to science-based decision making and to its announced Comprehensive Plan, which includes fully transitioning adult consumers down the continuum of risk in order to reduce the morbidity and mortality associated with combustible cigarette use by preserving the diverse vapor market.”

Turning Point said in a statement that it stands behind the high quality of its PMTA. “We believe established that the products’ continued marketing would be ‘appropriate for the protection of public health,’ the standard established by the Family Smoking Prevention and Tobacco Control Act of 2009. These products are crucial to improving public health by helping adult smokers migrate to less harmful products. TPB will continue to engage with the FDA and other stakeholders as we consider options moving forward, including a formal appeal of the decision and potential legal relief.”

The PMTA denied by this MDO included an in-depth toxicological review, a clinical study, and studies on patterns and likelihood of use. Turning Point said, “We believe the data demonstrated that TPB products do not appeal to never users, youth, or former users and that a significant majority of users of TPB products had completely ceased use of combustible cigarettes. The scientific literature on lower-risk nicotine delivery systems shows that these products can significantly improve public health by providing alternatives that are much less harmful than combustible cigarettes.”

Solace Vapes

Turning Point had been selling vape products under the label Solace with flavors like Peach, Mango, and Marshmallow Crispy. These sugary flavors have been very popular with underage consumers and were a big selling point for the competitor Juul. Solace noted on its website that Federal law required e-liquid companies to submit a Premarket Tobacco Product Application (PMTA) to the U.S. Food and Drug Administration (FDA) in order to continue selling products in the United States. These applications require that e-liquid companies demonstrate that products are “appropriate for the protection of public health.”

The application deadline for the PMTA was September 9, 2020. After that date, any tobacco vapor product on the market would need to have submitted an application or be removed from commerce. Solace had already stated that it was no longer shipping its products to Arkansas, Rhode Island, Utah, Vermont, Massachusetts, New Jersey, New York, and Maine.

Past Sales

The past sales for vape products were significant. Turning Point reported that for 2019, net sales in the NewGen products segment increased to $153.4 million from $131.1 million in 2018, an increase of $22.2 million or 16.9%. The increase in net sales was primarily driven by higher Nu-X alternative products sales in 2019 (includes the Solace acquisition) and an additional eight months of IVG net sales in 2019. IVG is International Vapor Group that operates a strong B2C eCommerce business with direct sales to consumers nationwide and abroad through the Direct Vapor and VaporFi brands. Net sales were negatively impacted by the vape disruption in the fourth quarter of 2019.

 

 

 


Debra BorchardtJuly 27, 2021
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5min5880

Turning Point Brands, Inc. (NYSE: TPB) reported financial results for the second quarter ended June 30, 2021 with sales increasing 16.8% to $122.6 million. The average analyst estimate for revenues was $106 million according to Yahoo Finance. Net income increased by 49.2% to $15.4 million. The diluted EPS was $0.73 and adjusted diluted EPS was $0.84 as compared to $0.49 and $0.66 in the same period one year ago. This beat the Yahoo Finance average analyst estimate of $0.65.

The solid performance caused the stock to move higher in early trading by 2% to $48. The average analyst price target is $63.

“Our second-quarter performance continued to demonstrate Turning Point’s positive growth momentum, led by our core market segments. Zig-Zag had an exceptional quarter with over 70 percent growth, driven principally by our strategic initiatives and aided by a favorable comparison against a COVID-related disruption in MYO cigar wraps the previous year. Stoker’s also delivered a solid quarter fueled by double-digit growth in our MST business,” said Larry Wexler, President, and CEO, Turning Point Brands.

Vape Challenges

For the second quarter, net sales of NewGen Products decreased 10% to $42.1 million. The company said that the decline was a result of a challenging comparison against the previous year period when TPB’s vape distribution business benefitted from a COVID-related disruption at a B2B competitor and strong B2C orders during state stay-at-home provisions. For the quarter, NewGen Products gross profit decreased 10.6% to $14.1 million. The segment gross margin contracted 20 basis points to 33.5%.

“NewGen performed above our expectations as our vape distribution business was able to navigate the implementation of the PACT Act, which increased the regulatory requirements around transporting vape products,” said Graham Purdy, Chief Operating Officer. “While we still expect short-term volatility in the vape distribution business around the PMTA process and PACT Act, we are encouraged by our current market positioning and potential of our business in a post-PMTA regulatory environment.”

Stokers

Stoker products account for 27% of the company’s sales. For the second quarter, net sales of Stoker’s Products increased 8.3% to $33.4 million on double-digit growth of MST, partially offset by the low single-digit decline of loose-leaf chewing tobacco. MST represented 62 percent of Stoker’s Products revenues in the quarter, up from 58 percent a year earlier. For the second quarter, the total Stoker’s Products segment volume increased 2.4 percent, and price/mix advanced 5.9 percent.

“Our Stoker’s MST business continues its strong growth trajectory and market share gains,” said Purdy. “Our loose-leaf chew business performed well against the previous year period, which had benefitted from a competitor being offline due to a COVID-related disruption.”

Looking Ahead

For the third quarter of 2021, TPB is forecasting net sales of $109 to $114 million. For the full year of 2021, TPB is estimating net sales of $447 to $462 million (up from previous guidance of $422 to $440 million). The company attributed the rosy projections to expected strong double-digit sales growth for Zig-Zag Products and high single-digit sales growth for Stoker’s Products. The company hopes for flat sales growth for NewGen Products (up from previous mid-to-low single-digit declines), which includes low single-digit declines for vape distribution (up from single-digit declines) offset by expected growth in Nu-X. The adjusted EBITDA is forecast to be $108 to $113 million (up from previous guidance of $103 to $108 million).


StaffJuly 22, 2021
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3min9470

Turning Point Brands, Inc.  (NYSE: TPB) completed an $8 million strategic investment in cannabis lifestyle brand Old Pal Holding Company LLC. TPB invested in the form of a convertible note which includes additional follow-on investment rights.

“Turning Point has a proven track record of developing and growing brands and is capitalizing on this experience to identify highly recognizable, leading cannabis brands poised to experience significant growth,” said Larry Wexler, CEO, Turning Point Brands. “Given Old Pal’s favorable market position, the awareness of its products outside its current geographies and its unique licensing model, we are confident the brand is well-positioned to further penetrate the market and capitalize on the growth potential of the cannabis industry.”

Old Pal was founded by Rusty Wilenkin and Jason Osni in 2018 and capitalizes on the idea of shareable cannabis. They have trademarked the term”Share the Stoke” and say “Burn one down, pass it around.” The company sells pre-rolls and vapes. TPB is known for selling ZigZag rolling papers and other smoking accessories.

TPB’s investment will help Old Pal to expand its product offerings in existing states, which include California, Nevada, Michigan, Oklahoma, Ohio, Washington and Massachusetts, and will help create the infrastructure necessary to support continued territory and product expansion. As a result of Old Pal’s strong brand recognition and extensive network of licensed cultivation and production relationships, the company has the ability to scale its geographic footprint while continuing to offer consistent and readily available products.

“Old Pal’s mission is to spread the shareable cannabis lifestyle to customers across the U.S. through accessible and high-quality products,” added Charlie Cangialosi, COO, Old Pal. “Turning Point Brands’ experience with iconic brands, like Zig-Zag, and success in adjacent and complementary industries will allow us to bring the Old Pal experience to a wider range of markets and consumers.”


StaffFebruary 10, 2021
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5min6800

Zig-Zag maker Turning Point Brands, Inc. (NYSE: TPB) announced financial results for the fourth quarter and full-year ending December 31, 2020. For the fourth quarter, the company said net sales increased 31.2% to $105.3 million and the net income increased from $25.0 million to $12.7 million. The adjusted EBITDA increased 80.9% to $25.8 million and the diluted EPS of $0.65 and the adjusted diluted EPS of $0.84 as compared to $(0.62) and $0.41 in the year-ago period, respectively. Turning Point beat expectations as the average analyst estimate for the quarter according to Yahoo Finance was $0.76 and the average estimate for revenues was $101 million.

For the full year. net sales increased 11.9% to $405.1 million and the net income increased $19.3 million to $33.0 million which includes PMTA related expenses from 4Q19 through 3Q20. The adjusted EBITDA increased 34.0% to $90.2 million and the diluted EPS of $1.67 and adjusted diluted EPS of $2.81 as compared to $0.69 and $1.86 in the year-ago period, respectively.

“Despite challenges related to COVID-19, our company remained focused on executing our plan throughout 2020 and finished the year strong with tremendous top-line growth in the fourth quarter. The year was especially transformational for our Zig-Zag brand as targeted initiatives led to 22% growth for the full year as we re-positioned it to be our fastest-growing segment. Our Stoker’s segment delivered a second consecutive year of double-digit growth driven by incremental share gains in both product lines. Going forward, we expect Zig-Zag and Stoker’s to continue to be the backbone of our organic sales growth,” said Larry Wexler, President, and CEO. “NewGen managed to deliver a solid performance despite market disruption around the PMTA application process while creating long-term upside potential through its filed applications. We also had an active year of capital deployment with the acquisition of assets from Durfort, as well as investments in the cannabinoid sector, in dosist and Wild Hempettes. Most recently, we successfully priced $250 million of senior secured notes, the latest step in the evolution of our capital structure, which gives us increased flexibility to scale the business through additional acquisitions and investments. Capitalizing on our strong momentum and increased liquidity, we expect another strong year in 2021.”

Zig-Zag

The company said it has renamed its core business segments from Smoking Products to Zig-Zag Products and Smokeless Products to Stoker’s Products. For the fourth quarter, Zig-Zag Products net sales increased 46.7% to $40.5 million. Growth was driven by double-digit advances in US rolling papers and MYO cigar wraps. MYO cigar wraps benefitted from re-stocking of channel inventory that was depleted by a COVID-related shutdown with our third-party manufacturer in the second quarter.

For the full year, Zig-Zag Products segment net sales increased 22.1% to $132.8 million. Growth was driven by double-digit advances in US rolling papers and MYO cigar wraps. This more than offset a $2.1 million decline in our Canadian papers business which was impacted by the timing of deliveries that pushed sales into 2021 and a $1.8 million decline in our Other Zig-Zag products business.

Outlook

Turning Point said it expects 2021 results to be impacted by several external variables including the extent of ongoing impacts from COVID-19 and the rate of vaccination distribution along with uncertainties about the magnitude of government measures to support the consumer. Absent any further acquisitions, TPB said it projects net Sales of $412 to $432 million which assumes a double-digit sales growth for Zig-Zag Products, high-single-digit sales growth for Stoker’s Products, mid-single-digit sales declines for NewGen Products, which includes double-digit declines for vape distribution offset by growth in Nu-X. Vape distribution outlook assumes comparisons against COVID-related benefits in 2020, a $3 million headwind from the sale of our Vapor Shark retail stores, and continued disruption in the vape market as the FDA begins enforcement actions.


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