SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

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

TURNING POINT BRANDS, INC.

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Cautionary Note Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q 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;~~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 brand equity;

contamination of our tobacco supply or products;

uncertainty and continued evolution of the markets for our NewGen and cigar products;

complications with the design or implementation of our new enterprise resource planning system could adversely impact our business and operations;

substantial and increasing U.S. regulation;

regulation or marketing denials of our products by the FDA, which has broad regulatory powers;

many of our products contain nicotine, which is considered to be a highly addictive substance;

requirement to maintain compliance with master settlement escrow agreement;

possible significant increases in federal, state and local municipal tobacco- and vapor-related taxes;

~~uncertainty and continued evolution of regulation of our NewGen and cigar products;~~

our products are subject to developing and unpredictable regulation, such as court actions that impact obligations;

increase in state and local regulation of our NewGen products has been proposed or enacted;

increase in tax of our NewGen products could adversely affect our business;

sensitivity of end-customers to increased sales taxes and economic ~~conditions;~~conditions including significant increases in the rate of inflation and other declines in purchasing power;

possible increasing international control and regulation;

failure to comply with environmental, health and safety regulations;

•

imposition of significant tariffs on imports into the U.S.;

the scientific community’s lack of information regarding the long-term health effects of certain substances contained in some of our products;

~~infringement on or misappropriation of our intellectual property;~~

~~third-party claims that we infringe on their intellectual property;~~

significant product liability litigation;

the effect of the COVID-19 pandemic on our business;

our amount of indebtedness;

the terms of our indebtedness, which may restrict our current and future operations;

our loss of emerging growth status on December 31, 2021 and ability to comply with the additional ~~disclosure~~ requirements applicable to non-emerging growth companies;

~~reduced disclosure requirements applicable~~identification a material weakness in our internal control related to ~~emerging growth companies may make our common stock less attractive to investors, potentially decreasing~~ineffective information technology general controls which, if not remediated appropriately or timely, could result in loss of investor confidence and adversely impact our stock price;

Changes in the method for determining LIBOR or the replacement of LIBOR with an alternative reference rate, may adversely affect interest expense related to outstanding debt;

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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;

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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;

our reliance on information technology;

cybersecurity and privacy breaches;

failure to manage our growth;

failure to successfully integrate our acquisitions or otherwise be unable to benefit from pursuing acquisitions;

fluctuations in our results;

exchange rate fluctuations;

adverse U.S. and global economic conditions;

departure of key management personnel or our inability to attract and retain talent;

infringement on or misappropriation of our intellectual property;

third-party claims that we infringe on their intellectual property; and

failure to meet expectations relating to environmental, social and governance factors.

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PART I—FINANCIAL INFORMATION

Item 1. Financial Statements

Turning Point Brands, Inc.

Consolidated ~~Consolidated~~ Balance Sheets

(dollars in thousands except share data)

ASSETS	(unaudited) March 31, 2022			December 31, 2021
Current assets:
Cash	$	126,045		$	128,320
Accounts receivable, net of allowances of $177 in 2022 and $262 in 2021		9,450			6,496
Inventories		105,858			87,607
Other current assets		25,663			26,746
Total current assets		267,016			249,169
Property, plant, and equipment, net		20,567			18,650
Deferred income taxes		1,754			1,363
Right of use assets		14,405			15,053
Deferred financing costs, net		362			388
Goodwill		162,323			162,333
Other intangible assets, net		87,022			87,485	��
Master Settlement Agreement (MSA) escrow deposits		30,237			31,720
Other assets		35,017			35,399
Total assets	$	618,703		$	601,560

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	29,464		$	7,361
Accrued liabilities		29,921			32,937
Other current liabilities		38			38
Total current liabilities		59,423			40,336
Notes payable and long-term debt		414,791			414,172
Lease liabilities		12,625			13,336
Total liabilities		486,839			467,844

Commitments and contingencies		0			0

Stockholders’ equity:
Preferred stock; $0.01 par value; authorized shares 40,000,000; issued and outstanding shares -0-		0			0
Common stock, voting, $0.01 par value; authorized shares, 190,000,000; 19,785,806 issued shares and 18,180,174 outstanding shares at March 31, 2022, and 19,690,884 issued shares and 18,395,476 outstanding shares at December 31, 2021		198			197
Common stock, nonvoting, $0.01 par value; authorized shares, 10,000,000; issued and outstanding shares -0-		0			0
Additional paid-in capital		109,073			108,811
Cost of repurchased common stock (1,605,632 shares at March 31, 2022, and 1,295,408 shares at December 31, 2021)		(59,491	)		(48,869	)
Accumulated other comprehensive loss		(1,326	)		(195	)
Accumulated earnings		81,327			71,460
Non-controlling interest		2,083			2,312
Total stockholders’ equity		131,864			133,716
Total liabilities and stockholders’ equity	$	618,703		$	601,560

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

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Turning Point Brands, Inc.

Consolidated Statements of Income

(dollars in thousands except share data)

(unaudited)

ASSETS
March 31,
2021

December 31,
2020

Current assets:
Cash $ 167,361 $ 41,765
Accounts receivable, net of allowances of $148 in 2021 and $150 in 2020
6,606 9,331
Inventories 98,351 85,856
Other current assets 24,866 26,451
Total current assets 297,184 163,403
Property, plant, and equipment, net 15,648 15,524
Deferred income taxes 0 610
Right of use assets 17,406 17,918
Deferred financing costs, net 464 641
Goodwill 159,808 159,621
Other intangible assets, net 78,945 79,422
Master Settlement Agreement (MSA) escrow deposits 31,477 32,074
Other assets 26,373 26,836
Total assets $ 627,305 $ 496,049

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable $ 24,166 $ 9,201
Accrued liabilities 31,845 35,225
Current portion of long-term debt 5,000 12,000
Other current liabilities 205 203
Total current liabilities 61,216 56,629
Notes payable and long-term debt 424,802 302,112
Deferred income taxes 735 0
Lease liabilities 15,570 16,117
Other long-term liabilities 0 3,704
Total liabilities 502,323 378,562

Commitments and contingencies 0 0

Stockholders’ equity:
Preferred stock; $0.01 par value; authorized shares 40,000,000; issued and outstanding shares -0-
0 0
Common stock, voting, $0.01 par value; authorized shares, 190,000,000; 19,576,821 issued shares and 19,059,120 outstanding shares at March 31, 2021, and 19,532,464 issued shares and 19,133,794 outstanding shares at December 31, 2020
196 195
Common stock, nonvoting, $0.01 par value; authorized shares, 10,000,000; issued and outstanding shares -0-
0 0
Additional paid-in capital 102,879 102,423
Cost of repurchased common stock (517,701 shares at March 31, 2021 and 398,670 shares at December 31, 2020)
(15,924 ) (10,191 )
Accumulated other comprehensive loss (480 ) (2,635 )
Accumulated earnings 34,357 23,645
Non-controlling interest 3,954 4,050
Total stockholders’ equity 124,982 117,487
Total liabilities and stockholders’ equity $ 627,305 $ 496,049

	Three Months Ended March 31,
	2022			2021
Net sales	$	100,894		$	107,641
Cost of sales		49,100			54,380
Gross profit		51,794			53,261
Selling, general, and administrative expenses		32,565			28,912
Operating income		19,229			24,349
Interest expense, net		5,196			4,486
Investment income		(78	)		(25	)
Loss on extinguishment of debt		0			5,706
Income before income taxes		14,111			14,182
Income tax expense		3,340			2,654
Consolidated net income		10,771			11,528
Net loss attributable to non-controlling interest		(227	)		(255	)
Net income attributable to Turning Point Brands, Inc.	$	10,998		$	11,783

Basic income per common share:
Net income attributable to Turning Point Brands, Inc.	$	0.60		$	0.62
Diluted income per common share:
Net income attributable to Turning Point Brands, Inc.	$	0.55		$	0.57
Weighted average common shares outstanding:
Basic		18,257,695			19,093,961
Diluted		21,749,510			22,665,067

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

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Turning Point Brands, Inc.

Consolidated Statements of ~~Income~~

~~(dollars in thousands except share data)~~

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

~~Turning Point Brands, Inc.~~

~~Consolidated~~ ~~Statements of~~ Comprehensive Income

(dollars in thousands)

Amortization of unrealized pension and postretirement gain (loss), net of tax of $0 in 2021 and $2 in 2020

Unrealized loss on MSA investments, net of tax of $144 in 2021 and $0 in 2020

Foreign currency translation, net of tax of $0 in 2021 and 2020

Unrealized gain (loss) on derivative instruments, net of tax of $937 in 2021 and $624 in 2020

Unrealized loss on MSA investments, net of tax of $357 in 2022 and $144 in 2021

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

Unrealized gain on derivative instruments, net of tax of $0 in 2022 and $937 in 2021

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

Turning Point Brands, Inc.

Consolidated Statements of Cash Flows

(dollars in thousands)

(unaudited)

	Three Months Ended March 31,
	2022			2021
Cash flows from operating activities:
Consolidated net income	$	10,771		$	11,528
Adjustments to reconcile net income to net cash provided by operating activities:
Loss on extinguishment of debt		0			5,706
Loss (gain) on sale of property, plant, and equipment		1			(2	)
Depreciation expense		871			788
Amortization of other intangible assets		463			477
Amortization of deferred financing costs		645			604
Deferred income tax (benefit) expense		(34	)		552
Stock compensation expense		1,159			1,498
Noncash lease (income) expense		(5	)		6
Gain on investments		(14	)		(13	)
Changes in operating assets and liabilities:
Accounts receivable		(2,958	)		2,735
Inventories		(18,258	)		(12,461	)
Other current assets		1,081			1,283
Other assets		382			464
Accounts payable		22,101			14,882
Accrued liabilities and other		(3,165	)		(3,806	)
Net cash provided by operating activities	$	13,040		$	24,241

Cash flows from investing activities:
Capital expenditures	$	(2,787	)	$	(842	)
Restricted cash, MSA escrow deposits		(8,468	)		(14,920	)
Proceeds on the sale of property, plant and equipment		1			2
Net cash used in investing activities	$	(11,254	)	$	(15,760	)

Cash flows from financing activities:
Proceeds from Senior Secured Notes	$	0		$	250,000
Payments of 2018 first lien term loan		0			(130,000	)
Settlement of interest rate swaps		0			(3,573	)
Payment of dividends		(1,022	)		(958	)
Payments of financing costs		0			(6,614	)
Exercise of options		245			425
Redemption of options		0			(1,466	)
Redemption of performance restricted stock units		(1,141	)		0
Common stock repurchased		(10,622	)		(5,733	)
Net cash provided by (used in) financing activities	$	(12,540	)	$	102,081

Net (decrease) increase in cash	$	(10,754	)	$	110,562
Effect of foreign currency translation on cash	$	(3	)	$	101

Cash, beginning of period:
Unrestricted		128,320			41,765
Restricted		15,155			35,074
Total cash at beginning of period		143,475			76,839

Cash, end of period:
Unrestricted		126,045			167,361
Restricted		6,673			20,141
Total cash at end of period	$	132,718		$	187,502

Supplemental schedule of noncash investing activities:
Accrued capital expenditures	$	187		$	177

Supplemental schedule of noncash financing activities:
Dividends declared not paid	$	1,131		$	1,071
Accrued expenses for incurred financing costs	$	0		$	301

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

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Turning Point Brands, Inc.

Consolidated Statements of ~~Cash Flows~~Changes in Stockholders’ Equity

For the Three Months Ended March 31, 2022 and 2021

(dollars in ~~thousands)~~thousands except share data)

(unaudited)

Three Months Ended
March 31,

2021 2020
Cash flows from operating activities:
Consolidated net income $ 11,528 $ 4,499
Adjustments to reconcile net income to net cash provided by operating activities:
Loss on extinguishment of debt 5,706 0
Gain on sale of property, plant, and equipment (2 ) 0
Depreciation expense 788 851
Amortization of other intangible assets 477 425
Amortization of deferred financing costs 604 552
Deferred income taxes 552 1,006
Stock compensation expense 1,498 455
Noncash lease expense 6 13
Gain on investments (13 ) 0
Changes in operating assets and liabilities:
Accounts receivable 2,735 2,596
Inventories (12,461 ) 1,784
Other current assets 1,283 (2,420 )
Other assets 464 (130 )
Accounts payable 14,882 3,210
Accrued postretirement liabilities 0 (27 )
Accrued liabilities and other (3,806 ) 1,913
Net cash provided by operating activities $ 24,241 $ 14,727

Cash flows from investing activities:
Capital expenditures $ (842 ) $ (877 )
Restricted cash, MSA escrow deposits (14,920 ) 0
Proceeds on the sale of property, plant and equipment 2 0
Net cash used in investing activities $ (15,760 ) $ (877 )

Cash flows from financing activities:
Proceeds from Senior Secured Notes $ 250,000 $ 0
Payments of 2018 first lien term loan (130,000 ) (2,000 )
Settlement of interest rate swaps (3,573 ) 0
Payment of IVG note 0 (4,240 )
Payment of dividends (958 ) (886 )
Payments of financing costs (6,614 ) (168 )
Exercise of options 425 227
Redemption of options (1,466 ) 0
Common stock repurchased (5,733 ) (2,627 )
Net cash provided by (used in) financing activities $ 102,081 $ (9,694 )

Net increase in cash $ 110,562 $ 4,156
Effect of foreign currency translation on cash $ 101 $ 0

Cash, beginning of period:
Unrestricted 41,765 95,250
Restricted 35,074 32,074
Total cash at beginning of period 76,839 127,324

Cash, end of period:
Unrestricted 167,361 99,406
Restricted 20,141 32,074
Total cash at end of period $ 187,502 $ 131,480

Supplemental schedule of noncash financing activities:
Dividends declared not paid $ 1,071 $ 998
Accrued expenses for incurred financing costs $ 301 $ 13

	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, 2022		18,395,476		$	197	$	108,811		$	(48,869	)	$	(195	)	$	71,460		$	2,312		$	133,716

Unrealized loss on MSA investments, net of tax of $357		-			0		0			0			(1,126	)		0			0			(1,126	)
Foreign currency translation, net of tax of $0		-			0		0			0			(5	)		0			(2	)		(7	)
Stock compensation expense		-			0		1,159			0			0			0			0			1,159
Exercise of options		25,166			0		245			0			0			0			0			245
Performance restricted stock units issuance		103,843			1		(1	)		0			0			0			0			0
Performance restricted stock units redeemed		(34,087	)		0		(1,141	)		0			0			0			0			(1,141	)
Cost of repurchased common stock		(310,224	)		0		0			(10,622	)		0			0			0			(10,622	)
Dividends		-			0		0			0			0			(1,131	)		0			(1,131	)
Net income		-			0		0			0			0			10,998			(227	)		10,771
Ending balance March 31, 2022		18,180,174		$	198	$	109,073		$	(59,491	)	$	(1,326	)	$	81,327		$	2,083		$	131,864


Beginning balance Janauary 1, 2021		19,133,794		$	195	$	102,423		$	(10,191	)	$	(2,635	)	$	23,645		$	4,050		$	117,487

Unrealized loss on MSA investments, net of tax of $144		-			0		0			0			(452	)		0			0			(452	)
Unrealized gain on derivative instruments, net of tax of $937		-			0		0			0			2,448			0			0			2,448
Foreign currency translation, net of tax of $0		-			0		0			0			159			0			159			318
Stock compensation expense		-			0		1,498			0			0			0			0			1,498
Exercise of options		44,357			1		424			0			0			0			0			425
Redemption of options		-			0		(1,466	)		0			0			0			0			(1,466	)
Cost of repurchased common stock		(119,031	)		0		0			(5,733	)		0			0			0			(5,733	)
Dividends		-			0		0			0			0			(1,071	)		0			(1,071	)
Net income		-			0		0			0			0			11,783			(255	)		11,528
Ending balance March 31, 2021		19,059,120		$	196	$	102,879		$	(15,924	)	$	(480	)	$	34,357		$	3,954		$	124,982

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

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~~Turning Point Brands, Inc.~~

~~Consolidated Statements of Changes in~~ ~~Stockholders’ Equity (Deficit)~~

~~(dollars in thousands except share data)~~

Beginning balance January 1, 2021

Unrealized loss on MSA investments, net of tax of $144

Unrealized gain on derivative instruments, net of tax of $937

Foreign currency translation, net of tax of $0

Ending balance March 31, 2021

Beginning balance January 1, 2020

Unrecognized pension and postretirement cost adjustment, net of tax of $2

Unrealized loss on derivative instruments, net of tax of $624

Ending balance March 31, 2020

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

Turning Point Brands, Inc.

Notes to Consolidated Financial Statements

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

Note 1. Description of Business and Basis of Presentation

Description of Business

~~Turning~~Turning Point Brands, Inc. and its subsidiaries (collectively referred to herein as the “Company,” “we,” “our,” or “us”) is a leading manufacturer, marketer and distributor of branded consumer ~~products with active ingredients. We sell~~products. The Company sells a wide range of products to adult consumers consisting of staple products with ~~our~~its iconic brands Zig-Zag^®and Stoker’s^®~~to our~~and its next generation products to fulfill evolving consumer preferences. ~~We operate in~~ 3Its ~~segments: (i) Zig-Zag Products, (ii) Stoker’s Products, and (iii) NewGen Products. Our~~ 3 focus segments are led by ~~our~~its core, proprietary ~~brands –~~ brands: Zig-Zag^® in the Zig-Zag Products segment; Stoker’s^® along with Beech-Nut^® and Trophy^® in the Stoker’s Products segment; ~~and~~ ~~Nu-X~~^TM, ~~Solace~~^®along with ~~our~~its distribution platforms (Vapor Beast^®, VaporFi^® and Direct Vapor^®)and Solace^®in the NewGen Products segment. The Company’s products are available in more than ~~210,000~~215,000 retail outlets in North America. The Company operates in 3 segments: (i) Zig-Zag Products, (ii) Stoker’s Products, and (iii) NewGen Products.

Basis of Presentation

~~The~~

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, ~~2020.~~2021. 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 indicated. 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, ~~2020.~~2021. 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.~~statements.

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 (“VIEs”) 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 ~~Update~~Codification (“~~ASU”~~ASC”) ~~2014-09,~~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 excludes from the transaction price, sales taxes and value-added taxes imposed at the time of sale (which do not include excise taxes on smokeless tobacco, cigars or vaping products billed to customers).

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 as being 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.

The Company records shipping costs incurred as a component of selling, general, and administrative expenses. Shipping costs incurred were approximately $~~5.9~~$5.7 million and $~~5.3~~$5.9 million for the three months ending March 31, 2022 and 2021, ~~and 2020, respectively~~respectively.

Inventories

Inventories are stated at the lower of cost or net realizable ~~value. Effective January 1, 2021, the Company changed its method of accounting for inventory~~value using ~~the last-in, first-out (“LIFO”) method to~~ the first-in, first-out (“FIFO”) method. ~~The Company applied this change retrospectively to all prior periods presented, which is discussed further in Note 6.~~ 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.

Derivative Instruments

Risks and Uncertainties

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. Each year’s annual obligation is required to be deposited in the escrow account by April 15 of the following year. In addition to the annual deposit, many states have elected to require quarterly deposits for the previous quarter’s sales. As of March 31,~~2021,~~ 2022, the Company had on deposit approximately ~~$32.1~~$32.1 million,, the fair value of which was approximately ~~$31.5 million~~.$30.2 million. At December 31,~~2020,~~ 2021, the Company had on deposit approximately ~~$32.1~~$32.1 million,, the fair value of which was approximately ~~$32.1 million. Effective~~$31.7 million. The Company discontinued its generic category of MYO in ~~the~~2019 and its ~~third~~ ~~quarter of~~ ~~2017,~~ ~~the Company no longer sells any product covered under the MSA.~~Zig-Zagbranded MYO cigarette smoking tobacco in 2017. Thus, ~~absent~~pending a change in MSA legislation, the Company has no remaining product lines covered by the MSA and will ~~no longer~~not be required to make ~~deposits to the MSA~~future escrow ~~account.~~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. ~~The following shows the fair value of the MSA escrow account as of March~~ ~~31,2021~~ ~~and December~~ ~~31,2020~~.

Fair values for the U.S. Governmental agency obligations are Level 2.2 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.

As of March 31, 2021
As of December 31, 2020
Cost
Gross
Unrealized
Gains

Gross
Unrealized
Losses

Estimated
Fair
Value

Cost and
Estimated
Fair Value

Cash and cash equivalents $ 17,141 $ 0 $ 0 $ 17,141 $ 32,074
U.S. Governmental agency obligations (unrealized loss position < 12 months) 14,933 0 (597 ) 14,336 0
$ 32,074 $ 0 $ (597 ) $ 31,477 $ 32,074

As of March 31, 2021
Less than one year $ 0
One to five years 0
Five to ten years 12,984
Greater than ten years 1,949
Total $ 14,933

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	As of March 31, 2022									As of December 31, 2021
	Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value		Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
Cash and cash equivalents	$	3,673	$	0	$	0		$	3,673	$	12,155	$	0	$	0		$	12,155
U.S. Governmental agency obligations (unrealized position < 12 months)		21,452		5		(1,145	)		20,312		19,918		4		(357	)		19,565
U.S. Governmental agency obligations (unrealized position > 12 months)		6,948		0		(696	)		6,252		0		0		0			0
	$	32,073	$	5	$	(1,841	)	$	30,237	$	32,073	$	4	$	(357	)	$	31,720

	As of
	March 31, 2022
Less than one year	$	0
One to five years		7,443
Five to ten years		20,001
Greater than ten years		956
Total	$	28,400

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

Deposits as of
Sales
Year

March 31,
2021

December 31,
2020

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 83 83

Total $ 32,074 $ 32,074

	Deposits as of
Sales Year	March 31, 2022		December 31, 2021
1999	$	211	$	211
2000		1,017		1,017
2001		1,673		1,673
2002		2,271		2,271
2003		4,249		4,249
2004		3,714		3,714
2005		4,553		4,553
2006		3,847		3,847
2007		4,167		4,167
2008		3,364		3,364
2009		1,619		1,619
2010		406		406
2011		193		193
2012		199		199
2013		173		173
2014		143		143
2015		101		101
2016		91		91
2017		82		82

Total	$	32,073	$	32,073

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Food and Drug ~~Administration:~~Administration (FDA): On June 22, 2009, the Family Smoking Prevention and Tobacco Control Act (the “FSPTCA”) authorized the FDA to immediately regulate the manufacturing, sale, and marketing of 4 categories of tobacco products – cigarettes, cigarette tobacco, roll-your-own tobacco, and smokeless tobacco. On August 8, 2016, the FDA deeming regulation became effective. The deeming regulation gave the FDA the authority to ~~additionally~~also regulate cigars, pipe tobacco, e-cigarettes, vaporizers, and e-liquids as “deemed” tobacco products under the FSPTCA.

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The FDA assesses tobacco product user fees on 6 c~~classes~~lasses of regulated tobacco products and computes user fees using a methodology similar to the methodology used by the U.S Department of Agriculture to compute the Tobacco Transition Payment Program (“TTPP,” also known as the “Tobacco Buyout”) assessment. First, the total, annual, congressionally established user fee assessment is allocated among the various classes of tobacco products using the federal excise tax weighted market share of tobacco products subject to regulation. Then, the assessment for each class of tobacco products is divided among individual manufacturers and importers.

In August 2016, the FDA’s regulatory authority under the Tobacco Control Act (the “TCA”) was extended to all tobacco products not previously covered, including: (i) certain NewGen products (such as electronic cigarettes, vaporizers and e-liquids) and their components or parts (such as tanks, coils and batteries); (ii) cigars and their components or parts (such as cigar ~~tobacco)~~tobacco and wraps); (iii) pipe tobacco; (iv) hookah products; and (v) any other tobacco product “newly deemed” by the FDA. These “deeming regulations” apply to all products made or derived from tobacco intended for human consumption, but excluding accessories of tobacco products (such as lighters). Accordingly, the FDA has since regulated our cigar and cigar wrap products as well as our vapor products containing tobacco-derived nicotine and products intended or reasonably expected to be used to consume such e-liquids.

Under the deeming regulations, the FDA has responsibility for conducting premarket review of “new tobacco products”—defined as those products not commercially marketed in the United States as of February 15, 2007. There are 3 pathways for obtaining premarket authorization, including submission of a premarket tobacco product application (“PMTA”).

We submitted premarket filings prior to the September 9, 2020 deadline for certain of our products and ~~intend~~have continued to supplement ~~and complete the~~these applications ~~within FDA’s discretionary timeline.~~with additional information. A successful PMTA must demonstrate that the subject product is “appropriate for the protection of public health,” taking into account the effect of the marketing of the product on all sub-populations while a Substantial Equivalence Report must demonstrate that a new product either has the same characteristics as its predicate product or different characteristics, but does not raise different questions of public health. The FDA has indicated its enforcement priority is ~~required under~~those applicants who have received negative action on their application, such as a ~~court order~~Marketing Denial Order or Refuse to ~~issue~~File notification and who continue to illegally sell those unauthorized products, as well as products for which manufacturers failed to submit a decision related to the authorization of these products within twelve months; otherwise, these products cease to be subject to the FDA’s continued compliance policy, which allows products to be marketed pending premarket review. FDA may, in its discretion and on a case-by-case basis, deviate from this policy.marketing application.

The FDA has issued a number of proposed rules related to premarket filings; however, those rules were not finalized ~~until after~~prior to the September 9, ~~2020. As such, it is unclear whether~~2020, deadline. On October 5, 2021, the FDA finalized 2 rules related to the Substantial Equivalence process and ~~how FDA will apply~~the Premarket Tobacco Product Application process, respectively, which both become effective November 4, 2021. Both final rules (collectively, the “Rules��) indicate that any new or additional requirements will not retroactively apply to currently pending ~~applications.~~PMTAs; however, the information outlined in the rule remains important to the FDA’s substantive review of an application. We believe we have products that meet the ~~requisite standards~~Rules and have filed premarket filings supporting a showing of the respective required ~~standard.~~standards. However, there is no assurance that the FDA’s guidance or ~~ultimate regulation~~regulations will not change, or that the FDA will ~~review and authorize the products~~not prioritize its enforcement in ~~the requisite time period or~~a manner that ~~in that circumstance, the FDA will use its discretion on a case-by-case basis to allow for the continued marketing of the products,~~negatively affects our pending applications, or that unforeseen circumstances will not arise that prevent us from sufficiently supplementing or completing our applications or otherwise increase the amount of time and money we are required to spend to receive all necessary marketing orders. Although we filed many premarket applications in a timely manner, no assurance can be given that the applications will ultimately be successful. This may result in the prioritization of supplementing or completing applications for high priority SKUs in our inventory position, which could adversely impact future ~~revenues.~~revenues generated by lower priority SKUs.

In addition, we currently distribute many third-party manufactured vapor products for which we will be completely dependent on the manufacturer complying with the premarket filing requirements. There can be no assurance that these third-party products will receive a marketing ~~order.~~order or otherwise remain in compliance with relevant legal requirements. While we will take measures to pursue regulatory compliance for our own privately-branded or proprietary vape products that compete with these third-party products, there is no assurance that such proprietary products would be as successful in the marketplace or can fully displace third-party products that are currently being distributed by us, which could adversely affect our results of operations and liquidity. For a period of time after the filing deadline, we expect there to be a lack of enforcement, which may adversely affect our ability to compete in the marketplace against those who continue to sell unauthorized products.

~~In January 2020,~~On April 29, 2021, the FDA ~~issued a Guidance document (the “January 2020 Guidance”) that stated it would be prioritizing enforcement of several categories of electronic nicotine delivery system (“ENDS”)~~announced plans to propose 2 tobacco product standards related to combusted tobacco products: (1) ~~flavored, cartridge-based ENDS products (other than tobacco- or menthol-flavored ENDS products;~~a ban on menthol as a characterizing flavor in cigarettes; and (2) ~~ENDS products for which~~a ban on all characterizing flavors (including menthol) in cigars. These product standards are required to go through the ~~manufacturer has failed~~formal rulemaking process where we would have the opportunity to ~~take (or is failing~~comment on the proposed rule with regard to ~~take) adequate measures to prevent minors’ access; (3) ENDS products targeted to minors or whose marketing is likely to promote the use~~any impact on any of ENDS by minors; and (4) ENDS products offered for sale after May 12, 2020, premarket application deadline (later updated to reflect the September 9, 2020 filing deadline) for which the manufacturer has not submitted a premarket application. The policy outlined several factors the agency would consider in its enforcement of flavored cigars going forward but did not restrict those products as it had considered in the March 2019 Guidance proposal. our products. The FDA’s policy on these and other regulated products may change or expand over time in ways not yet known and may significantly impact our products or our premarket filings.

~~Recent Accounting Pronouncements Adopted~~

~~In December 2019, the FASB issued ASU 2019-12 to simplify the accounting in ASC 740,~~ ~~Income Taxes~~. This guidance removes certain exceptions related to the approach for intra-period tax allocation, the methodology for calculating income taxes in an interim period, and the recognition of deferred tax liabilities for outside basis differences. This guidance also clarifies and simplifies other areas of ASC 740. This ASU will be effective beginning in the first quarter of the Company’s fiscal year 2021. Certain amendments in this update must be applied on a prospective basis, certain amendments must be applied on a retrospective basis, and certain amendments must be applied on a modified retrospective basis through a cumulative-effect adjustment to retained earnings/(deficit) in the period of adoption. The ASU was effective for the Company beginning in the first quarter of 2021. The ASU did not have an impact to the Company’s financial statements and related disclosures.

~~In August 2020, the FASB issued ASU 2020-06,~~ ~~Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity’s Own Equity (Subtopic 815-40)~~. This guidance simplifies the accounting for convertible debt instruments by reducing the number of accounting models and the number of embedded conversion features that could be recognized separately from the convertible instrument. This guidance also enhances transparency and improves disclosures for convertible instruments and earnings per share guidance. This ASU is effective for annual reporting periods beginning after December 15, 2021, including interim periods within those fiscal years. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020. This update permits the use of either the modified retrospective or fully retrospective method of transition. The Company early adopted this ASU effective January 1, 2021 using the full retrospective method of transition. The adoption resulted in a $~~7.1~~ ~~million increase in Accumulated earnings, a $24.2~~ ~~million increase in Notes payable and long-term debt, a $6.3~~ ~~million decrease in deferred income taxes and a $24.9~~ ~~million decrease in Additional paid-in capital as of December 31, 2020, and a $2.2~~ ~~million decrease in Accumulated deficit and a $24.9~~ ~~million decrease in Additional paid-in capital as of December 31, 2019. Interest expense will decrease by $6.7~~ ~~million annually and weighted average diluted common shares outstanding will increase by approximately~~ ~~3.2~~ ~~million shares~~.

On March 15, 2022, the Consolidated Appropriations Act of 2022 was signed into law. This law included a new provision bringing non-tobacco nicotine products (“NTN Products”), including synthetic nicotine, under the jurisdiction of the FDA Center for Tobacco Products. This law took effect April 14, 2022, and subjects NTN Products to the same requirements as tobacco-derived products, including not selling these products to persons under 21 years of age, not marketing these products as modified risk tobacco products, and not distributing free samples of these products. Additionally, NTN Products on the market between March 15, 2022, and April 14, 2022, must file a PMTA by May 14, 2022. NTN Products subject of a timely-filed PMTA, and not in receipt of a negative action, may remain on the market until July 13, 2022. After July 13, 2022, these products are subject to enforcement.

We have been compiling premarket filings for certain of our NTN Products and will submit these filings ahead of the May 14, 2022, deadline. After the deadline passes, we will continue to supplement these filings with additional information; however, there can be no guarantee that FDA will accept such amendments or, similar to other filings, that the applications will meet the standard of “appropriate for the protection of public health.” We also expect that for a period of time after the filing deadline, there may be a lack of enforcement, which may adversely impact our ability to compete in the marketplace against those who continue to sell unauthorized products.

Prevent All Cigarette Trafficking Act (“PACT Act”): On December 27, 2020, President Trump signed the Further Consolidated Appropriations Act, 2021, into law. This law included an amendment to the Jenkins Act expanding the definition of “cigarette” to include “electronic nicotine delivery systems,” or ENDS, and required that the United States Postal Service (USPS) promulgate regulations clarifying the applicability of the prohibition on delivery sales of cigarettes to ENDS. USPS issued its final rule on October 21, 2021. We have received appropriate shipping exemptions from carrier services we use to carry the affected freight. Failure to comply with the PACT Act could result in significant financial or criminal penalties. To the extent we are unable to respond to, or comply with, these new requirements, we could lose our shipping exemptions, be subject to civil or criminal penalties, or there could be a material adverse effect on our business, results of operations and financial condition.

Note 3. Acquisitions

Unitabac

In July 2021, the Company acquired certain assets of Unitabac, a marketer of mass-market cigars, for $10.7 million in total consideration, comprised of $9.6 million in cash and $1.1 million of capitalized transaction costs. The acquisition is comprised of a portfolio of cigarillo products and all related intellectual property, including Cigarillo Non-Tip (“NT”) Homogenized Tobacco Leaf (“HTL”) products and Rolled Leaf and Natural Leaf Cigarillo Products. The transaction was accounted for as an asset purchase with $10.0 million assigned to intellectual property, which has an indefinite life, and $0.7 million assigned to inventory. The intellectual property asset is deductible for tax purposes.

~~ReCreation Marketing~~

Direct Value Wholesale

In ~~July 2019,~~April 2021, Turning Point Brands Canada, a VIE for which the Company ~~obtained~~ is considered the primary beneficiary, purchased 100% of the equity interests of Westhem Ventures LTD d/b/a ~~30%~~ ~~stake~~Direct Value Wholesale (“DVW”) for $3.9 million, net of cash acquired, with $3.5 million paid in cash at closing and $0.5 million in accrued consideration to be paid during 2021. DVW is a Canadian distribution entity ~~ReCreation for $~~1 ~~million paid at closing. In November 2020,~~that operates in markets not primarily served by Turning Point Brands Canada. The acquisition expands Turning Point Brands Canada’s markets in Canada. On April 13, 2021, in connection with the acquisition of DVW, the Company ~~invested an additional $~~1 ~~million related to our~~ ~~30%~~ ~~stake. In November 2020, The Company also invested an additional $~~2 ~~million increasing its ownership interest to~~ ~~50%. The Company received board seats aligned with its ownership position. The Company also~~ provided a $~~2.0~~$3.7 million unsecured loan to ~~ReCreation~~Turning Point Brands Canada bearing interest at 8% per annum and maturing ~~November 19, 2022~~.April 13, 2023. The ~~Company has determined that ReCreation~~unsecured loan is ~~a VIE due to its required subordinated financial support. The Company has determined it is~~eliminated in the ~~primary beneficiary due to its~~ ~~50%~~ ~~equity interest, additional subordinated financing and distribution agreement with ReCreation for the sale~~consolidation of ~~the Company’s products. As a result, the Company began consolidating ReCreation effective November 2020.~~Turning Point Brands Canada. As of March 31, ~~2021, the Company~~2022, Turning Point Brands Canada had not completed the accounting for the acquisition. The following table summarizes the consideration transferred and calculation of goodwill based on excess of the acquisition price over the estimated fair value of the identifiable net assets acquired and are based on management’s preliminary estimates:

Total consideration transferred $ 4,000
Adjustments to consideration transferred:
Cash acquired (3,711 )
Working capital 418
Debt eliminated in consolidation 2,000
Adjusted consideration transferred 2,707
Assets acquired:
Working capital (primarily AR and inventory) 1,551
Fixed assets and Other long term assets 70
Other liabilities (203 )
Non-controlling interest (4,050 )
Net assets acquired $ (2,632 )

Goodwill $ 5,339

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Total consideration transferred	$	3,462
Adjustments to consideration transferred:
Cash acquired		(43	)
Accrued consideration		472
Adjusted consideration transferred		3,891
Assets acquired:
Working capital (primarily AR and inventory)		1,334
Fixed assets and Other long term assets		27
Net assets acquired	$	1,361

Goodwill	$	2,530

The goodwill of $~~5.3~~$2.5 million consists of the synergies expected from combining the operations and is ~~currently not~~ deductible for tax purposes.

~~Standard Diversified Inc. (“SDI”) Reorganization~~

Turning Point Brands Canada

On July 16, 2020, the Company completed its merger with SDI, whereby SDI was merged into a wholly-owned subsidiary of the Company in a tax-free downstream merger. Under the terms of the agreement, the holders of SDI’s Class A Common Stock and SDI’s Class B Common Stock (collectively, “SDI Common Stock”) received in the aggregate, in return for their SDI Common Stock, TPB Voting Common Stock (“TPB Common Stock”) at a ratio of 0.52095 shares of TPB Common Stock for each share of SDI Common Stock at the time of the merger. SDI divested its assets, other than SDI’s TPB Common Stock, prior to close such that the net liabilities at closing were minimal and the only assets that SDI retained were the remaining TPB Common Stock holdings. The transaction was accounted for as an asset purchase for $236.0 million in consideration, comprised of 7,934,704 shares of TPB Common Stock valued at $234.3 million plus transaction costs and assumed net liabilities. $236.0 million was assigned to the 8,178,918 shares of TPB Common Stock acquired. The 244,214 shares of TPB Common Stock acquired in excess of the shares issued were retired resulting in a charge of $1.7 million recorded in Accumulated earnings (deficit). The Company no longer has a controlling shareholder.

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~~Durfort Holdings~~

In ~~June 2020,~~July 2021, the Company ~~purchased certain tobacco assets~~invested an additional $2.3 million in Turning Point Brands Canada increasing its ownership interest to 65%. The Company received board seats aligned with its ownership position. The Company has determined that Turning Point Brands Canada continues to be a VIE due to its required subordinated financial support. The Company has determined it remains the primary beneficiary due to its 65% equity interest, additional subordinated financing and distribution ~~rights from Durfort Holdings S.R.L. (“Durfort”) and Blunt Wrap USA~~agreement with Turning Point Brands Canada for ~~$47.7~~the sale of the Company’s products. As a result of the Company remaining the primary beneficiary, the increase in ownership interest resulted in a decrease in Non-controlling interest of $1.1 million ~~in total consideration, comprised of $37.7 million in cash, including $1.7 million of capitalized transaction costs,~~ and a ~~$10.0~~decrease in Additional paid-in capital of $1.1 million unsecured subordinated promissory note (“Promissory Note”). With this transaction, the Company acquired co-ownership in the intellectual property rights of all of Durfort’s and Blunt Wrap USA’s Homogenized Tobacco Leaf (“HTL”) cigar wraps and cones. The Company also entered into an exclusive Master Distribution Agreement to market and sell the original ~~Blunt Wrap~~^® cigar wraps within the USA which was effective October 9, 2020. Durfort is an industry leader in alternative cigar and cigar wrap manufacturing and distribution. Blunt Wrap USA has been an innovator of new products in the smoking alternative market since 1997 and has secured patents in the USA and internationally for novel smoking wrappers and cones. The transaction was accounted for as an asset purchase with $42.2 million assigned to intellectual property, which has an indefinite life, and $5.5 million assigned to the Master Distribution Agreement, which has a 15 year life. Both assets are currently deductible for tax purposes.

Note 4. Derivative Instruments

Foreign Currency

The Company’s policy is to manage the risks associated with foreign exchange rate movements. The policy allows hedging of up to 100% of its anticipated purchases of inventory over a forward period that will not exceed 12 rolling and consecutive months. The Company may, from time to time, hedge currency for non-inventory purchases, e.g., production equipment, not to exceed 90% of the purchase price. ~~During 2020, the Company executed various forward contracts, which met hedge accounting requirements, for the purchase of €19.7 million~~At March 31, 2022 and ~~sale of €21.4 million with maturity dates ranging from~~ December ~~2020 to November 2021. At March~~ 31, 2021, the Company had 0 forward contracts ~~for the purchase of €13.1 million and sale of €14.3 million.~~ ~~The foreign currency contracts’ fair value at March 31, 2021, resulted in an asset of $~~outstanding.~~0.1~~ ~~million included in Other current assets and a liability of $0.0~~ ~~million included in Accrued liabilities. At December 31, 2020, the Company had forward contracts for the purchase of €18.0~~ ~~million and sale of €19.6~~ ~~million. The foreign currency contracts’ fair value at December 31, 2020, resulted in an asset of $0.4~~ ~~million included in Other current assets and a liability of $0.0~~ ~~million included in Accrued liabilities.~~

Interest Rate Swaps

The Company’s policy is to manage interest rate risk ~~by reducing~~relating to the volatility of future cash flows associated with debt instruments bearing interest at variable rates. In March 2018, the Company executed various interest rate swap agreements for a notional amount of $70 million with an expiration of December 2022. The swap agreements fixed LIBOR at 2.755%. The swap agreements met the hedge accounting requirements; thus, any change in fair value was recorded to other comprehensive income. The Company used the Shortcut Method to account for the swap agreements. The Shortcut Method assumes the hedge to be perfectly effective; thus, there is no ineffectiveness to be recorded in earnings. The ~~swap agreements’ fair values at~~ ~~December 31, 2020, resulted in a liability of $3.7~~ ~~million included in other long-term liabilities. Losses of $0.2~~ ~~million were reclassified into interest expense for the~~ ~~three~~ ~~months ended~~ ~~March 31, 2020. The~~ Company terminated the interest rate swap agreement in conjunction with the prepayment of all outstanding amounts ~~related to~~under the 2018 First Lien Credit Facility (as ~~defined)~~defined below) in the first quarter of 2021 with the ~~settlement~~early termination payment made by the Company in the amount of $3.6 million which was reclassified out of accumulated other comprehensive loss into loss on extinguishment of debt.

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Note 5. 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.

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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)~~defined below) bear interest at a rate of 5.625% per ~~year and~~year. As of March 31, 2022, the fair value of the Senior Secured Notes ~~approximate~~approximated their carrying value of $250 million due to the recency of the notes’ issuance, related to ~~the quarter ended~~ March 31, ~~2021.~~

The Company’s 2018 First Lien Credit Facility bore interest at variable rates that fluctuated with market rates, the carrying values of the 2018 First Lien Credit Facility approximated its fair value.2022. As of December 31, ~~2020,~~2021, the fair value of the ~~2018 First Lien Term Loan~~Senior Secured Notes approximated ~~$130.0 million. The Company prepaid all outstanding amounts~~their carrying value of $250 million due to the recency of the notes’ issuance, related to ~~the 2019 First Lien Credit Facility in the first quarter~~December 31, 2021.

The Convertible Senior Notes (as defined) bear interest at a rate of 2.50% per year, and the fair value of the Convertible Senior Notes without the conversion feature approximated $~~156.4~~160.9 million, with a carrying value of $172.5 million as of March 31, ~~2021~~2022. As of December 31, ~~2020~~2021, the fair value of the Convertible Senior Notes approximated $~~155.3~~159.8 million, with a carrying value of $172.5 million.

~~Note Payable – Promissory Note~~

~~The fair value of the Promissory Note approximates its carrying value of~~ ~~$10.0 million~~ ~~due to the recency of the note’s issuance, related to the quarter ended March 31, 2021~~.

~~Note Payable – Unsecured Loan~~

~~The fair value of the Unsecured Note approximates its carrying value of~~ ~~$7.5 million~~ ~~due to the recency of the note’s issuance, related to the quarter ended March 31, 2021~~.

See Note 11, “Notes Payable and Long-Term Debt”, for further information regarding the Company’s long-term debt.

~~Foreign Exchange~~

At ~~March 31, 2021, the Company had forward contracts for the purchase of €13.1~~ ~~million and sale of €14.3~~ ~~million. The fair value of the foreign exchange contracts are based upon quoted market prices for similar instruments, thus leading to them being categorized as level~~ 2 ~~instruments within the fair value hierarchy, and resulted in an asset of $0.1~~ ~~million and a liability of $0.0~~ ~~million as of March~~ ~~31, 2021~~. At December 31, 2020, the Company had forward contracts for the purchase of €18.0 million and sale of €19.6 million resulting in an asset of $0.4 million and a liability of $0.0 million as of December 31, 2020.

~~Interest Rate Swaps~~

~~The Company had swap contracts for a total notional amount of $70 million at December 31, 2020.~~ ~~The fair values of the swap contracts were based upon quoted market prices for similar instruments, thus leading to them being categorized as level~~ 2 ~~instruments within the fair value hierarchy, and resulted in a liability~~ of $3.7 million December 31, 2020. The Company terminated the swap contracts in conjunction with the prepayment of all outstanding amounts under the 2018 First Lien Credit Facility in the first quarter 2021.

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Note 6. Inventories

Effective January 1, 2021, the Company changed its method of accounting for inventory from the LIFO method to the FIFO method. Costs determined using the LIFO method were utilized on approximately 45.1% of inventories at December 31, 2020, prior to this change in method, and consisted primarily of tobacco inventory. The Company believes the FIFO method is preferable because it: (i) conforms the accounting for all inventory with the method utilized for the majority of its inventory; (ii) better represents how management assesses and reports on the performance of the tobacco and other LIFO product lines as LIFO is excluded from management’s economic decision making; (iii) better aligns the accounting with the physical flow of that inventory; and (iv) better reflects inventory at more current costs.

The Company applied this change retrospectively to all prior periods presented. This change resulted in a $4.5 million increase in Accumulated earnings as of December 31, 2020, from $12.1 million to $16.6 million and a $4.3 million decrease in Accumulated deficit as of December 31, 2019, from $15.3 million to $11.0 million. In addition, the following financial statement line items in the Company’s Consolidated Balance Sheets as of December 31, 2020 and its Consolidated Statements of Income and Consolidated Statements of Cash Flows for the three months ended March 31, 2020 were adjusted as follows:

Consolidated Statement of Income For the three months ended March 31, 2020
As Originally Reported Effect of Change (a) As Adjusted
Cost of sales $ 49,258 $ 0 $ 49,258
Income before income taxes $ 4,221 $ 0 $ 4,221
Income tax expense $ 946 $ 0 $ 946
Net income attributable to Turning Point Brands, Inc. $ 3,275 $ 0 $ 3,275
Earnings per common share:
Basic $ 0.17 $ 0 $ 0.17
Diluted $ 0.16 $ 0 $ 0.16

Consolidated Balance Sheets December 31, 2020
As Originally Reported Effect of Change As Adjusted
Inventories $ 79,750 $ 6,106 $ 85,856
Deferered income taxes $ 4,082 $ 1,584 $ 5,666
Accumulated earnings (deficit) $ 12,058 $ 4,522 $ 16,580

Consolidated Statement of Cash Flows For the three months ended March 31, 2020
As Originally Reported Effect of Change (a) As Adjusted
Consolidated net income $ 3,275 $ 0 $ 3,275
Deferred income taxes $ 545 $ 0 $ 545
Inventories $ 1,784 $ 0 $ 1,784

~~(a)~~

~~There was no LIFO impact for the three months ended March 31, 2020.~~

The components of inventories are as follows:

March 31,
2021

December 31,
2020

Raw materials and work in process $ 7,519 $ 8,137
Leaf tobacco 41,707 32,948
Finished goods - Zig-Zag Products 21,477 14,903
Finished goods - Stoker’s Products 9,777 9,727
Finished goods - NewGen products 16,668 18,916
Other 1,203 1,225
Inventory $ 98,351 $ 85,856

	March 31, 2022		December 31, 2021
Raw materials and work in process	$	7,483	$	6,936
Leaf tobacco		47,733		35,900
Finished goods - Zig-Zag Products		28,928		25,663
Finished goods - Stoker’s Products		11,142		8,959
Finished goods - NewGen products		9,167		8,591
Other		1,405		1,558
Inventories	$	105,858	$	87,607

The inventory valuation allowance was ~~$9.6~~$5.4 million and ~~$9.9~~$7.7 million as of March 31, ~~2021,~~2022, and December 31, ~~2020,~~2021, respectively.

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Note 7. Other Current Assets

Other current assets consist of:

March 31,
2021

December 31,
2020

Inventory deposits $ 7,369 $ 7,113
Insurance deposit 3,000 3,000
Prepaid taxes 526 813
Other 13,971 15,525
Total $ 24,866 $ 26,451

	March 31, 2022		December 31, 2021
Inventory deposits	$	9,245	$	12,091
Insurance deposit		3,000		3,000
Other		13,418		11,655
Total	$	25,663	$	26,746

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Note 8. Property, Plant, and Equipment

Property, plant, and equipment consists of:

March 31,
2021

December 31,
2020

Land $ 22 $ 22
Buildings and improvements 2,750 2,750
Leasehold improvements 4,702 4,702
Machinery and equipment 16,499 15,612
Furniture and fixtures 9,025 9,025
Gross property, plant and equipment 32,998 32,111
Accumulated depreciation (17,350 ) (16,587 )
Net property, plant and equipment $ 15,648 $ 15,524

	March 31, 2022			December 31, 2021
Land	$	22		$	22
Buildings and improvements		3,096			3,096
Leasehold improvements		5,389			5,374
Machinery and equipment		22,322			19,591
Furniture and fixtures		9,380			9,402
Gross property, plant and equipment		40,209			37,485
Accumulated depreciation		(19,642	)		(18,835	)
Net property, plant and equipment	$	20,567		$	18,650

Note 9. Other Assets

Other assets consist of:

March 31,
2021

December 31,
2020

Equity investments $ 24,016 $ 24,018
Other 2,357 2,818
Total $ 26,373 $ 26,836

	March 31, 2022		December 31, 2021
Equity investments	$	25,617	$	25,649
Debt security investment		8,000		8,000
Other		1,400		1,750
Total	$	35,017	$	35,399

The Company records its equity investments without a readily determinable fair value, that are not accounted for under the equity method, at cost, with adjustments for impairment and observable price changes.

In July, 2021, the Company invested $8 million in Old Pal Holding Company LLC (“Old Pal”). The Company invested in the form of a convertible note which includes additional follow-on investment rights. Old Pal is a leading brand in the cannabis lifestyle space that operates a non-plant touching licensing model. The Company’s investment will enable Old Pal to expand 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. The convertible note bears an interest rate of 3.0% per year and matures July 31, 2026. Interest and principal are payable at maturity. Old Pal has the option to extend the maturity date in one-year increments. The interest rate is subject to change based on sales levels of Old Pal meeting certain thresholds. The weighted average interest rate was 3% for the three months ended March 31, 2022. Old Pal has the option to convert the note into shares once sales reach a certain threshold. Additionally, the Company has the right to convert the note into shares at any time after January 1, 2022. The conditions required to allow Old Pal to convert the note were not met as of March 31, 2022. The Company has classified the debt security with Old Pal as available for sale. The Company records the debt security at fair value and includes unrealized gains and losses recorded in stockholders’ equity as a component of accumulated other comprehensive income on our Consolidated Balance Sheets. The Company reports interest income on available for sale debt securities, in interest income in our Consolidated Statements of Income. The fair value of the debt security approximated its carrying value of $8.0 million at March 31, 2022 and December 31, 2021, due to the recency of the debt security’s purchase, related to each such date. The Company has recorded accrued interest receivable of $0.2 million and $0.1 million at March 31, 2022 and December 31, 2021, respectively, in other current assets on our Consolidated Balance Sheets.

In April 2021, the Company invested $8.7 million in Docklight Brands, Inc., a pioneering consumer products company with celebrated brands including Marley Natural® cannabis and Marley™ CBD. The Company has additional follow-on investment rights. As part of the investment, the Company has obtained exclusive U.S. distribution rights for Docklight’s Marley™ CBD topical products.

Note 10. Accrued Liabilities

Accrued liabilities consist of:

March 31,
2021

December 31,
2020

Accrued payroll and related items $ 3,664 $ 9,459
Customer returns and allowances 5,683 5,259
Taxes payable 7,025 4,326
Lease liabilities 3,269 3,228
Accrued interest 2,924 2,096
Other 9,280 10,857
Total $ 31,845 $ 35,225

Note 11. Notes Payable and Long-Term Debt

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

March 31,
2021

December 31,
2020

Senior Secured Notes $ 250,000 $ 0
2018 First Lien Term Loan 0 130,000
Convertible Senior Notes 172,500 172,500
Note payable - Promissory Note 10,000 10,000
Note payable - Unsecured Loan 7,485 7,485
Gross notes payable and long-term debt 439,985 319,985
Less deferred finance charges (10,183 ) (5,873 )
Less current maturities (5,000 ) (12,000 )
Notes payable and long-term debt $ 424,802 $ 302,112

	March 31, 2022			December 31, 2021
Senior Secured Notes	$	250,000		$	250,000
Convertible Senior Notes		172,500			172,500
Gross notes payable and long-term debt		422,500			422,500
Less deferred finance charges		(7,709	)		(8,328	)
Notes payable and long-term debt	$	414,791		$	414,172

Senior Secured Notes

On February 11, 2021, the Company closed a private offering (the “Offering”) of $250 million aggregate principal amount of its 5.625% senior secured notes due 2026 (the “Senior Secured Notes”). 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 prior to February 15, 2023, at a price equal to 100% of the principal amount of the Notes redeemed plus accrued and unpaid interest, if any, to, but excluding the applicable redemption date, plus a “make-whole” premium. Thereafter, the Company may redeem the Senior Secured Notes, in whole or in part, at established redemption prices set forth in the Senior Secured Notes Indenture, plus accrued and unpaid interest, if any. In addition, on or prior to February 15, 2023, the Company may redeem up to 40% of the aggregate principal amount of the Senior Secured Notes with the net cash proceeds from certain equity offerings at a redemption price equal to 105.625%, plus accrued and unpaid interest, if any to the redemption date; provided, however, that at least 50% of the original aggregate principal amount of the Senior Secured Notes (calculated after giving effect to the issuance of any additional notes) remains outstanding. In addition, at any time and from time to time prior to February 15, 2023, but not more than once in any twelve-month period, the Company may redeem up to 10% of the aggregate principal amount of the Senior Secured Notes at a redemption price of 103% of the aggregate principal amount of Senior Secured Notes redeemed plus accrued and unpaid interest, if any to but not including the redemption date, on the Senior Secured Notes to be redeemed.

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.

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The 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 Indenture. The Indenture provides for customary events of default. The Company was in compliance with all covenants as of March 31, 2022.

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

~~The Indenture provides for customary events of default~~.

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2021 Revolving Credit Facility

In connection with the Offering, the Company also entered into a new $25 million senior secured revolving credit facility (the “2021 Revolving Credit Facility”) with the lenders party thereto (the “Lenders”) and Barclays Bank PLC, as administrative agent and collateral agent (in such capacity, the “Agent”). The 2021 Revolving Credit Facility provides for a revolving line of credit of up to $25.0 million. Letters of credit are limited to $10 million (and are a part of, and not in addition to, the revolving line of credit). The Company has 0t drawn any borrowings under the 2021 Revolving Credit Facility but does have letters of credit of approximately $3.6 million outstanding under the facility. The 2021 Revolving Credit Facility will mature on August 11, 2025, if none of the Company’s Convertible Senior Notes are outstanding, and if any Convertible Senior Notes are outstanding, the date which is 91 days prior to the maturity date of July 15, 2024, for such Convertible Senior Notes.

Interest is payable on the 2021 Revolving Credit Facility at a fluctuating rate of interest determined by reference to the Eurodollar rate plus an applicable margin of 3.50% (with step-downs upon de-leveraging). The Company also has the option to borrow at a rate determined by reference to the base rate.

The obligations under the 2021 Revolving Credit Agreement are guaranteed on a joint and several basis by the Guarantors. The Company’s and Guarantors’ obligations under the 2021 Revolving Credit Facility are secured on a pari passu basis with the Senior Secured Notes.

The 2021 Revolving Credit Agreement contains covenants that are substantially the same as the covenants in the Senior Secured Notes Indenture. The 2021 Revolving Credit Facility also requires the maintenance of a Consolidated Leverage Ratio (as defined in the 2021 Revolving Credit Agreement) of 5.50 to 1.00 (with a step down to 5.25 to 1.00 beginning with the fiscal quarter ending March 31, 2023) at the end of each fiscal quarter when extensions of credit under the 2021 Revolving Credit Facility and certain drawn and undrawn letters of credit (excluding (a) letters of credit that have been cash collateralized and (b) letters of credit having an aggregate face amount less than $5,000,000) in the aggregate outstanding exceeds 35% of the total commitments under the 2021 Revolving Credit Facility. The 2021 Revolving Credit Agreement provides for customary events of default. The Company was in compliance with all covenants as of March 31, 2022.

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

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

~~2018 Credit Facility~~

On March 7, 2018, the Company entered into $250 million of credit facilities consisting of a $160 million 2018 First Lien Term Loan and a $50 million 2018 Revolving Credit Facility (collectively, the “2018 First Lien Credit Facility”), in each case, with Fifth Third Bank, as administrative agent, and other lenders, in addition to a $40 million 2018 Second Lien Term Loan (the “2018 Second Lien Credit Facility,” and, together with the 2018 First Lien Credit Facility, the “2018 Credit Facility”) with Prospect Capital Corporation, as administrative agent, and other lenders. The 2018 Credit Facility contained a $40 million accordion feature.

The 2018 Credit Facility contained customary events of default including payment defaults, breaches of representations and warranties, covenant defaults, cross-defaults to certain other material indebtedness in excess of specified amounts, certain events of bankruptcy and insolvency, certain ERISA events, judgments in excess of specified amounts, and change in control defaults. The 2018 Credit Facility also contained certain negative covenants customary for facilities of these types including covenants that, subject to exceptions described in the 2018 Credit Facility, restrict the ability of the Company and its subsidiary guarantors: (i) to pledge assets, (ii) to incur additional indebtedness, (iii) to pay dividends, (iv) to make distributions, (v) to sell assets, and (vi) to make investments. See Note 19, “Dividends and Share Repurchase”, for further information regarding dividend restrictions.

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2018 First Lien Credit ~~Facility:~~Facility

The 2018 First Lien Term Loan and the 2018 Revolving Credit Facility bore interest at LIBOR plus a spread of 2.75% to 3.50% based on the Company’s senior leverage ratio. The 2018 First Lien Term Loan had quarterly required payments of $2.0 million beginning June 30, 2018, increasing to $3.0 million on June 30, 2020, and increasing to $4.0 million on June 30, 2022. The 2018 First Lien Credit Facility had a maturity date of March 7, 2023. The 2018 First Lien Term Loan was secured by a first priority lien on substantially all of the assets of the borrowers and the guarantors thereunder, other than certain excluded assets (the “Collateral”). In connection with the Convertible Senior Notes offering, the Company entered into a First Amendment (“the Amendment”) to the First Lien Credit Agreement, with Fifth Third Bank, as administrative agent, and other lenders and certain other lender parties thereto. The Amendment was entered into primarily to permit the Company to issue up to $200 million of convertible senior notes, enter into certain capped call transactions in connection with the issuance of such notes and to use the proceeds from the issuance of the notes to repay amounts outstanding under the 2018 Second Lien Credit Facility and use the remaining proceeds for acquisitions and investments. In connection with the Amendment, fees of $0.7 million were incurred. The 2018 First Lien Credit Facility contained certain financial covenants, which were amended in connection with the Convertible Senior Notes offering in the third quarter 2019. The covenants included maximum senior leverage ratio of 3.00x with step-downs to 2.50x, a maximum total leverage ratio of 5.50x with step-downs to 5.00x, and a minimum fixed charge coverage ratio of 1.20x. In the first quarter of 2020, the financial covenants were amended to permit certain add-backs related to PMTA in the definition of Consolidated EBITDA for the period of October 1, 2019 until September 30, 2020. In connection with the Amendment, fees of $0.2 million were incurred. The Company used a portion of the proceeds from the issuance of the Senior Secured Notes to prepay all outstanding amounts under and terminate the 2018 First Lien Credit Facility in the first quarter of 2021 in the amount of $130.0 million, and the transaction resulted in a $5.7 million loss on extinguishment of debt.

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Convertible Senior Notes

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

The Convertible Senior Notes are convertible into approximately ~~3,205,895~~3,209,690 shares of TPB Common Stock under certain circumstances prior to maturity at a conversion rate of ~~18.585~~18.607 shares per $1,000 principal amount of the Convertible Senior Notes, which represents a conversion price of approximately ~~$53.81~~$53.74 per share, subject to adjustment under certain conditions, but will not be adjusted for any accrued and unpaid interest. The conversion price is adjusted periodically as a result of dividends paid by the Company in excess of pre-determined thresholds of $0.04 per share. Upon conversion, the Company may pay cash, shares of common stock or a combination of cash and stock, as determined by the Company at its discretion. The conditions required to allow the holders to convert their Convertible Senior Notes were not met as of March 31, ~~2021.~~2022.

The Company early adopted ASU 2020-06 effective January 1, 2021 on a retrospective basis to all periods presented. Under ASU 2020-06, the Company will account for the Convertible Senior Notes entirely as a liability and will no longer separately account for the Convertible Senior Notes with liability and equity components. See note 2 for further discussion of the impact of the adoption of ASU 2020-06.

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

In connection with the Convertible Senior Notes offering, the Company entered into privately negotiated capped call transactions with certain financial institutions. The capped call transactions have a strike price of ~~$53.81~~$53.74 per and a cap price of $82.86 per share, and are exercisable when, and if, the Convertible Senior Notes are converted. The Company paid $20.53 million for these capped calls at the time they were entered into and charged that amount to additional paid-in capital.

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Promissory Note

On June 10, 2020, in connection with the acquisition of certain Durfort assets, the Company issued the Promissory Note in the principal amount of $10.0 million, ~~(the “Principal Amount”),~~ with an annual interest rate of 7.5%, payable quarterly, with the first interest payment due September 10, 2020. The ~~Principal Amount is payable~~Company prepaid all outstanding amounts under and terminated the Promissory Note in 2 $~~5.0~~the third quarter of 2021 in the amount of $9.6 million. The transaction resulted in a $0.4 million ~~installments, with the~~ ~~first~~ ~~installment due~~ 18 ~~months after the closing date~~gain on extinguishment of ~~the acquisition (June 10, 2020), and the~~ ~~second~~ ~~installment due~~ 36 ~~months after the closing date of the acquisition. The~~ ~~second~~ ~~installment is subject to reduction for certain amounts payable to the Company as a holdback.~~debt.

Unsecured Loan

On April 6, 2020, the 2018 First Lien Credit Facility was amended to allow for an unsecured loan under the Coronavirus Aid, Relief, and Economic Security Act of 2020 (“CARES”). On April 17, 2020, National Tobacco Company, L.P., a subsidiary of the Company, entered into a loan agreement with Regions Bank guaranteed by the Small Business Administration for a $7.5 million unsecured loan. The proceeds of the loan were received on April 27, 2020. The loan iswas scheduled to mature on April 17, 2022 and ~~has~~had a 1.00% interest ~~rate.~~rate. During 2021, the Company applied for forgiveness for the loan. On October 15, 2021, the Company received notice that its application for forgiveness was fully approved. The extinguishment of the unsecured loan occurred in the fourth quarter of 2021, resulting in a $7.5 million gain on extinguishment of debt. The Company is subject to audit relating to the unsecured loan until 2027 which could result in repayment of some or all of the unsecured loan previously forgiven. However, the Company believes that repayment of any amount is not probable.

~~Note Payable – IVG~~

In September 2018, the Company issued a note payable to IVG’s former shareholders (“IVG Note”). The IVG Note had a principal amount of $4.0 million with an interest rate of 6.0% per year and matured on March 5, 2020. All principal and accrued and unpaid interest under the IVG Note were subject to indemnification obligations of the sellers pursuant to the International Vapor Group Stock Purchase Agreement dated as of September 5, 2018. The carrying amount of the IVG Note, $4.2 million, was deposited into an escrow account pending agreement with the sellers of any indemnification obligations.

Note 12. Leases

The Company’s leases consist primarily of leased property for manufacturing, warehouse, head 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. In general, the Company does not recognize any renewal periods within the lease terms as there are no significant barriers to ending the lease at the initial term. Lease and non-lease components are accounted for as a single lease component.

Leases with an initial term of 12 months or less are not recorded on the balance sheet. Lease expense for these leases is recognized on a straight-line basis over the lease term.

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The components of lease expense consisted of the following:

	Three Months Ended March 31,						Three Months Ended March 31,
	2021			2020			2022		2021
Operating lease cost
Cost of sales	$	225		$	233		$	227	$	225
Selling, general and administrative		752			398			690		752
Variable lease cost (1)		205			312			112		205
Short-term lease cost		11			83			14		11
Sublease income		(30	)		(30	)		0		(30	)
Total	$	1,163		$	996		$	1,043	$	1,163

(1)	Variable lease cost includes elements of a contract that do not represent a good or service but for which the lessee is responsible for paying.

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	March 31, 2021		December 31, 2020		March 31, 2022		December 31, 2021
Assets:
Right of use assets	$	17,406	$	17,918	$	14,405	$	15,053
Total lease assets	$	17,406	$	17,918	$	14,405	$	15,053

Liabilities:
Current lease liabilities (2)	$	3,269	$	3,228	$	3,034	$	2,976
Long-term lease liabilities		15,570		16,117		12,625		13,336
Total lease liabilities	$	18,839	$	19,345	$	15,659	$	16,312

(2)	Reported within accrued liabilities on the balance sheet

	As of March 31,						As of March 31,
	2021			2020			2022			2021
Weighted-average remaining lease term - operating leases	7.1 years			7.8 years			6.5 years			7.1 years
Weighted-average discount rate - operating leases		4.93	%		5.84	%		4.88	%		4.93	%

Nearly all the lease contracts for the Company do not provide a readily determinable implicit interest rate. For these contracts, the Company uses a discount rate that approximates its incremental borrowing rate at the time of the lease commencement.

As of March 31, ~~2021,~~2022, maturities of lease liabilities consisted of the following:

March 31,
2021

2021 $ 3,078
2022 3,795
2023 3,528
2024 2,485
2025 2,125
Years thereafter 7,427
Total lease payments $ 22,438
Less: Imputed interest 3,599
Present value of lease liabilities $ 18,839

	March 31, 2022
2022	$	2,775
2023		3,635
2024		2,460
2025		2,145
2026		2,085
Years thereafter		5,343
Total lease payments	$	18,443
Less: Imputed interest		2,784
Present value of lease liabilities	$	15,659

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Note 13. Income Taxes

The Company’s effective income tax rate for the three months ended March 31, 2022, was 23.7% which includes a discrete tax deduction of $0.4 million for the three months ended March 31, 2022 relating to stock option exercises. The Company’s effective income tax rate for the three months ended March 31, 2021, was 18.7% which includes a discrete tax deduction of $3.3 million for the three months ended March 31, 2021 relating to stock option exercises. The Company’s effective income tax rate for the three months ended March 31, 2020, was 23.8% which includes a discrete tax deduction of $0.7 million for the three months ended March 31, 2020 relating to stock option exercises.exercises.

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 ~~2017.~~2018.

~~Note 14. Pension and Postretirement Benefit Plans~~

The Company had a defined benefit pension plan. Benefits for hourly employees were based on a stated benefit per year of service, reduced by amounts earned in a previous plan. Benefits for salaried employees were based on years of service and the employees’ final compensation. The Company’s policy was to make the minimum amount of contributions that can be deducted for federal income taxes. The Company made 0 contributions to the pension plan in 2020. In October 2019, the Company elected to terminate the defined benefit pension plan, effective December 31, 2019 with final distributions made in third quarter of 2020.

The Company sponsored a defined benefit postretirement plan that covered hourly employees. This plan provided medical and dental benefits. This plan was contributory with retiree contributions adjusted annually. The Company’s policy was to make contributions equal to benefits paid during the year. In October 2019, the Company amended the plan to cease benefits effective June 30, 2020.

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

Three Months Ended March 31,

Pension
Benefits

Postretirement
Benefits

2021 2020 2021 2020

Service cost $ 0 $ 0 $ 0 $ 0
Interest cost 0 95 0 0
Expected return on plan assets 0 (161 ) 0 0
Amortization of (gains) losses 0 36 0 (57 )
Net periodic benefit income $ 0 $ (30 ) $ 0 $ (57 )

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Note ~~15.~~14. 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”), ~~subject to the approval of our shareholders,~~ 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 ~~any~~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 March 31, ~~2021,~~2022, net of forfeitures, there were ~~0 awards~~ 87,367 Restricted Stock Units (“RSUs”), 95,229 options and 18,229 Performance-Based Restricted Stock Units (“PRSUs”) granted under the 2021 Plan. There are ~~1,290,000~~1,189,227 shares ~~plus any shares remaining available for issuance under the 2015 Plan,~~ available for grant under the 2021 Plan. ~~The Company intends on seeking shareholder approval of the plan at its 2021 annual meeting of shareholders. Until the 2021 Plan is approved by shareholders, no awards may be issued thereunder.~~

On April 28, 2016, the Board of Directors of the Company adopted the ~~Turning Point Brands, Inc., the~~ 2015 Plan, pursuant to which awards ~~may be~~could have been granted to employees, non-employee directors, and consultants. In addition, the 2015 Plan ~~provides~~provided for the granting of nonqualified stock options to employees of the Company or any subsidiary of the Company. Pursuant to the 2015 Plan, 1,400,000 shares of TPB Common Stock ~~are~~were reserved for issuance as awards to employees, non-employee directors, and consultants as compensation for past or future services or the attainment of certain performance goals. The 2015 Plan iswas scheduled to terminate on April 27, 2026. ~~The~~Upon adoption of the 2021 Plan, the 2015 Plan ~~is administered by~~was terminated, and the ~~Committee. The Committee determines the vesting criteria for the awards, with such criteria to~~Company determined no additional grants would be ~~specified in the award agreement. As of March 31, 2021, net of forfeitures, there were 16,159 shares of restricted stock, 563,911 PRSUs, and 707,878 options granted~~made under the 2015 ~~Plan. There are 112,052 shares available for grant under the 2015 Plan. The 2015 Plan will terminate upon approval by the Company’s shareholders of the 2021~~ Plan. However, all awards issued under the 2015 Plan that have not been previously terminated or forfeited ~~will~~ remain outstanding and continue ~~unaffected upon termination of~~unaffected. There are 0 shares available for grant under the ~~plan.~~2015 Plan. The 2015 Plan was administrated by the Committee.

On February 8, 2006, the Board of Directors of the Company adopted the 2006 Equity Incentive Plan (the “2006 Plan”) of North Atlantic Holding Company, Inc., pursuant to which awards may be granted to employees. The 2006 Plan provides for the granting of nonqualified stock options and restricted stock awards to employees. Upon the adoption of the Company’s 2015 Equity Incentive Plan in connection with its IPO, the Company determined no additional grants would be made under the 2006 Plan. However, all awards issued under the 2006 Plan that have not been previously terminated or forfeited remain outstanding and continue unaffected.

There are 0 shares available for grant under the 2006 Plan.

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

Stock
Option
Shares

Weighted
Average
Exercise
Price

Weighted
Average
Grant Date
Fair Value

Outstanding, December 31, 2019 696,716 $ 18.13 $ 6.17

Granted 155,000 14.85 4.41
Exercised (135,146 ) 6.37 2.74
Forfeited (5,510 ) 27.25 8.64
Outstanding, December 31, 2020
711,060 19.58 6.42

Granted 100,000 51.75 13.77
Exercised (74,615 ) 5.70 2.66
Forfeited (850 ) 21.63 6.15
Outstanding, March 31, 2021
735,595 $ 25.36 $ 7.80

	Stock Option Shares			Weighted Average Exercise Price		Weighted Average Grant Date Fair Value
Outstanding, December 31, 2020		711,060		$	19.58	$	6.42

Granted		119,500			50.93		13.58
Exercised		(202,768	)		10.22		6.35
Forfeited		(7,957	)		33.22		9.63
Outstanding, December 31, 2021		619,835			28.51		8.70

Granted		100,000			30.46		10.23
Exercised		(25,166	)		16.14		4.89
Forfeited		(7,217	)		29.53		8.13
Outstanding, March 31, 2022		687,452		$	29.23	$	9.07

Under the 2006, 2015 and ~~2015~~2021 Plans, the total intrinsic value of options exercised during the three months ended March 31, 2022 and 2021, was $0.4 million, and ~~2020, was~~ $3.3 million, ~~and $0.9 million,~~ respectively.

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At March ~~31,2021,~~31, 2022, under the 2006 Plan, the ~~outstanding stock options’~~ exercise price for ~~133,612~~the 86,377 outstanding options is $3.83 per share, all of which are exercisable. The weighted average of the remaining lives of the outstanding stock options with an exercise price of $3.83 is approximately ~~2.89~~2.19 years. The Company estimates the expected life of these stock options is ten years from the date of grant. For the $3.83 per share options, the weighted average fair value of options at the date of grant was determined using the Black-Scholes model ~~assuming~~with the following assumptions a ten-year life from grant date, a current share price and exercise price of $3.83, a risk-free interest rate of 3.57%, volatility of 40%, and 0 assumed dividend yield. Based on these assumptions, the fair value of these options is approximately $2.17 per share option granted.

At March 31, ~~2021,~~2022, under the 2015 ~~Plan,~~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.

February 10,
2017

May 17,
2017

March 7,
2018

March 13,
2018

March 20,
2019

October 24,
2019

March 18,
2020

February 18,
2021

Number of options granted 40,000 93,819 98,100 26,000 155,780 25,000 155,000 100,000
Options outstanding at March 31, 2021
27,050 54,183 77,967 26,000 144,134 25,000 147,799 99,850
Number exercisable at March 31, 2021
27,050 54,183 77,967 26,000 96,076 16,750 47,413 0
Exercise price $ 13.00 $ 15.41 $ 21.21 $ 21.49 $ 47.58 $ 20.89 $ 14.85 $ 51.75
Remaining lives 5.87 6.13 6.94 6.96 7.98 8.57 8.97 9.89
Risk free interest rate 1.89 % 1.76 % 2.65 % 2.62 % 2.34 % 1.58 % 0.79 % 0.56 %
Expected volatility 27.44 % 26.92 % 28.76 % 28.76 % 30.95 % 31.93 % 35.72 % 28.69 %
Expected life 6.000 6.000 6.000 5.495 6.000 6.000 6.000 6.000
Dividend yield 0 0 0.83 % 0.82 % 0.42 % 0.95 % 1.49 % 0.55 %
Fair value at grant date $ 3.98 $ 4.60 $ 6.37 $ 6.18 $ 15.63 $ 6.27 $ 4.41 $ 13.77

	February 10, 2017			May 17, 2017			March 7, 2018			March 20, 2019			October 24, 2019			March 18, 2020			February 18, 2021			May 3, 2021
Number of options granted		40,000			93,819			98,100			155,780			25,000			155,000			100,000			12,000
Options outstanding at March 31, 2022		20,000			46,483			58,667			142,284			25,000			94,612			94,529			12,000
Number exercisable at March 31, 2022		20,000			46,483			58,667			142,284			25,000			62,148			39,386			4,080
Exercise price	$	13.00		$	15.41		$	21.21		$	47.58		$	20.89		$	14.85		$	51.75		$	47.76
Remaining lives		4.87			5.13			5.94			6.98			7.57			7.97			8.89			9.10
Risk free interest rate		1.89	%		1.76	%		2.65	%		2.34	%		1.58	%		0.79	%		0.56	%		0.84	%
Expected volatility		27.44	%		26.92	%		28.76	%		30.95	%		31.93	%		35.72	%		28.69	%		29.03	%
Expected life		6.000			6.000			6.000			6.000			6.000			6.000			6.000			6.000
Dividend yield		0			0			0.83	%		0.42	%		0.95	%		1.49	%		0.55	%		0.59	%
Fair value at grant date	$	3.98		$	4.60		$	6.37		$	15.63		$	6.27		$	4.41		$	13.77		$	13.06

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

	May 17, 2021			March 14, 2022
Number of options granted		7,500			100,000
Options outstanding at March 31, 2022		7,500			100,000
Number exercisable at March 31, 2022		2,550			0
Exercise price	$	45.05		$	30.46
Remaining lives		9.13			9.96
Risk free interest rate		0.84	%		2.10	%
Expected volatility		31.50	%		35.33	%
Expected life		6.000			6.000
Dividend yield		0.63	%		1.01	%
Fair value at grant date	$	13.23		$	10.23

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 ~~$0.3~~$0.2 million and ~~$0.2~~$0.3 million for the three months ended March 31, ~~2021~~2022 and ~~2020~~,2021, respectively. Total unrecognized compensation expense related to options at March 31, ~~2021~~,2022, is ~~$1.7~~$1.5 million,, which will be expensed over ~~2.36~~2.38 years.

~~Performance-Based Restricted Stock Units~~

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 March 31, ~~2021~~2022, there are ~~563,911~~477,547 PRSUs outstanding, all of which are unvested. The following table outlines the PRSUs granted and outstanding as of March 31, ~~2021~~2022.

March 31,
2017

March 7,
2018

March 20,
2019

March 20,
2019

July 19,
2019

March 18,
2020

December 28,
2020

February 18,
2021

Number of PRSUs granted 94,000 96,000 92,500 4,901 88,582 94,000 88,169 100,000
PRSUs outstanding at March 31, 2021
83,000 93,000 85,250 0 21,342 93,350 88,169 99,800
Fair value as of grant date $ 15.60 $ 21.21 $ 47.58 $ 47.58 $ 52.15 $ 14.85 $ 46.42 $ 51.75
Remaining lives 0.75 1.75 2.75 - 1.75 3.75 2.75 4.75

	March 7, 2018		March 20, 2019		July 19, 2019		March 18, 2020		December 28, 2020		February 18, 2021		March 14, 2022
Number of PRSUs granted		96,000		92,500		88,582		94,000		88,169		100,000		49,996
PRSUs outstanding at March 31, 2022		89,600		77,380		21,342		86,610		58,779		93,840		49,996
Fair value as of grant date	$	21.21	$	47.58	$	52.15	$	14.85	$	46.42	$	51.75	$	30.46
Remaining lives		0.75		1.75		0.75		2.75		1.75		3.75		4.75

~~Table of Contents~~

The Company recorded compensation expense related to the PRSUs of approximately $~~1.2~~0.8 million and $~~0.2~~1.2 million in the consolidated statements of income for the three months ended March ~~31,2021~~31, 2022 and ~~2020~~2021, respectively, based on the probability of achieving the performance condition. Total unrecognized compensation expense related to these awards at March 31, ~~2021~~2022, is $~~12.6~~6.2 million which will be expensed over the service periods based on the probability of achieving the performance condition.

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The Company has granted 87,367 RSUs which vest over one to five years. The following table outlines the RSUs granted and outstanding as of March 31, 2022.

	May 4, 2021		July 23, 2021		March 14, 2022		March 14, 2022
Number of RSUs granted		7,478		1,159		50,004		28,726
RSUs outstanding at March 31, 2022		7,478		1,159		50,004		28,726
Fair value as of grant date	$	47.86	$	51.81	$	30.46	$	30.46
Remaining lives		0.09		0.31		4.75		2.75

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 $0.2 million for the three months ended March 31, 2022. Total unrecognized compensation expense related to RSUs at March 31, 2022, is $2.4 million, which will be expensed over 3.96 years.

Note ~~16.~~15. Contingencies

On October 9, 2020, a purported stockholder of Turning Point Brands, Inc., Paul-Emile Berteau, filed a complaint in the Delaware Court of Chancery relating to the merger of SDI with a TPB subsidiary ~~of the Company~~ 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 “SDI Merger”).~~Sub. The complaint ~~asserts~~purports to assert 2 derivative counts ~~purportedly on behalf of TPB~~ for ~~breaches~~breach of fiduciary duty on TPB’s behalf and against the TPB Board of Directors ~~of Turning Point Brands, Inc.~~ and ~~other parties.~~certain SDI affiliates. The third count ~~asserts~~purports to assert a direct claim against ~~the Company~~TPB and its Board of Directors ~~seeking a declaration~~based on allegations that TPB’s Amended and Restated Bylaws are inconsistent with TPB’s certificate of incorporation. On October 26,2020, the TPB Board of Directors adopted Amendment No. 1 to TPB’s Amended and Restated Bylaws, which amended the challenged section of the bylaws. On June 30,2021, the court granted in part and denied in part the defendants’ motions to dismiss. Among other things, the court dismissed TPB director H.C. Charles Diao as a defendant in the action and dismissed the third count of the plaintiff’s complaint as moot. The remaining defendants answered the complaint on August 23,2021.While the Company believes it has good and valid defenses to the claims, there can be no assurance that the Company will prevail in this case, and it could have a material adverse effect on the Company’s business and results of operations.

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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 ~~consumption of e-liquids~~batteries and may be subject to claims in the future relating to other NewGen 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.~~Company.

We have several subsidiaries engaged in making, distributing, and selling vapor products. As a result of the overall publicity and controversy surrounding the vapor industry generally, many companies have received informational subpoenas from various regulatory bodies and in some jurisdictions regulatory lawsuits have been filed regarding marketing practices and possible underage sales. We expect that our subsidiaries will be subject to some such cases and investigative requests. In the acquisition of the vapor businesses, we negotiated financial “hold-backs”, which we expect to be able to use to defray expenses associated with the information production and the cost of defending any such lawsuits as well as the franchisee ~~lawsuit.~~matter. To the extent that litigation becomes necessary, we believe that the subsidiaries have strong factual and legal defenses against claims that they unfairly marketed vapor products.

We have 2 franchisor subsidiaries. Like many franchise businesses, in the ordinary course of their business, these subsidiaries are from time to time responding parties to arbitration demands brought by franchisees. ~~NaN of our subsidiaries, which we acquired in 2018, is the franchisor of the VaporFi system. This subsidiary is~~

We have reached an agreement to arbitrate a ~~responding party in an arbitration~~claim brought by a franchisee claiming, among other things, violations of Federal Trade Commission Rules and Florida law. These allegations relate to the franchise disclosure document (FDD) utilized by the franchise system, a small vapor store chain, prior to our acquisition of the chain in 2018. We believe that we have good and valid substantive defenses against these claims and will vigorously defend ourselves in the arbitration.

~~We have also been named in a lawsuit brought by a different franchisee represented by the same firm that represents the plaintiff in the action described above.~~former franchisee. This ~~case~~matter relates to the termination of the franchise agreement by the franchisor for failure to pay franchising fees and our subsequent demand that the franchisee cease using our marks and de-image locations formerly housing the franchises. The franchisee ~~filed suit against us in the U.S. District Court for the Southern District of Florida sixteen months after our demand. The franchisee~~ is claiming tortious interference and conversion. We believe ~~that~~ the ~~suit~~franchisor’s ultimate termination of the franchise agreement for multiple uncured material defaults by the franchisee was ~~improperly brought before the U.S. District Court for the South District of Florida because the related franchising agreements included a mandatory arbitration clause.~~proper. We ~~also~~ believe we have good and valid substantive defenses against the claims and intend on vigorously defending our interests in this matter.

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Note ~~17.~~16. Income Per Share

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

	Three Months Ended March 31,												Three Months Ended March 31,
	2021						2020						2022						2021
	Income		Shares		Per Share		Income		Shares		Per Share		Income		Shares		Per Share		Income		Shares		Per Share
Basic EPS:
Numerator
Net income attributable to Turning Point Brands, Inc.	$	11,783					$	4,499					$	10,998					$	11,783

Denominator
Weighted average				19,093,961	$	0.62				19,689,446	$	0.23				18,257,695	$	0.60				19,093,961	$	0.62

Diluted EPS:
Numerator
Net income attributable to Turning Point Brands, Inc.	$	11,783					$	4,499					$	10,998					$	11,783
Interest expense related to Convertible Senior Notes, net of tax		1,054						0						1,054						1,054
Diluted net income attributable to Turning Point Brands. Inc.	$	12,837					$	4,499					$	12,052					$	12,837

Denominator
Basic weighted average				19,093,961						19,689,446						18,257,695						19,093,961
Convertible Senior Notes				3,205,895						0						3,209,690						3,205,895
Stock options				365,211						417,354						282,125						365,211
				22,665,067	$	0.57				20,106,800	$	0.22				21,749,510	$	0.55				22,665,067	$	0.57

For the three months ended March 31, 2020, the effect of the 3,202,808 shares issuable upon conversion of the Convertible Senior Notes were excluded from the diluted net income per share calculation because the effect would have been antidilutive.

Note ~~18.~~17. Segment Information

In accordance with ASC 280, Segment Reporting, the Company has 3 reportable segments: (1) Zig-Zag Products; (2) Stoker’s Products; and (3) NewGen Products. The Zig-Zag Products segment markets and distributes (a) rolling papers, tubes, and related products; and (b) finished cigars and MYO cigar wraps. The Stoker’s Products segment (a) manufactures and markets moist snuff and (b) contracts for and markets loose leaf chewing tobacco products. The NewGen Products segment (a) markets and distributes ~~CBD,~~ liquid vapor products and certain other products without tobacco and/or nicotine; (b) distributes a wide assortment of products to non-traditional retail outlets via VaporBeast; and (c) markets and distributes a wide assortment of products to individual consumers via the VaporFi B2C online platform. Products in the Zig-Zag Products and Stoker’s Products segments are distributed primarily through wholesale distributors in the United States while products in the NewGen Products segment are distributed primarily through e-commerce to non-traditional retail outlets and direct to consumers in the United States. ~~The Other segment~~Corporate unallocated includes the costs and assets of the Company not assigned to one of the 3 reportable segments such as intercompany transfers, deferred taxes, deferred financing fees, and investments in subsidiaries.As a result of a change in the Company’s chief operating decision maker (“CODM”), resulting from the hiring of a new Chief Executive Officer in the first quarter of 2022, certain general and administrative costs previously included to the NewGen Products segment are now included in Corporate unallocated to align with new management and reporting structures in the Company and better reflect how performance is now evaluated and resources are allocated by the CODM. Amounts in the prior year period have not been adjusted. Had such prior period amounts been adjusted, approximately $0.9 million of costs for the three months ended March 31, 2021 previously reported in the NewGen Products segment would have been reported in Corporate unallocated.

The accounting policies of these segments are the same as those of the Company. Corporate costs are not directly charged to the 3three 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.

Table of Contents

The tables below present financial information about reported segments:

							Three Months Ended March 31,
	Three Months Ended March 31,						2022			2021
	2021			2020
Net sales
Zig-Zag products	$	41,004		$	28,914		$	45,672		$	41,004
Stoker’s products		29,255			26,495			31,703			29,255
NewGen products		37,382			35,280			23,519			37,382
Total	$	107,641		$	90,689		$	100,894		$	107,641

Gross profit
Zig-Zag products	$	24,896		$	16,132		$	26,343		$	24,896
Stoker’s products		15,892			13,874			17,686			15,892
NewGen products		12,473			11,425			7,765			12,473
Total	$	53,261		$	41,431		$	51,794		$	53,261

Operating income (loss)
Zig-Zag products	$	19,437		$	12,417		$	18,737		$	19,437
Stoker’s products		12,255			9,746			13,506			12,255
NewGen products		2,006			477			678			2,006
Corporate unallocated ⁽¹⁾⁽²⁾		(9,349	)		(13,603	)		(13,692	)		(9,349	)
Total	$	24,349		$	9,037		$	19,229		$	24,349

Interest expense, net		4,486			3,309			5,196			4,486
Investment income		(25	)		(91	)		(78	)		(25	)
Loss on extinguishment of debt		5,706			0			0			5,706
Net periodic income, excluding service cost		0			(87	)

Income before income taxes	$	14,182		$	5,906		$	14,111		$	14,182

Capital expenditures
Zig-Zag products	$	0		$	0		$	2,323		$	0
Stoker’s products		840			860			464			840
NewGen products		2			17			0			2
Total	$	842		$	877		$	2,787		$	842

Depreciation and amortization
Zig-Zag products	$	114		$	0		$	92		$	114
Stoker’s products		635			519			767			635
NewGen products		516			757			475			516
Total	$	1,265		$	1,276		$	1,334		$	1,265

(1)	Includes corporate costs that are not allocated to any of the 3 reportable segments.

(2)	Includes costs related to PMTA of ~~$5.9~~$1.1 million in ~~2020.~~2022 and $0.3 million in 2021.

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	March 31, 2022		December 31, 2021
Assets
Zig-Zag products	$	227,989	$	227,554
Stoker’s products		172,400		142,334
NewGen products		61,529		72,746
Corporate unallocated ⁽¹⁾		156,785		158,926
Total	$	618,703	$	601,560

March 31,
2021

December 31,
2020

Assets
Zig-Zag products $ 212,400 $ 206,900
Stoker’s products 148,093 133,016
NewGen products 91,616 91,116
Corporate unallocated ⁽¹⁾
175,196 65,017
Total $ 627,305 $ 496,049

(1)	Includes assets not assigned to the 3 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 NewGen sales are made business to business and business to consumer, both online and through our corporate retail stores. NewGen net sales are broken out by sales channel below.

NewGen Segment

Three Months Ended
March 31,

2021 2020
Business to Business $ 27,257 $ 25,278
Business to Consumer - Online 10,033 8,134
Business to Consumer - Corporate store 0 1,794
Other 92 74
Total $ 37,382 $ 35,280

	NewGen Segment
	Three Months Ended March 31,
	2022		2021

Business to Business	$	19,124	$	27,257
Business to Consumer - Online		4,233		10,033
Other		162		92
Total	$	23,519	$	37,382

Net Sales—Domestic vs. Foreign

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

Three Months Ended
March 31,

2021 2020
Domestic $ 100,127 $ 87,568
Foreign 7,514 3,121
Total $ 107,641 $ 90,689

	Three Months Ended March 31,
	2022		2021
Domestic	$	93,766	$	100,127
Foreign		7,128		7,514
Total	$	100,894	$	107,641

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Note ~~19.~~18. Dividends and Share Repurchase

The most recent dividend of ~~$0.055~~$0.06 per common share was paid on April ~~9, 2021,~~8, 2022, to shareholders of record at the close of business on March ~~19, 2021.~~18, 2022.

Dividends are considered restricted payments under the Senior Secured Notes Indenture and 2021 Revolving Credit Facility. The Company is generally permitted to make restricted payments provided that, at the time of payment, or as a result of payment, the Company is not in default on its debt covenants. Additional earnings and market capitalization restrictions 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. On October 25,2021, the Board increased the approved share repurchase program by $30.7 million. On February 24,2022, the Board increased the approve share repurchase program by $24.6 million. The program is subject to the ongoing discretion of the Board. The total number of shares repurchased for the three months ended March 31, ~~2021,~~2022, was ~~119,031~~310,224 shares for a total cost of ~~$5.7~~$10.6 million and an average price per share of ~~$48.16. $34.1~~$34.24.$45.8 million ~~remains~~ remained available for share repurchases under the program at March 31, ~~2021.~~2022.

~~Note 20. Subsequent Events~~

~~On April 19, 2021, the Company invested $8.7 million in Docklight Brands, Inc., a pioneering consumer products company with celebrated brands including~~ ~~Marley Natural~~30^® ~~cannabis and~~ ~~Marley™ CBD. The Company has additional follow-on investment rights. As part of the investment, the Company has obtained exclusive U.S. distribution rights for Docklight’s~~ ~~Marley™ CBD topical products.~~

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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 condition and results of operations in conjunction with our historical 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 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 discussion relates to the unaudited financial statements of Turning Point Brands, Inc., included elsewhere in this Quarterly Report on Form 10-Q. In this discussion, unless the context requires otherwise, references to “our Company” “we,” “our,” or “us” refer to Turning Point Brands, Inc., and its consolidated subsidiaries. References to “TPB” refer to Turning Point Brands, Inc., without any of its subsidiaries. We were incorporated in 2004 under the name North Atlantic Holding Company, Inc. On November 4, 2015, we changed our name to Turning Point Brands, Inc. Many of the amounts and percentages in this discussion have been rounded for convenience of presentation.

Overview

Turning Point Brands, Inc. (the “Company,” “we,” “our,” or “us”) is a leading manufacturer, marketer and distributor of branded consumer products. We sell a wide range of products to adult consumers consisting of staple products with our iconic brands Zig-Zag^®and Stoker’s^®toand 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 double-digit~~mid-single-digit consumer unit growth ~~in 2020~~over the year period ending 2021 as reported by Management Science Associates, Inc. (“MSAi”), a third-party analytics and information company. Our three focus segments are led by our core, proprietary brands: Zig-Zag^® in the Zig-Zag Products segment; Stoker’s^® along with Beech-Nut^® and Trophy^® in the Stoker’s Products segment; and ~~Nu-X~~^TM, ~~Solace~~^® ~~along with~~ our distribution platforms (Vapor Beast^®, VaporFi^® and Direct Vapor^®) along with Solace^®in the NewGen Products segment. Our businesses generate solid cash ~~flow~~flows which we use to invest in our business, finance acquisitions, increase brand support, expand our distribution infrastructure, and strengthen our capital position. We currently ship to approximately 800 distributors with an additional 200 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 have identified additional growth opportunities in the emerging alternatives market. In January 2019, we established Nu-X Ventures LLC (“Nu-X”), a new wholly owned subsidiary dedicated to the development, production and sale of alternative products and acquisitions in related spaces. The creation of Nu-X allows us to leverage our expertise in traditional OTP management to alternative products. Our management team has extensive experience navigating federal, state and local regulations that are directly applicable to the growing alternatives market. In July 2019, we acquired the assets of Solace Technology (“Solace”). Solace is an innovative product development company which established one of the top e-liquid brands and has since grown into a leader in alternative products. Solace’s legacy and innovation enhanced Nu-X’s strong and nimble development engine.

We believe there are meaningful opportunities to grow through acquisitions and joint ventures across all product categories. As of December 31, ~~2020,~~2021, our products are available in approximately ~~190,000~~195,000 U.S. retail locations which, with the addition of retail stores in Canada, brings our total North American retail presence to an estimated ~~210,000~~215,000 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 NewGen Products. In our Zig-Zag Products segment, we principally market and distribute (i) rolling papers, tubes, and related products; and (ii) finished cigars and make-your-own (“MYO”) cigar wraps. In our Stoker’s Products segment, we (i) manufacture and market moist snuff tobacco (“MST”) and (ii) contract for and market loose leaf chewing tobacco products. In our NewGen Products segment, we (i) market and distribute ~~CBD,~~ liquid vapor products and certain other products without tobacco and/or nicotine; (ii) distribute a wide assortment of products to non-traditional retail via VaporBeast; and (iii) market and distribute a wide assortment of products to individual consumers via the VaporFi B2C online platform.

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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. ~~In our NewGen Products segment, our~~Our acquisition of VaporBeast in 2016 expanded our revenue streams as we began selling directly to non-traditional retail outlets. Our acquisition of IVG in 2018 enhanced our B2C revenue stream with the addition of the Vapor-Fi online platform. The acquisition of Solace in 2019 provided us with a line of leading liquids and a powerful new product development 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. More than 80% 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. Our other principal expenses include interest expense and other expenses.

Key Factors Affecting Our Results of Operations

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

Our ability to further penetrate markets with our existing products;

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

Decreasing interest in some tobacco products among consumers;

~~Price sensitivity in our end-markets;~~

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

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

Price sensitivity in our end-markets;

Cost and increasing regulation of promotional and advertising activities;

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

Increasing and unpredictable regulation of NewGen products;

Counterfeit and other illegal products in our end-markets;

Currency fluctuations;

Our ability to identify attractive acquisition opportunities; and

Our ability to successfully integrate acquisitions.

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Recent Developments

~~Senior Secured Notes~~Non-Tobacco Nicotine Included Under Jurisdiction of FDA’s Center for Tobacco Products

New legislation enacted on March 15, 2022, provides authority for the FDA to regulate tobacco products containing nicotine from any source (“NTN Products”). This law takes effect April 14, 2022, and ~~2021 Revolving Credit Facility~~requires NTN Products to comply with applicable requirements under the Federal Food, Drug, and Cosmetic Act, such as not selling to persons under 21 years of age, not marketing these products as modified risk tobacco products without FDA’s authorization, and not distributing free samples. Additionally, NTN Products in the market between March 15, 2022, and April 14, 2022, must file a premarket tobacco application by May 14, 2022. NTN Products subject of a timely-filed PMTA, and not in receipt of a negative action, may remain on the market until July 13, 2022. After July 13, 2022, these products are subject to enforcement. We have begun preparing premarket filings for certain of our NTN Products and intend to submit these applications by the May 14, 2022, deadline. After submission, we will continue to supplement these filings with additional information to support a finding that the marketing of these products is “appropriate for the protection of public health.”

CLIPPER^®Lighters

In February 2022, we entered into an agreement with Flamagas, a renowned lighter manufacturer, for exclusive distribution of CLIPPER^® lighters in the United States and Canada.

Final Rule Related to PACT Act Published

On ~~February 11,~~October 21, 2021, ~~we closed~~the United States Postal Service (“USPS”) published a ~~private offering (the “Offering”)~~Final Rule entitled “Treatment of ~~$250 million aggregate principal amount~~E-Cigarettes in the Mail,” which followed its earlier publication 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~~the Proposed Rule on February ~~15, 2026. In connection with the Offering, we also entered into a new $25 million senior secured revolving credit facility (the “2021 Revolving Credit Facility”) with the lenders party thereto (the “Lenders”) and Barclays Bank PLC,~~19, 2021. This Final Rule was required as ~~administrative agent and collateral agent (in such capacity, the “Agent”). The 2021 Revolving Credit Facility provides for a revolving line of credit of up to $25.0 million.~~ We used a portion of the proceeds from the issuance of the Senior Secured Notes to prepay all outstanding amounts under and terminate the 2018 First Lien Credit Facility in the first quarter 2021 in the amount of $130.0 million, and the transaction resulted in a $5.7 million loss on extinguishment of debt. Refer to the “Long-Term Debt” section for a more complete description of our Senior Secured Notes and 2021 Revolving Credit Facility.

~~Docklight Brands, Inc.~~

~~On April 19, 2020, we~~ ~~invested $8.7 million in Docklight Brands, Inc., a pioneering consumer products company with celebrated brands including~~ ~~Marley Natural® cannabis and~~ ~~Marley™ CBD. We have additional follow-on investment rights. As part of the investment, we have obtained exclusive U.S. distribution rights for Docklight’s~~ ~~Marley™ CBD topical products.~~

~~COVID-19 Impact~~

As a result of the ~~extraordinary situation we are facing, our focus is~~inclusion of Division FF, Title VI (Preventing Online Sales of E-Cigarettes to Children or “POSECA”) in the Further Consolidated Appropriations Act, 2021. POSECA, among other things, expanded the definition of “cigarettes” in the Jenkins Act and Prevent All Cigarette Trafficking (“PACT”) Act to expressly capture “electronic nicotine delivery systems,” i.e., ENDS. Consistent with the Proposed Rule, the Final Rule extends the existing prohibition on and exceptions to the ~~safety~~mailing of “cigarettes” via USPS to ENDS products, other than the Consumer Testing and ~~well-being~~Public Health exceptions. Specifically, the Final Rule extends the following exceptions to the prohibition on mailing of ~~our colleagues~~ENDS products: the Business/Regulatory Purposes Exception, the Certain Individuals Exception, and the ~~communities~~exception for intra-Alaska and ~~customers we serve. As an organization, we~~intra-Hawaii shipments. We have ~~implemented several changes~~received certain shipping exemptions from carrier services to enhance safety and mitigate health risk in our work environment. For our warehouse and manufacturing operations, these include split shifts, temperature scans, additional contactless hand sanitizing stations, protective equipment, social distancing guidelines, and increased cleaning and sanitization. These changes resulted in higher operational costs related to maintaining a safer work environment and fulfilling orders.

~~We canceled all unnecessary travel and facilitated telecommuting where possible. Like many companies, we have changed~~carry the ~~way we communicate through increased use of videoconferencing~~affected freight and have implemented tele-selling initiatives through our sales force. Some of these changes that are proving to be efficient are likely to remain in-place even after this crisis and lead to on-going cost savings. We have also putcreated a ~~hold on new spending commitments as we cautiously manage through this environment.~~supplemental logistical network for those shipments not covered by the exemptions.

We hired additional employees in our Louisville facility and implemented temporary wage increases for our hourly employees to meet increased demand. We shifted production capacity to manufacture hand sanitizers and have donated bottles to hospitals, nursing homes and first responders in our local communities.

COVID-19 may impact our results. Our third-party cigar wrap manufacturer in the Dominican Republic was temporarily shut down. Our supply chain has remained operational otherwise. Select budgeted annual price increases will be delayed. Our B2C platforms have seen elevated sales levels from consumer shifts to online purchasing, and we gained market share. We continue to monitor this challenging environment closely and will make necessary adjustments as needed to make sure we are serving our employees and customers, while also protecting the safety of employees and communities.

~~Premarket Tobacco Applications~~

We submitted Premarket Tobacco Applications (“PMTAs”) covering 250 products to the FDA prior to the September 9, 2020 filing deadline. The PMTAs cover a broad assortment of products in the vapor category including multiple proprietary e-liquid offerings in varying nicotine strengths, technologies and sizes; proprietary replacement parts and components of open system tank devices through partnerships with two leading manufacturers for exclusive distribution of products in the United States; and a closed system e-cigarette.

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Critical Accounting Policies and Uses of Estimates

~~Inventories~~

Inventories are stated at the lower of cost or net realizable value. Effective January 1, 2021, the Company changed its method of accounting for inventory using the last-in, first-out (“LIFO”) method to the first-in, first-out (“FIFO”) method. The Company applied this change retrospectively to all prior periods presented, which is discussed further in Note 6, “Inventories” in the Notes to the Consolidated Financial Statements included in this Quarterly Report. 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.

There have been no ~~other~~ 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 ~~2020~~2021 Annual Report on Form 10-K.

Recent Accounting Pronouncements

~~Refer to Note 2, “Summary of Significant Accounting Policies,” of Notes to Consolidated Financial Statements included in this Quarterly Report for a description of recently issued~~There are no recent accounting pronouncements ~~including those recently adopted.~~that impact the Company.

Results of Operations

Comparison of the Three Months Ended March 31, ~~2021,~~2022, to the Three Months Ended March 31, ~~2020~~2021

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

	Three Months Ended March 31,									Three Months Ended March 31,
	2021			2020			% Change			2022			2021			% Change
Consolidated Results of Operations Data:
Net sales
Zig-Zag products	$	41,004		$	28,914			41.8	%	$	45,672		$	41,004			11.4	%
Stoker’s products		29,255			26,495			10.4	%		31,703			29,255			8.4	%
NewGen products		37,382			35,280			6.0	%		23,519			37,382			-37.1	%
Total net sales		107,641			90,689			18.7	%		100,894			107,641			-6.3	%
Cost of sales		54,380			49,258			10.4	%		49,100			54,380			-9.7	%
Gross profit
Zig-Zag products		24,896			16,132			54.3	%		26,343			24,896			5.8	%
Stoker’s products		15,892			13,874			14.5	%		17,686			15,892			11.3	%
NewGen products		12,473			11,425			9.2	%		7,765			12,473			-37.7	%
Total gross profit		53,261			41,431			28.6	%		51,794			53,261			-2.8	%

Selling, general, and administrative expenses		28,912			32,394			-10.7	%		32,565			28,912			12.6	%
Operating income		24,349			9,037			169.4	%		19,229			24,349			-21.0	%
Interest expense, net		4,486			3,309			35.6	%		5,196			4,486			15.8	%
Investment income		(25	)		(91	)		-72.5	%		(78	)		(25	)		212.0	%
Loss on extinguishment of debt		5,706			-		NM				-			5,706			-100.0	%
Net periodic income, excluding service cost		-			(87	)		-100.0	%
Income before income taxes		14,182			5,906			140.1	%		14,111			14,182			-0.5	%
Income tax expense		2,654			1,407			88.6	%		3,340			2,654			25.8	%
Consolidated net income		11,528			4,499			156.2	%		10,771			11,528			-6.6	%
Net loss attributable to non-controlling interest		(255	)		-						(227	)		(255	)		-11.0	%
Net income attributable to Turning Point Brands, Inc.	$	11,783		$	4,499					$	10,998		$	11,783			-6.7	%

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Net Sales: For the three months ended March 31, ~~2021,~~2022, consolidated net sales ~~increased~~decreased to ~~$107.6~~$100.9 million from ~~$90.7~~$107.6 million for the three months ended March 31, ~~2020, an increase~~2021, a decrease of ~~$17.0~~$6.7 million or ~~18.7%~~6.3%. The ~~increase~~decrease in net sales was driven by ~~increased~~decreased sales volume ~~across all segments, primarily~~ in the ~~Zig-Zag~~NewGen Products segment.

For the three months ended March 31, ~~2021,~~2022, net sales in the Zig-Zag Products segment increased to ~~$41.0~~$45.7 million from ~~$28.9~~$41.0 million for the three months ended March 31, ~~2020,~~2021, an increase of ~~$12.1~~$4.7 million or ~~41.8%~~11.4%. For the three months ended March 31, ~~2021,~~2022, volume increased ~~36.9%~~7.1% and price/mix increased ~~5.0%~~4.3%. The increase in net sales was ~~primarily related to~~driven by double-digit growth in USU.S. rolling papers ~~MYO cigar wraps~~ and ~~Canadian papers.~~our E-Commerce business.

For the three months ended March 31, ~~2021,~~2022, net sales in the Stoker’s Products segment increased to ~~$29.3~~$31.7 million from ~~$26.5~~$29.3 million for the three months ended March 31, ~~2020,~~2021, an increase of ~~$2.8~~$2.4 million or ~~10.4%~~8.4%. For the three months ended March 31, ~~2021,~~2022, volume increased ~~5.1%~~0.3% and price/mix increased ~~5.3%~~8.1%. The increase in net sales was driven by the continuing double-digit ~~volume~~ growth of Stoker’s^® ~~MST and low single-digit growth of loose-leaf chewing tobacco.~~MST.

For the three months ended March 31, ~~2021,~~2022, net sales in the NewGen products segment ~~increased~~decreased to ~~$37.4~~$23.5 million from ~~$35.3~~$37.4 million for the three months ended March 31, ~~2020, an increase~~2021, a decrease of ~~$2.1~~$13.9 million or ~~6.0%~~37.1%. The ~~increase~~decrease in net sales was primarily the result of ~~growth~~declines in ~~both~~ the vape distribution ~~businesses and Nu-X.~~businesses.

Gross Profit: For the three months ended March 31, ~~2021,~~2022, consolidated gross profit ~~increased~~decreased to ~~$53.3~~$51.8 million from ~~$41.4~~$53.3 million for the three months ended March 31, ~~2020, an increase~~2021, a decrease of ~~$11.8~~$1.5 million or ~~28.6%~~2.8%. Gross profit as a percentage of revenue increased to 51.3% for the three months ended March 31, 2022, compared to 49.5% for the three months ended March 31, 2021 ~~compared to 45.7% for the three months ended March 31, 2020~~ driven by increased margin in the ~~Zig-Zag~~Stoker’s Products segment and mix as ~~a result of~~ the ~~Durfort transaction.~~NewGen Products segment generates lower margins.

For the three months ended March 31, ~~2021,~~2022, gross profit in the Zig-Zag Products segment increased to ~~$24.9~~$26.3 million from ~~$16.1~~$24.9 million for the three months ended March 31, ~~2020,~~2021, an increase of ~~$8.8~~$1.4 million or ~~54.3%~~5.8%. Gross profit as a percentage of net sales ~~increased~~decreased to 57.7% of net sales for the three months ended March 31, 2022, from 60.7% of net sales for the three months ended March 31, 2021, as a result of the consolidation of DVW in Turning Point Brands Canada in the current year period which operates at lower margins than our traditional business.

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For the three months ended March 31, 2022, gross profit in the Stoker’s Products segment increased to $17.7 million from $15.9 million for the three months ended March 31, 2022, an increase of $1.8 million or 11.3%. Gross profit as a percentage of net sales increased to 55.8% of net sales for the three months ended March 31, ~~2020, as a result of increased MYO cigar wraps sales combined with margin increases as a result of the Durfort transaction.~~

~~For the three months ended March 31, 2021, gross profit in the Stoker’s Products segment increased to $15.9 million~~2022, from ~~$13.9 million for the three months ended March 31, 2020, an increase of $2.0 million or 14.5%. Gross profit as a percentage of net sales increased to~~ 54.3% of net sales for the three months ended March 31, 2021, ~~from 52.4% of net sales for the three months ended March 31, 2020,~~ primarily as a result of strong incremental margin contribution of MST.

For the three months ended March 31, ~~2021,~~2022, gross profit in the NewGen products segment ~~increased~~decreased to ~~$12.5~~$7.8 million from ~~$11.4~~$12.5 million for the three months ended March 31, ~~2020, an increase~~2021, a decrease of ~~$1.0~~$4.7 million or ~~9.2%~~37.7%. Gross profit as a percentage of net sales ~~increased~~decreased to 33.0% of net sales for the three months ended March 31, 2022, from 33.4% of net sales for the three months ended March 31, ~~2021, from 32.4% of net sales for the three months ended March 31, 2020.~~2021.

Selling, General, and Administrative Expenses: For the three months ended March 31, ~~2021,~~2022, selling, general, and administrative expenses ~~decreased~~increased to ~~$28.9~~$32.6 million from ~~$32.4~~$28.9 million for the three months ended March 31, ~~2020, a decrease~~2021, an increase of ~~$3.5~~$3.7 million or ~~10.7%~~12.6%. Selling, general and administrative expenses in the three months ended March 31, 2022, included $1.2 million of stock options, restricted stock and incentives expense, $0.4 million of transaction expense, $1.1 million of expense related to PMTA, $1.3 million of expense related to corporate restructuring and $0.3 million of expense related to the scoping of the new ERP and CRM systems. Selling, general and administrative expenses in the three months ended March 31, 2021, included $1.5 million of stock options, restricted stock and incentives expense and $0.6 million of transaction expenses. Selling, general and administrative expenses in the three months ended March 31, 2020 included $0.5 million of stock option, restricted stock and incentives expense, ~~$1.0~~$0.6 million of transaction costs and ~~$5.9~~$0.3 million of expense related to ~~PMTA, which was the primary driver for the decrease in year-over-year selling, general, and administrative expenses.~~PMTA.

Interest Expense, net: For the three months ended March 31, ~~2021,~~2022, interest expense, net increased to ~~$4.5~~$5.2 million, from ~~$3.3~~$4.5 million for the three months ended March 31, ~~2020~~2021 as a result of the ~~completion of the offering of the Senior Secured Notes and related refinancing of the 2018 First Lien Credit Facility which increased~~increase in the Company’s outstanding ~~debt.~~debt in February 2021.

Investment Income: For the three months ended March 31, ~~2021,~~2022, investment income ~~decreased~~increased to ~~$0.0~~$0.1 million, from ~~$0.1~~$0.0 million for the three months ended March 31, ~~2020.~~2021.

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Loss on Extinguishment of Debt: There was ~~$5.7 million~~no loss on extinguishment of debt for the three months ended March 31, 2022 compared to $5.7 million for the three months ended March 31, 2021 related to the repayment of the 2018 First Lien Credit ~~Facility, compared to $0.0 million for the three months ended March 31, 2020.~~

~~Net Periodic Income:~~ ~~Net periodic income was $0.0 million for the three months ended March 31, 2021 compared to $0.1 million for the three months ended March 31, 2020.~~Facility.

Income Tax Expense: Our income tax expense of ~~$2.7~~$3.3 million was ~~18.7%~~23.7% of income before income taxes for the three months ended March 31, ~~2021~~2022 and included a discrete tax benefit of ~~$3.3~~$0.4 million relating to stock option exercises. Our effective income tax rate was ~~23.8%~~18.7% for the three months ended March 31, ~~2020~~2021 and included a discrete tax ~~deduction $0.7~~benefit $3.3 million relating to stock option exercises.

Net Loss Attributable to Non-Controlling Interest: Net loss attributable to non-controlling interest was $0.2 million for the three months ended March 31, 2022 compared to $0.3 million for the three months ended March 31, ~~2021 compared~~2021.

Net Income Attributable to ~~$0.0 million~~Turning Point Brands, Inc.: Due to the factors described above, net income attributable to Turning Point Brands, Inc. for the three months ended March 31, ~~2020.~~

~~Consolidated Net Income:~~ ~~Due to the factors described above, consolidated net income for the three months ended March 31,~~2022 and 2021, ~~and 2020,~~ was ~~$11.8~~$11.0 million and ~~$4.5~~$11.8 million, respectively.

EBITDA and Adjusted EBITDA

To supplement our financial information presented in accordance with generally accepted accounting principles in the United States, or U.S. GAAP, we use non-U.S. 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 ~~Revolving Credit Agreement contains financial~~debt instruments contain covenants which use Adjusted EBITDA ~~calculations, and many~~calculations.

Table of ~~the carve-outs from the negative covenants in the Senior Secured Notes Indenture and Revolving Credit Facility are based off of EBITDA, Adjusted EBITDA and related metrics.~~Contents

We define “EBITDA” as net income before interest expense, loss on extinguishment of debt, provision for income taxes, depreciation, and amortization. We define “Adjusted EBITDA” as net income before interest expense, loss on extinguishment of debt, provision for income taxes, depreciation, amortization, other non-cash items, and other items we do not consider ordinary course in our evaluation of ongoing operating performance noted in the reconciliation below.

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.

	Three Months Ended
(in thousands)	March 31,
	2022		2021
Net income attributable to Turning Point Brands, Inc.	$	10,998	$	11,783
Add:
Interest expense, net		5,196		4,486
Loss on extinguishment of debt		-		5,706
Income tax expense		3,340		2,654
Depreciation expense		871		788
Amortization expense		463		477
EBITDA	$	20,868	$	25,894
Components of Adjusted EBITDA
Corporate restructuring (a)		1,332		-
ERP/CRM (b)		330		-
Stock options, restricted stock, and incentives expense (c)		1,159		1,498
Transactional expenses (d)		425		607
FDA PMTA (e)		1,139		-
Adjusted EBITDA	$	25,253	$	27,999

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Three Months Ended
(in thousands) March 31,
2021 2020
Net income attributable to Turning Point Brands, Inc. $ 11,783 $ 4,499
Add:
Interest expense, net 4,486 3,309
Loss on extinguishment of debt 5,706 -
Income tax expense 2,654 1,407
Depreciation expense 788 851
Amortization expense 477 425
EBITDA $ 25,894 $ 10,491
Components of Adjusted EBITDA
Other (a) - (87 )
Stock options, restricted stock, and incentives expense (b) 1,498 455
Transactional expenses (c) 607 1,049
FDA PMTA (d) - 5,874
Adjusted EBITDA $ 27,999 $ 17,782

(a)	Represents ~~non-cash pension expense (income)~~costs associated with corporate restructuring, including severance.

(b)	Represents costs associated with scoping new ERP and ~~foreign exchange hedging.~~CRM systems.

~~(b)~~

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

~~(c)~~

(d)	Represents the fees incurred for transaction expenses.

~~(d)~~

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

Liquidity and Capital Reserves

Our principal uses for cash are working capital, debt service, and capital expenditures. We believe our cash on hand, cash flows from operations and borrowing availability under our 2021 Revolving Credit Facility are adequate to satisfy our operating cash requirements for the foreseeable future. As of March 31, ~~2021,~~2022, we had ~~$167.4~~$126.0 million of cash on hand and have $21.4 million of availability under the 2021 Revolving Credit Facility.

Our working capital, which we define as current assets less cash and current liabilities, increased ~~$3.6~~$1.0 million to ~~$68.6~~$81.5 million at March 31, ~~2021,~~2022, compared with ~~$65.0~~$80.5 million at December 31, ~~2020. The increase was primarily due to the decrease in the current portion of long-term debt.~~2021.

	As of				As of
(in thousands)	March 31,		December 31,		March 31, 2022		December 31, 2021
	2021		2020

Current assets	$	129,823	$	121,638	$	140,971	$	120,849
Current liabilities		61,216		56,629		59,423		40,336
Working capital	$	68,607	$	65,009	$	81,548	$	80,513

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Cash Flows from Operating Activities

For the three months ended March 31, ~~2021,~~2022, net cash provided by operating activities was ~~$24.2~~$13.0 million compared to net cash provided by operating activities of ~~$14.7~~$24.2 million for the three months ended March 31, ~~2020, an increase~~2021, a decrease of ~~$9.5~~$11.2 million, primarily due to ~~higher~~lower net income ~~resulting from increased sales.~~due to decreased sales combined with the timing of changes to working capital.

Cash Flows from Investing Activities

For the three months ended March 31, ~~2021,~~2022, net cash used in investing activities was ~~$15.8~~$11.3 million compared to net cash used in investing activities of ~~$0.9~~$15.8 million for the three months ended March 31, ~~2020, an increase~~2021, a decrease of ~~$14.9~~$4.5 million, primarily due to the ~~purchase~~lower purchases of investments in our MSA escrow account ~~which reflects the change in restricted cash.~~partially offset by increased capital expenditures.

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Cash Flows from Financing Activities

For the three months ended March 31, ~~2021,~~2022, net cash used in financing activities was $12.5 million compared to net cash provided by financing activities ~~was~~of $102.1 ~~million compared to net cash used in financing activities of $9.7~~ million for the three months ended March 31, ~~2020,~~2021, an ~~increase~~decrease in cash flow of ~~$111.8~~$114.6 million, primarily due to the increase in repurchases of common stock during 2022 compared to net proceeds received from the Senior Secured Notes partially offset by the repayment in full of the 2018 First Lien Term Loan in the first quarter of 2021.

Dividends and Share Repurchase

The most recent dividend of ~~$0.055~~$0.06 per common share was paid on April ~~9, 2021,~~8, 2022, to shareholders of record at the close of business on March ~~19, 2021.~~18, 2022.

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. On October 25, 2021, the Board increased the approved share repurchase program by $30.7 million. On February 24, 2022, the Board increased the approve share repurchase program by $24.6 million. The program is subject to the ongoing discretion of the Board. The total number of shares repurchased for the three months ended March 31, ~~2021,~~2022, was ~~119,031~~310,224 shares for a total cost of ~~$5.7~~$10.6 million and an average price per share of ~~$48.16. $34.1~~$34.24. $45.8 million remains available for share repurchases under the program at March 31, ~~2021.~~2022.

Long-Term Debt

As of March 31, ~~2021,~~2022, we were in compliance with the financial and restrictive covenants of the Senior Secured Notes and 2021 Revolving Credit Facility. The following table provides outstanding balances of our debt instruments.

	March 31,			December 31,
	2021			2020
							March 31, 2022			December 31, 2021
Senior Secured Notes	$	250,000		$	-		$	250,000		$	250,000
2018 First Lien Term Loan		-			130,000
Convertible Senior Notes		172,500			172,500			172,500			172,500
Note payable - Promissory Note		10,000			10,000
Note payable - Unsecured Loan		7,485			7,485
Gross notes payable and long-term debt		439,985			319,985			422,500			422,500
Less deferred finance charges		(10,183	)		(5,873	)		(7,709	)		(8,328	)
Less current maturities		(5,000	)		(12,000	)
Notes payable and long-term debt	$	424,802		$	302,112		$	414,791		$	414,172

Senior Secured Notes

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

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We may redeem the Senior Secured Notes, in whole or in part, at any time prior to February 15, 2023, at a price equal to 100% of the principal amount of the Notes redeemed plus accrued and unpaid interest, if any, to, but excluding the applicable redemption date, plus a “make-whole” premium. Thereafter, we may redeem the Senior Secured Notes, in whole or in part, at established redemption prices set forth in the Senior Secured Notes Indenture, plus accrued and unpaid interest, if any. In addition, on or prior to February 15, 2023, we may redeem up to 40% of the aggregate principal amount of the Senior Secured Notes with the net cash proceeds from certain equity offerings at a redemption price equal to 105.625%, plus accrued and unpaid interest, if any to the redemption date; provided, however, that at least 50% of the original aggregate principal amount of the Senior Secured Notes (calculated after giving effect to the issuance of any additional notes) remains outstanding. In addition, at any time and from time to time prior to February 15, 2023, but not more than once in any twelve-month period, we may redeem up to 10% of the aggregate principal amount of the Senior Secured Notes at a redemption price of 103% of the aggregate principal amount of Senior Secured Notes redeemed plus accrued and unpaid interest, if any to but not including the redemption date, on the Senior Secured Notes to be redeemed.

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

The 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 Indenture. The Indenture provides for customary events of default. We were in compliance with all covenants as of March 31, 2022.

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

~~The Indenture provides for customary events of default~~.

2021 Revolving Credit Facility

In connection with the Offering, we also entered into a new ~~$25~~$25.0 million senior secured revolving credit facility (the “2021 Revolving Credit Facility”) with the lenders party thereto (the “Lenders”) and Barclays Bank PLC, as administrative agent and collateral agent (in such capacity, the “Agent”). The 2021 Revolving Credit Facility provides for a revolving line of credit of up to $25.0 million. Letters of credit are limited to $10 million (and are a part of, and not in addition to, the revolving line of credit). We have not drawn any borrowings under the 2021 Revolving Credit Facility but do have letters of credit of approximately $3.6 million outstanding under the facility. The 2021 Revolving Credit Facility will mature on August 11, 2025 if none of our Convertible Senior Notes are outstanding, and if any Convertible Senior Notes are outstanding, the date which is 91 days prior to the maturity date of July 15, 2024, for such Convertible Senior Notes.

Interest is payable on the 2021 Revolving Credit Facility at a fluctuating rate of interest determined by reference to the Eurodollar rate plus an applicable margin of 3.50% (with step-downs upon de-leveraging). We also have the option to borrow at a rate determined by reference to the base rate.

The 2021 Revolving Credit Agreement contains covenants that are substantially the same as the covenants in the Senior Secured Notes Indenture. The 2021 Revolving Credit Facility also requires the maintenance of a Consolidated Leverage Ratio (as defined in the 2021 Revolving Credit Agreement) of 5.50 to 1.00 (with a step down to 5.25 to 1.00 beginning with the fiscal quarter ending March 31, 2023) at the end of each fiscal quarter when extensions of credit under the 2021 Revolving Credit Facility and certain drawn and undrawn letters of credit (excluding (a) letters of credit that have been cash collateralized and (b) letters of credit having an aggregate face amount less than $5,000,000) in the aggregate outstanding exceeds 35% of the total commitments under the 2021 Revolving Credit Facility. The 2021 Revolving Credit Agreement provides for customary events of default. We were in compliance with all covenants as of March 31, 2022.

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

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

2018 Credit Facility

In the first quarter of 2021, we used a portion of the proceeds from the issuance of the Senior Secured Notes to prepay all outstanding amounts under and terminate the 2018 First Lien Credit Facility in the amount of $130.0 million, and the transaction resulted in a $5.7 million loss on extinguishment of debt. See Note 11, “Notes Payable and Long-Term Debt,” in the Notes to Consolidated Financial Statements included in this Quarterly Report for further discussion.

Convertible Senior Notes

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

The Convertible Senior Notes are convertible into approximately ~~3,205,895~~3,209,690 shares of our voting common stock under certain circumstances prior to maturity at a conversion rate of ~~18.585~~18.607 shares per $1,000 principal amount of the Convertible Senior Notes, which represents a conversion price of approximately ~~$53.81~~$53.74 per share, subject to adjustment under certain conditions, but will not be adjusted for any accrued and unpaid interest. The conversion price is adjusted periodically as a result of dividends paid by the us in excess of pre-determined thresholds of $0.04 per share. Upon conversion, we may pay cash, shares of our common stock or a combination of cash and stock, as determined by us at our discretion. The conditions required to allow the holders to convert their Convertible Senior Notes were not met as of March 31, ~~2021.~~

We early adopted ASU 2020-06 effective January 1, 2021 on a retrospective basis to all periods presented. Under ASU 2020-06, the Company will account for the Convertible Senior Notes entirely as a liability and will no longer separately account for the Convertible Senior Notes with liability and equity components. See Note 2, “Summary of Significant Accounting Policies,” in the Notes to Consolidated Financial Statements included in this Quarterly Report for further discussion of the impact of the adoption of ASU 2020-06.2022.

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

In connection with the Convertible Senior Notes offering, we entered into privately negotiated capped call transactions with certain financial institutions. The capped call transactions have a strike price of ~~$53.81~~$53.74 per and a cap price of $82.86 per share, and are exercisable when, and if, the Convertible Senior Notes are converted. We paid $20.53 million for these capped calls at the time they were entered into and charged that amount to additional paid-in capital.

Promissory Note

On June 10, 2020, in connection with the acquisition of certain Durfort assets, we issued an unsecured subordinated promissory note (“Promissory Note”) in the principal amount of $10.0 million (the “Principal Amount”), with an annual interest rate of 7.5%, payable quarterly, with the first interest payment due September 10, 2020. We prepaid all outstanding amounts under and terminated the Promissory Note in the third quarter of 2021 in the amount of $9.6 million. The ~~Principal Amount is payable~~transaction resulted in ~~two $5.0~~a $0.4 million ~~installments, with the first installment due 18 months after the closing date~~gain on extinguishment of the acquisition (June 10, 2020), and the second installment due 36 months after the closing date of the acquisition. The second installment is subject to reduction for certain amounts payable to us as a holdback.debt.

Unsecured Loan

~~On April 6, 2020, the 2018 First Lien Credit Facility was amended to allow for an unsecured loan under the Coronavirus Aid, Relief, and Economic Security Act of 2020 (“CARES”).~~ On April 17, 2020, National Tobacco Company, L.P., a wholly-owned subsidiary of the Company, entered into a loan agreement with Regions Bank guaranteed by the Small Business Administration for a $7.5 million unsecured ~~loan.~~loan issued pursuant to the CARES Act. The proceeds of the loan were received on April 27, 2020. The loan iswas scheduled to mature on April 17, 2022 and ~~has~~had a 1.00% interest rate. Under the CARES Act we were permitted to apply for forgiveness of the loan if the proceeds were used as required for certain purposes. During 2021, we applied for forgiveness for the loan. On October 15, 2021, we received notice that our application for forgiveness was fully approved. The extinguishment of the unsecured loan occurred in the fourth quarter of 2021 resulting in a $7.5 million gain on extinguishment of debt. We are subject to audit relating to the unsecured loan until 2027 which could result in repayment of some or all of the unsecured loan previously forgiven. However, we believe that repayment of any amount is not probable.

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Off-balance Sheet Arrangements

During the three months ended March 31, ~~2021~~2022, the Company did not execute any forward contracts. ~~At March 31, 2021, the Company~~We had no forward contracts for the purchase of €13.1 million and sale of €14.3 million. The fair value of the foreign currency contracts were based on quoted market prices and resulted in an asset of $0.1 million included in Other current assets and liability of $0.0 million included in Accrued liabilities at March 31, ~~2021.~~2022. During ~~2020, the Company executed various~~2021, we did not execute any forward ~~contracts for the purchase of €19.7 million and sale of €21.4 million with maturity dates ranging from December 2020 to November 2021. At December 31, 2020, the Company~~contracts. We had no forward contracts for the purchase of €18.0 million and sale of €19.6 million. The fair value of the foreign currency contracts are based on quoted market prices and resulted in an asset of $0.4 million included in Other current assets and liability of $0.0 million included in Accrued liabilities at December 31, ~~2020.~~2021. The Company had no interest rate swap contracts ~~for a notional amount of $70 million~~ at ~~December~~March 31, 2020. The fair values of the interest rate swap contracts are based upon quoted market prices and resulted in a liability of $3.7 million as of December 31, 2020, included in other long-term liabilities.2022. The Company terminated ~~the~~its interest rate swap agreement in conjunction with the prepayment of all outstanding amounts under to the 2018 First Lien Credit Facility in the first quarter of 2021 in the amount of $3.6 million, and the transaction resulted in a $5.7 million loss recorded in the loss on extinguishment of debt. See Note 11, “Notes Payable and Long-Term Debt,” in the Notes to Consolidated Financial Statements included in this Quarterly Report for further discussion.

Inflation

~~We believe that any~~Inflation in general and the recent rapid increases in gas prices have had a substantial negative effect on the purchasing power of ~~inflation at current levels will be minimal. Historically,~~consumers. While historically, we have been able to increase prices at a rate equal to or greater than that of inflation, ~~and believe~~ that ~~we will continue to~~would be ~~able~~difficult to do ~~so for~~in the ~~foreseeable future.~~current environment. We have implemented price increases in areas where that was 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 with regard to our tobacco products and, in part, to our existing contractual agreement for the purchase of our premium cigarette papers.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

Foreign Currency Sensitivity

There have been no material changes in our exposure to exchange rate fluctuation risk, as reported within our ~~2020~~2021 Annual Report on Form 10-K, during the period. Please refer to our ‘Quantitative and Qualitative Disclosures about Market Risk’ included in our ~~2020~~2021 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 ~~2020~~2021 Annual Report on Form 10-K, during the three months ended March 31, ~~2021~~2022. Please refer to our ‘Quantitative and Qualitative Disclosures about Market Risk’ included in our ~~2020~~2021 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. In July 2019, we issued Convertible Senior Notes in an aggregate principal amount of $172.5 million. We carry the Senior Secured Notes and Convertible Senior Notes at face value. Since the Senior Secured Notes and Convertible Senior Notes bear interest at a fixed rate, we have no financial statement risk associated with changes in interest rates. However, the fair value of the Convertible Senior Notes changes when the market price of our stock fluctuates, or interest rates change. Our remaining debt instruments bear interest at fixed rates and are not subject to interest rate volatility.

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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 amended (the “Act”)) as of March 31, ~~2021~~2022. Based upon the evaluation, our CEO, CFO, and CAO concluded our disclosure controls and procedures are not effective as of such date due to ~~provide reasonable assurance~~a material weakness in internal controls over financial reporting that ~~information required to be~~was disclosed ~~by us~~ in our Annual Report on Form 10-K for the reports we file or submit under the Act is: (i) recorded, processed, summarized, and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms and (ii) accumulated and communicated to our management, including our principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosures.fiscal year ended December 31, 2021.

There have been no changes in the Company’s internal control over financial reporting during the fiscal quarter ended March 31, ~~2021~~2022 which have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

As previously described in Part II, Item 9A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2022, we began implementing a remediation plan to address the material weakness mentioned above. 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. We expect that the remediation of this material weakness will be completed by the end of the fiscal year 2022.

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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 1615 to the Notes to the Consolidated Financial Statements in Part I, Item 1 of this Quarterly Report.

See ‘Risk Factors—We may become subject to significant product liability litigation’ within our ~~2020~~2021 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 ~~2020~~2021 Annual Report on Form 10-K. There have been no material changes to the Risk Factors set forth in the ~~2020~~2021 Annual Report on Form 10-K.

Item ~~2. Unregistered~~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 increased the approved share repurchase program by $30.7 million bringing the authority at the time back to $50 million (including approximately $19.3 million available for repurchases under the Board’s previous authorization). On February 24, 2022, the Board increased the approved share repurchase program by $24.6 million bringing total authority at that time to $50 million. This share repurchase program has no expiration date and is subject to the ongoing discretion of the Board. 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 March 31, ~~2021~~2022 in connection with the repurchase program described above:

							Maximum Number
							(or Approximate
					Total Number of		Dollar Value)
					Shares Purchased		of Shares that
	Total Number		Average		as Part of Publicly		May Yet Be
	of Shares		Price Paid		Announced Plans		Purchased Under the
Period	Purchased ⁽¹⁾		per Share		or Programs		Plans or Programs		Total Number of Shares Purchased ⁽¹⁾		Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs		Maximum Number (or Approximate Dollar Value) of Shares that May Yet Be Purchased Under the Plans or Programs
January 1 to January 31		40,498	$	44.14		40,498		38,020,412		172,624	$	37.20		172,624	$	25,410,384
February 1 to February 28		8,533	$	55.98		8,533		37,542,735		28,855	$	33.81		5,572	$	49,814,062
March 1 to March 31		100,258	$	49.21		70,000		34,075,635		142,832	$	30.56		132,028	$	45,800,411
Total		149,289				119,031				344,311				310,224

⁽¹⁾ The total number of shares purchased includes (a) shares purchased under the February 2020 share repurchase program (which totaled 172,624 shares in January, 5,572 in February and 132,028 shares in March) and (b) shares withheld by the Company in an amount equal to the statutory withholding taxes for holders who vested in stock-based awards (which totaled 23,283 shares in February and 10,804 shares in March). 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.

⁽¹⁾ The total number of shares purchased includes (a) shares purchased under the February 2020 share repurchase program (which totaled 40,498 shares in January, 8,533 shares in February and 70,000 shares in March) and (b) shares withheld by the Company in an amount equal to the statutory withholding taxes for holders who vested in stock-based awards (which totaled 30,258 shares in March). 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.

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Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None

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Item 6. Exhibits

Exhibit No.	Description

~~4.1~~	Indenture, dated as of February 11, 2021, between Turning Point Brands, Inc., certain of its subsidiaries, as guarantors, and GLAS Trust Company LLC, as trustee (including the Form of Note as Exhibit A thereto). *

~~10.1~~	Credit Agreement, dated as of February 11, 2021, by and among Turning Point Brands, Inc., as obligor, Barclays Bank PLC, as administrative agent, and the lenders party thereto. *

~~10.2~~	First Lien Pari Passu Intercreditor Agreement, dated as of February 11, 2021, by and among Turning Point Brands, Inc., and the other grantors party thereto, Barclays Bank PLC, as first lien collateral agent, and GLAS Trust Company LLC, as other collateral agent. *

~~10.3~~	Pledge and Security Agreement, dated as of February 11, 2021, by and among Turning Point Brands, Inc., as grantor, the other grantors party thereto, Barclays Bank PLC, as collateral agent, and the lenders party thereto. *

~~10.4~~	Guaranty Agreement, dated as of February 11, 2021, by and among Turning Point Brands, Inc. and certain of its subsidiaries, as guarantors, Barclays Bank PLC, as administrative agent, and the lenders party thereto. *

~~10.5~~	Pledge and Security Agreement, dated as of February 11, 2021, by and among Turning Point Brands, Inc., as grantor, the other grantors party thereto and GLAS Trust Company LLC, as collateral agent. *

~~18.1~~	Preferability letter from RMS US, LLP regarding a change in accounting method. *

31.1	Rule 13a-14(a)/15d-14(a) Certification of ~~Lawrence S. Wexler.~~Yavor Efremov.*

31.2	Rule 13a-14(a)/15d-14(a) Certification of Luis Reformina.*

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, 2020,~~March 31, 2022, filed on ~~October~~April 27, ~~2020,~~2022, 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

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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/ Yavor Efremov
		~~By: /s/ Lawrence S. Wexler~~	Name: Yavor Efremov
	~~Name: Lawrence S. Wexler~~
	Title: President and Chief Executive Officer

	By: /s/ Luis Reformina
		Name: Luis Reformina
	Title: Chief Financial Officer

	By: /s/ Brian Wigginton
		Name: Brian Wigginton
	Title: Chief Accounting Officer

Date: ~~May 5, 2021~~April 27, 2022

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)

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

Large accelerated filer	☐	Accelerated filer	☑
Non-accelerated filer	☐	Smaller reporting company	☐
Emerging growth company	☑☐

				Page No.
PART I—FINANCIAL INFORMATION

	ITEM 1	Financial Statements (Unaudited)

		Consolidated Balance Sheets as of March 31, ~~2021,~~2022, and December 31, ~~2020~~2021	5

		Consolidated Statements of Income for the three months ended March 31, ~~2021~~2022 and ~~2020~~2021	6

		Consolidated Statements of Comprehensive Income for the three months ended March 31, ~~2021~~2022 and ~~2020~~2021	7

		Consolidated Statements of Cash Flows for the three months ended March 31, ~~2021~~2022 and ~~2020~~2021	8

		Consolidated Statements of Changes in Stockholder’s Equity ~~(Deficit)~~ for the three months ended March 31, ~~2021~~2022 and ~~2020~~2021	9

		Notes to Consolidated Financial Statements	10

	ITEM 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	3431

	ITEM 3	Quantitative and Qualitative Disclosures about Market Risk	4440

	ITEM 4	Controls and Procedures	4541

PART II—OTHER INFORMATION

	ITEM 1	Legal Proceedings	4642

	ITEM 1A	Risk Factors	4642

	ITEM 2	Unregistered Sales of Equity Securities and Use of Proceeds	4642

	ITEM 3	Defaults Upon Senior Securities	4642

	ITEM 4	Mine Safety Disclosures	4643

	ITEM 5	Other Information	4643

	ITEM 6	Exhibits	4744

	Signatures			4845

	As of March 31, 2021									As of December 31, 2020
	Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value		Cost and Estimated Fair Value
Cash and cash equivalents	$	17,141	$	0	$	0		$	17,141	$	32,074
U.S. Governmental agency obligations (unrealized loss position < 12 months)		14,933		0		(597	)		14,336		0
	$	32,074	$	0	$	(597	)	$	31,477	$	32,074

Total consideration transferred	$	4,000
Adjustments to consideration transferred:
Cash acquired		(3,711	)
Working capital		418
Debt eliminated in consolidation		2,000
Adjusted consideration transferred		2,707
Assets acquired:
Working capital (primarily AR and inventory)		1,551
Fixed assets and Other long term assets		70
Other liabilities		(203	)
Non-controlling interest		(4,050	)
Net assets acquired	$	(2,632	)

Goodwill	$	5,339

Consolidated Statement of Income	For the three months ended March 31, 2020
	As Originally Reported		Effect of Change (a)		As Adjusted
Cost of sales	$	49,258	$	0	$	49,258
Income before income taxes	$	4,221	$	0	$	4,221
Income tax expense	$	946	$	0	$	946
Net income attributable to Turning Point Brands, Inc.	$	3,275	$	0	$	3,275
Earnings per common share:
Basic	$	0.17	$	0	$	0.17
Diluted	$	0.16	$	0	$	0.16

Consolidated Balance Sheets	December 31, 2020
	As Originally Reported		Effect of Change		As Adjusted
Inventories	$	79,750	$	6,106	$	85,856
Deferered income taxes	$	4,082	$	1,584	$	5,666
Accumulated earnings (deficit)	$	12,058	$	4,522	$	16,580

Consolidated Statement of Cash Flows	For the three months ended March 31, 2020
	As Originally Reported		Effect of Change (a)		As Adjusted
Consolidated net income	$	3,275	$	0	$	3,275
Deferred income taxes	$	545	$	0	$	545
Inventories	$	1,784	$	0	$	1,784

	March 31, 2021		December 31, 2020
Accrued payroll and related items	$	3,664	$	9,459
Customer returns and allowances		5,683		5,259
Taxes payable		7,025		4,326
Lease liabilities		3,269		3,228
Accrued interest		2,924		2,096
Other		9,280		10,857
Total	$	31,845	$	35,225

	March 31, 2021
2021	$	3,078
2022		3,795
2023		3,528
2024		2,485
2025		2,125
Years thereafter		7,427
Total lease payments	$	22,438
Less: Imputed interest		3,599
Present value of lease liabilities	$	18,839

	Three Months Ended March 31,
	Pension Benefits					Postretirement Benefits
	2021		2020			2021		2020

Service cost	$	0	$	0		$	0	$	0
Interest cost		0		95			0		0
Expected return on plan assets		0		(161	)		0		0
Amortization of (gains) losses		0		36			0		(57	)
Net periodic benefit income	$	0	$	(30	)	$	0	$	(57	)

	March 31, 2017		March 7, 2018		March 20, 2019		March 20, 2019		July 19, 2019		March 18, 2020		December 28, 2020		February 18, 2021
Number of PRSUs granted		94,000		96,000		92,500		4,901		88,582		94,000		88,169		100,000
PRSUs outstanding at March 31, 2021		83,000		93,000		85,250		0		21,342		93,350		88,169		99,800
Fair value as of grant date	$	15.60	$	21.21	$	47.58	$	47.58	$	52.15	$	14.85	$	46.42	$	51.75
Remaining lives		0.75		1.75		2.75		-		1.75		3.75		2.75		4.75