Turning Point Brands Inc

Note1. Organizations and Basis of Presentation

Description of Business

Turning Point Brands, Inc., including its subsidiaries (collectively referred to herein as the “Company,” “we,” “our,” or “us”), is a leading manufacturer, marketer and distributor of branded consumer products. The Company sells a wide range of products to adult consumers consisting of staple products with its iconic brandsZig-Zag® andStoker’s® and its next generation products to fulfill evolving consumer preferences. The Company's segments are led by its core proprietary and iconic brands:Zig-Zag® and* Stoker’s*® along with* FRE*®,Beech-Nut® andTrophy®. The Company’s products are available in more than 220,000 retail outlets in North America. The Company operatestwo segments, Zig-Zag products and Stoker’s products.

On* January 2, 2025,the Company contributed 100% of its interest in South Beach Brands LLC ("SBB"), the subsidiary that owns and operates the Company’s Creative Distribution Solutions (“CDS”) segment, to General Wireless Operations, Inc. (“GWO”) in exchange for 49% of the issued and outstanding GWO common stock. GWO is a joint venture between the Company and Standard General, LP entered into in December 2018.*The Company will provide certain transition services to GWO in connection with the operation of SBB on an arm’s length basis.

For all periods presented in these consolidated financial statements, the assets and liabilities associated with the CDS disposal group have been classified as held for sale in the Consolidated Balance Sheets and its operations have been classified as discontinued operations in the Consolidated Statements of Income and Cash Flows. See Note3, "Assets Held for Sale and Discontinued Operations" for additional information regarding the CDS divestiture, including the assets and liabilities held for sale and the loss from discontinued operations. Unless otherwise noted, disclosures in the notes to these consolidated financial statements relate solely to the Company's continuing operations.

Basis of Presentation

The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the U.S. (“U.S. GAAP”) and Securities and Exchange Commission (“SEC”) regulations. The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts of assets and liabilities, disclosure of contingent assets and liabilities as of the dates of the financial statements, and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. The Company’s estimates include those affecting the valuation of goodwill and other intangible assets, the fair value of assets held for sale, deferred income tax valuation allowances, the valuation of investments and the valuation of inventory, including reserves.

Certain prior year amounts have been reclassified to conform to the current year’s presentation. The changes didnot have an impact on the Company’s consolidated financial position, results of operations, or cash flows in any of the periods presented.

Note2. 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 to have a controlling interest based on the voting interest entity model or the variable interest entity model. All significant intercompany transactions have been eliminated.

U.S. GAAP requires the Company to identify entities for which control is achieved through means other than voting rights and to determine whether the Company is the primary beneficiary of VIEs. A VIE is broadly defined as an entity withone or more of the following characteristics: (a) the total equity investment at risk is insufficient to finance the entity’s activities without additional subordinated financial support; (b) as a group, the holders of the equity investment at risk lack (i) the ability to make decisions about the entity’s activities through voting or similar rights, (ii) the obligation to absorb the expected losses of the entity, or (iii) the right to receive the expected residual returns of the entity; and (c) the equity investors have voting rights that arenot proportional to their economic interests, and substantially all of the entity’s activities either involve, or are conducted on behalf of, an investor that has disproportionately few voting rights. The Company consolidates its investment in a VIE when it determines that it is the VIE’s primary beneficiary. The Company* may*change its original assessment of a VIE upon subsequent events such as the modification of contractual arrangements that affects the characteristics or adequacy of the entity’s equity investments at risk and the disposition of all or a portion of an interest held by the primary beneficiary.

The primary beneficiary of a VIE is the entity that has both: (i) the power to direct the activities of the VIE that most significantly impact the entity’s economic performance; and (ii) the obligation to absorb losses or the right to receive benefits of the VIE that could be significant to the entity. The Company performs this analysis on an ongoing basis.

Management of the Company has determined that Turning Point Brands Canada and ALP Supply Co, LLC ("ALP") are VIEs for which the Company is required to consolidate. The Company has a controlling financial interest of 65% equity in Turning Point Brands Canada, provides additional subordinated financing, and has a distribution agreement for the sale of the Company’s products that makes up a significant portion of Turning Point Brands Canada’s business activities. The Company has a 50% equity interest in ALP, provides additional financing, has a supply agreement to be the exclusive provider of product and is the primary beneficiary due to the power the Company has over the activities that most significantly impact the economic performance, and the right to receive benefits and the obligation to absorb losses. See Note4,"Joint Venture Agreement" for additional information on the current year ALP transaction.

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Revenue Recognition

The Company recognizes revenues in accordance with Accounting Standards Codification (“ASC”)606, Revenue from Contracts with Customers (Topic606), 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 thefive-step analysis outlined in Topic606: (i) identify the contract with the customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price, (iv) allocate the transaction price to the performance obligations, and (v) recognize revenue when (or as) performance obligations are satisfied. The Company includes in its transaction price excise taxes on smokeless tobacco, cigars or other nicotine products billed to customers, and excludes sales taxes and value-added taxes imposed at the time of sale.

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

A further requirement of ASC606 is for entities to disaggregate revenue recognized from contracts with customers into categories that depict how the nature, amount, timing, and uncertainty of revenue and cash flows are affected by economic factors. The Company’s management views business performance through segments that closely resemble the performance of major product lines. Thus, the primary and most useful disaggregation of the Company’s contract revenue for decision making purposes is the disaggregation by segment which can be found in Note21, “Segment Information”.

Held for Sale and Discontinued Operations

The Company classifies assets and liabilities to be sold (disposal group) as held for sale in the period when all of the applicable criteria are met, including: (i) management commits to a plan to sell, (ii) the disposal group is available to sell in its present condition, (iii) there is an active program to locate a buyer, (iv) the disposal group is being actively marketed at a reasonable price in relation to its fair value, (v) significant changes to the plan to sell are unlikely, and (vi) the sale of the disposal group is generally probable of being completed withinone year.

Assets and liabilities held for sale are presented separately within the Consolidated Balance Sheets with any adjustments necessary to measure the disposal group at the lower of its carrying value or fair value less costs to sell. Depreciation of property, plant and equipment and amortization of intangible and right-of-use assets arenot recorded while these assets are classified as held for sale. For each period the disposal group remains classified as held for sale, its recoverability is reassessed, and any necessary adjustments are made to its carrying value.

The Company reports the results of operations of a business as discontinued operations if a disposal represents a strategic shift that will have a major effect on its operations and financial results. The results of discontinued operations are reported as Loss from discontinued operations, net of tax in the Consolidated Statements of Income for the current and prior periods commencing in the period in which the held for sale criteria are met. Loss from discontinued operations includes direct costs attributable to the divested business and excludes any cost allocations associated with any shared or corporate functions. Loss from discontinued operations will include any gain or loss recognized upon disposition or from any adjustment of the carrying amount of the assets and liabilities of the discontinued operations to fair value less costs to sell while classified as held for sale.

Derivative Instruments

The Company enters into foreign currency forward contracts to hedge a portion of its exposure to changes in foreign currency exchange rates on inventory purchase commitments. The Company accounts for its forward contracts under the provisions of ASC815, Derivatives and Hedging. Under the Company’s policy, the Company* mayhedge up to 100% of its anticipated purchases of inventory in the denominated invoice currency over a forward periodnot* to exceed twelve months. The Company* mayalso, from time to time, hedge up to 100% of its non-inventory purchases (e.g., production equipment) in the denominated invoice currency. Forward contracts that qualify as hedges are adjusted to their fair value through other comprehensive income as determined by market prices on the measurement date, except any hedge ineffectiveness which is recognized currently in income. Gains and losses on these forward contracts are reclassified from other comprehensive income into inventory as the related inventories are received and are transferred to net income as inventory is sold. Changes in fair value of any contracts that donot* qualify for hedge accounting or arenot designated as hedges are recognized currently in income.

Shipping Costs

The Company records shipping costs incurred as a component of selling, general and administrative expenses. Shipping costs incurred were approximately $17.9 million, $16.0 million, and $14.0 million in2024,2023, and2022, respectively.

Research and Development and Quality Assurance Costs

Research and development and quality assurance costs are expensed as incurred. These expenses, classified as selling, general and administrative expenses, were approximately $1.3 million, $0.6 million, and $0.6 million in2024, 2023, and2022, respectively.

Cash and Cash Equivalents

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

Inventories

Inventories are stated at the lower of cost or net realizable value using thefirst-in,first-out (“FIFO”) method. Leaf tobacco is presented in current assets in accordance with standard industry practice, notwithstanding the fact that such tobaccos are carried longer thanone year for the purpose of curing.

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Property, Plant and Equipment

Property, plant and equipment is stated at cost less accumulated depreciation and impairment. Depreciation is provided using the straight-line method over the lesser of the estimated useful lives of the assets or the life of the leases for leasehold improvements (4 to 7 years for machinery, equipment and furniture,10 to 15 years for leasehold improvements, and up to 15 years for buildings and building improvements). Expenditures for repairs and maintenance are charged to expense as incurred. The costs of major renewals and improvements are capitalized and depreciated over their estimated useful lives. Upon disposition of fixed assets, the costs and related accumulated depreciation amounts are relieved. Any resulting gain or loss is reflected in operations during the period of disposition. Long-lived assets are reviewed for impairment when changes in circumstances indicate that the carrying amount of an asset* may**not* be recoverable.

Goodwill and Other Intangible Assets

The Company follows the provisions of ASC350, Intangibles – Goodwill and Other in accounting for goodwill and other intangible assets. Goodwill is tested for impairment annually on* December 31,*or more frequently if certain indicators are present.

When testing goodwill for impairment, the Company has the option tofirst perform qualitative testing to determine whether it is more likely thannot that the fair value of a reporting unit is less than its carrying value. If the Company choosesnot to complete a qualitative assessment for a given reporting unit or if the initial assessment indicates that it is more likely thannot that the carrying value of a reporting unit exceeds its estimated fair value, additional quantitative testing is required. If the carrying value of a reporting unit exceeds its fair value, an impairment loss is recognized in the amount by which the carrying value of the reporting unit exceeds its fair value, limited to the amount of goodwill at the reporting unit. The Company determines fair values for each of the reporting units using a combination of the income approach and/or market approach. Under the income approach, fair value is determined based on the present value of estimated future cash flows, discounted at an appropriate risk-adjusted rate. Under the market approach, the Company selects peer sets based on close competitors and reviews the revenue and EBITDA multiples to determine the fair value. See Note11, “Goodwill and Other Intangible Assets” for further information on goodwill.

Indefinite-lived intangible assets are tested for impairment at least annually; however, these tests are performed more frequently when events or changes in circumstances indicate that the asset* may*be impaired. Impairment exists when carrying value exceeds fair value. The Company’s fair value methodology is primarily based on the relief from royalty approach.

Definite-lived intangible assets are amortized over their estimated useful lives, generally on a straight-line basis for periods ranging primarily from 3.5 to 15 years. The Company continually evaluates the reasonableness of the useful lives of these assets.

Fair Value

U.S. GAAP establishes a framework for measuring fair value. That framework provides a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level1) and the lowest priority to unobservable inputs (Level3).

Thethree levels of the fair value hierarchy under U.S. GAAP are described below:

Equity Investments

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

For equity investments that donot qualify to be accounted for under the equity method of accounting and that donot have a readily determinable fair value, the Company has elected a practical expedient to record the investment at the original cost, as adjusted for impairment and observable price changes. Under the practical expedient, if a qualitative analysis indicates impairment exists, the fair value of the investment is required to be estimated and any excess of the carrying value over the estimated fair value is recognized as an impairment loss.

Equity investments accounted for under the equity method of accounting are assessed for impairment when events or circumstances suggest that any loss in value of the investment* may*be other than temporary. A loss in value of an investment is other than temporary when evidence of a loss in value indicates the absence of an ability to recover the carrying amount of the investment or inability of the investee to sustain an earnings capacity that would justify the carrying amount of the investment.

In the absence of observable data, the Company estimates the fair values of these investments using a market approach derived from applying market multiples of comparable public companies to the financial results of each investment. The valuation methodology and the significant assumptions used by management in estimating the fair values of each investment involve a high degree of judgment and* mayinvolve the use ofthird*-party valuation specialists.

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Deferred Financing Costs

Deferred financing costs are amortized over the terms of the related debt obligations using the straight-line method. Unamortized amounts are expensed upon extinguishment of the related borrowings. Deferred financing costs are presented as a direct deduction from the carrying amount of that debt liability except for deferred financing costs relating to our revolving credit facility, which are presented as an asset.

Income Taxes

The Company records the effects of income taxes under the liability method in which deferred income tax assets and liabilities are recognized based on the difference between the financial and tax basis of assets and liabilities using the enacted tax rates in effect for the years in which the differences are expected to reverse. The Company assesses its ability to realize future benefits of deferred tax assets by determining if they meet the “more likely thannot” criteria in ASC740, Income Taxes. If the Company determines that future benefits donot meet the “more likely thannot” criteria, a valuation allowance is recorded.

Advertising and Promotion

Advertising and promotion costs, including point of sale materials, are expensed as incurred and amounted to $12.0 million, $7.6 million, and $6.2 million for the years ended* December 31, 2024,*2023, and2022, respectively.

Stock-Based Compensation

The Company measures stock-based compensation costs related to its stock options on the fair value-based method under the provisions of ASC718, Compensation – Stock Compensation. The fair value-based method requires compensation cost for stock options to be recognized over the requisite service period based on the fair value of stock options granted. The Company determined the fair value of these awards using the Black-Scholes option pricing model.

The Company grants performance-based restricted stock units (“PRSU”) subject to both performance-based and service-based vesting conditions. The fair value of each PRSU is the Company’s stock price on the date of grant. For purposes of recognizing compensation expense as services are rendered in accordance with ASC718, the Company assumes all employees involved in the PRSU grant will provide service through the end of the performance period. Stock compensation expense is recorded based on the probability of achievement of the performance conditions specified in the PRSU grant.

The Company grants restricted stock units (“RSU”) subject to service-based vesting conditions. The fair value of each RSU is the Company’s stock price on the date of grant. The Company recognizes compensation expense as services are rendered in accordance with ASC718. Stock compensation expense is recorded over the service period in the RSU grant.

Risks and Uncertainties

Manufacturers and sellers of tobacco products are subject to regulation at the federal, state, and local levels. Such regulations include, among others, labeling requirements, limitations on advertising, and prohibition of sales to minors. The tobacco industry is likely to continue to be heavily regulated. There can beno assurance as to the ultimate content, timing, or effect of any regulation of tobacco products by any federal, state, or local legislative or regulatory body, nor can there be any assurance that any such legislation or regulation wouldnot have a material adverse effect on the Company’s financial position, results of operations, or cash flows. In a number of states targeted flavor bans have been proposed or enacted legislatively or by the administrative process. Depending on the number and location of such bans, that legislation or regulation could have a material adverse effect on the Company’s financial position, results of operations or cash flows. The U.S. Food and Drug Administration (“FDA”) continues to consider various restrictive regulations around our products, including targeted flavor bans; however, the details, timing, and ultimate implementation of such measures remain unclear.

The tobacco industry has experienced, and is experiencing, significant product liability litigation. Most tobacco liability lawsuits have been brought against manufacturers and sellers of cigarettes for injuries allegedly caused by smoking or exposure to smoke. However, several lawsuits have been brought against manufacturers and sellers of smokeless products for injuries to health allegedly caused by use of smokeless products. Typically, such claims assert that use of smokeless products is addictive and causes oral cancer. There can beno assurance the Company willnot sustain losses in connection with such lawsuits and that such losses willnot have a material adverse effect on the Company’s financial position, results of operations, or cash flows.

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Master Settlement Agreement (MSA)

Forty-six states, certain U.S. territories, and the District of Columbia are parties to the Master Settlement Agreement (“MSA”) and the Smokeless Tobacco Master Settlement Agreement (“STMSA”). To the Company’s knowledge, signatories to the MSA include 49 cigarette manufacturers and/or distributors. The only signatory to the STMSA is US Smokeless Tobacco Company. In the Company’s opinion, the fundamental basis for each agreement is the states’ consents to withdraw all claims for monetary, equitable, and injunctive relief against certain tobacco products manufacturers and others and, in return, the signatories have agreed to certain marketing restrictions and regulations as well as certain payment obligations.

Pursuant to the MSA and subsequent states’ statutes, a “cigarette manufacturer” (which is defined to also include 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, with sub-accounts on behalf of each settling state. The STMSA hasno similar provisions. The MSA escrow accounts are governed by states’ statutes that expressly give the manufacturers the option of opening, funding, and maintaining an escrow account in lieu of becoming a signatory to the MSA. The statutes require companies who arenot signatories to the MSA to deposit, on an annual basis, into qualified banks, escrow funds based on the number of cigarettes or cigarette equivalents, i.e., the pounds of MYO tobacco, sold. The purpose of these statutes is expressly stated to be to eliminate the cost disadvantage the settling manufacturers have as a result of entering into the MSA. Such companies are entitled to direct the investment of the escrowed funds and withdraw any appreciation, but cannot withdraw the principal fortwenty-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 judgment to that state’s plaintiffs in the event of such a final judgment against the company. Either option – becoming an MSA signatory or establishing an escrow account – is permissible.

The Company chose to open and fund an MSA escrow account as its means of compliance. It is management’s opinion, due to the possibility of future federal or state regulations, thoughnone have to date been enacted, that entering intoone or both of the settlement agreements or establishing and maintaining an escrow account wouldnot necessarily prevent future regulations from having a material adverse effect on the results of operations, financial position, and cash flows of the Company.

Various states have enacted or proposed complementary legislation intended to curb the activity of certain manufacturers and importers of cigarettes that are selling into MSA states without signing the MSA or who have failed to properly establish and fund a qualifying escrow account. To the best of the Company’s knowledge,no such statute has been enacted which could inadvertently and negatively impact the Company, which has been, and is currently, fully compliant with all applicable laws, regulations, and statutes. However, there can beno assurance that the enactment of any such complementary legislation in the future willnot have a material adverse effect on the results of operations, financial position, or cash flows of the Company.

Pursuant to the MSA escrow account statutes, in order to be compliant with the MSA escrow requirements, companies selling products covered by the MSA are required to deposit such funds for each calendar year into a qualifying escrow account by* April 15of the following year. At December 31, 2024and2023,* the Company had on deposit approximately $32.1 million, the fair value of which was approximately $28.7 million. During2024, no monies were deposited into this qualifying escrow account. The investment vehicles available to the Company are specified in the state escrow agreements and are limited to low-risk government securities.

The Company discontinued its generic category of MYO in2019 and its* Zig-Zag branded MYO cigarette smoking tobacco in2017.* Thus, pending a change in MSA legislation, the Company hasno remaining product lines covered by the MSA and willnot be required to make future escrow deposits.

The Company has chosen to invest a portion of the MSA escrow, from time to time, in U.S. Government securities including Treasury inflation-protected securities, 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; thus, any investment with an unrealized loss position will be held until the value is recovered, or until maturity.

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Fair values for the U.S. Governmental agency obligations are Level2 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.

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

Concentration of Credit Risk:* At December 31, 2024and2023*, the Company had bank deposits, including MSA escrow accounts, in excess of federally insured limits of approximately $47.4 million and $119.0 million, respectively. During2024 and2023, the Company invested a portion of the MSA escrow accounts in U.S. Government securities including TIPS, Treasury notes, and Treasury bonds.

The Company sells its products to distributors, retail establishments, and consumers throughout the U.S. and also sellsZig-Zag® premium cigarette papers in Canada and some smaller quantities in other countries. For2024, the Company hadone customer that accounted for 10.2% of net sales. There wereno customers that accounted for more than10% of net sales for2023 or2022. The Company performs periodic credit evaluations of its customers and generally doesnot require collateral on trade receivables. Historically, the Company hasnot experienced significant credit losses.

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Accounts Receivable

Accounts receivable are recognized at their net realizable value. All accounts receivable are trade related, recorded at the invoiced amount, and donot bear interest. The Company maintains allowances for credit losses for estimated uncollectible invoices resulting from a customer’s inability to pay (bankruptcy, out of business, etc., i.e. “bad debt” which results in write-offs). The activity of allowance for credit losses for the years ended* December 31, 2024,*2023 and2022 is as follows:

Recent Accounting Pronouncements

Recently adopted

In* November 2023,the Financial Accounting Standards Board (“FASB”) issued guidance that enhances reportable segment disclosures by requiring disclosure of significant reportable segment expenses and other items regularly provided to the Chief Operating Decision Maker (“CODM”) and included within measures of a segment’s profit or loss. Additional requirements include the title and position of the CODM and an explanation of how the CODM uses the reported measure of a segment’s profit or loss to assess performance and allocate resources, and the amount and composition of other segment items necessary to reconcile segment revenue, significant expenses, and the reported measure of profit or loss. The Company adopted this guidance retrospectively beginning with its fiscal2024* annual financial statements. See Note21, "Segment Information" for the additional disclosures required by this guidance.

Issued butnot yet adopted

In* December 2023,the FASB issued guidance which enhances income tax disclosures to require reporting entities to disclose annual income taxes paid, net of refunds, disaggregated by federal, state, and foreign taxes and to provide additional disaggregated information for individual jurisdictions under certain conditions. The guidance also requires disclosure of amounts and percentages in the annual rate reconciliation table, rather than amounts or percentages, and will eliminate certain existing disclosure requirements related to uncertain tax positions and unrecognized deferred tax liabilities. This guidance will be effective for the Company beginning with its fiscal2025* annual financial statements, with early adoption permitted. The guidance* may*be applied prospectively, while retrospective application is permitted. The Company is currently assessing the impact of this guidance and expects its incremental disclosures will likely be provided on a prospective basis upon adoption.

In* November 2024,the FASB issued guidance requiring reporting entities to disclose in the notes to the financial statements, specified information about certain categories of expenses including purchases of inventory, employee compensation, depreciation and amortization for each caption on the income statement where such expenses are included. This guidance will be effective for the Company beginning with its fiscal2027* annual financial statements and interim periods thereafter. Early adoption is permitted, in addition to either prospective or retrospective application. The Company is currently assessing the impact and extent to which this guidance will affect its disclosures.

Note3. Assets and Liabilities Held for Sale and Discontinued Operations

On* January 2, 2025,the Company entered into an agreement to contribute 100% of its interest in SBB, the subsidiary that owns and operates the Company’s CDS segment, to GWO in exchange for 49% of the issued and outstanding GWO common stock on a fully-diluted basis. GWO is a joint venture between the Company and Standard General, LP entered into in December 2018.*Under certain circumstances the Company has the right to redeem the contribution of SSB from GWO at fair market value. In addition, the Company received an option with a 15-year term to purchase the remaining 51% of GWO at an exercise price initially set at $22.0 million, which decreases over time based on certain tax sharing payments to GWO.

The assets and liabilities associated with the CDS business have been classified as held for sale as of* December 31, 2024,and its financial results are classified as discontinued operations and reported separately for all periods presented herein. With the strategic shift of the Company's operations, as a result of this transaction, the CDS segment has been classified as discontinued operations. As a result, the Company now hastwo reportable segments as disclosed in Note21,* "Segment Information".

Upon meeting the criteria for held for sale classification, the Company recorded a non-cash charge of $8.8 million with an equivalent valuation allowance against net assets held for sale to reduce the carrying value of the disposal group to fair value. Fair value of the disposal group utilized inputs within Level3 of the fair value hierarchy, and was determined using both a market and an income approach.

The following table summarizes income from discontinued operations, net of tax, included in the Consolidated Statements of Income:

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The following table summarizes the carrying amounts of assets and liabilities classified as held for sale and included in the Consolidated Balance Sheets:

Note4. Joint Venture Agreement

In* September 2024,*a wholly-owned subsidiary of the Company invested $0.8 million to acquire a 50% ownership interest in ALP Supply Co., LLC ("ALP"). Additionally, the Company has provided ALP with a $10.0 million line of credit. ALP is a joint venture established between the subsidiary and Last Country Ventures, LLC for the purpose of selling and distributing tobacco-free moist nicotine pouches in various strengths. Per the joint venture agreement, the Company's subsidiary will be responsible for selling products to ALP and providing warehousing and shipping services on its behalf. The Company has determined that ALP is a VIE and that it has a controlling financial interest requiring consolidation. As a result, the assets, liabilities and result of operations of ALP have been included in the Company's consolidated financial statements.

The assets and liabilities of ALP included in the consolidated balance sheet at* December 31, 2024*primarily include $5.3 million in cash, $0.9 million of inventory, $1.1 million of other assets, and accounts payable and accrued liabilities of $3.6 million inclusive of amounts payable to the Company of $3.2 million.

Note5. Derivative Instruments

Foreign Currency

The Company’s policy is to manage the risks associated with foreign exchange rate movements. The policy allows hedging up to 100% of its anticipated purchases of inventory over a forward period that willnot 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 100% of the purchase price. During2024*, the Company executed various foreign exchange contracts which met hedge accounting requirements for the purchase of€3.6 million and sale of€3.6 million. During2023, the Company executed various foreign exchange contract, which met hedge accounting requirements for the purchase of€20.1 million and sale of€15.2 million.

At* December 31, 2024*, the Company had foreign currency contracts outstanding for the purchase of€2.1 million and sale of€2.1 million. The fair value of the foreign currency contracts at* December 31, 2024*, resulted in an asset of $0.0 million included in Other current assets and a liability of $0.1 million included in Accrued liabilities. At* December 31, 2023*, the Company had foreign currency contracts outstanding for the purchase of€15.2 million and sale of€15.2 million. The fair value of the foreign currency contracts at* December 31, 2023*, resulted in an asset of$0.3 million included in Other current assets and a liability of$0.1 million included in Accrued liabilities. A $0.2 million gain, $0.9 million gain and $0.1 million loss were reclassified from Accumulated other comprehensive loss to Cost of sales for the years ended* December 31, 2024,*2023 and2022, respectively.

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Note6. 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 arenot necessarily indicative of the amounts the Company could realize in a current market exchange. The use of different market assumptions and/or estimation methodologies* may*have a material effect on the estimated fair value amounts.

Cash and Cash Equivalents

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

Accounts Receivable

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

Long-Term Debt

The Company’s Senior Secured Notes bear interest at a rate of 5.625% per year. As of* December 31, 2024*, the fair value approximated $251.2 million, with a carrying value of $250 million. As of* December 31, 2023*, the fair value approximated $234.9 million with a carrying value of$250 million.

The Convertible Senior Notes with a carrying value of $118.5 million were retired with cash on* July 15, 2024.As of December 31, 2023*, the fair value approximated $114.7 million, with a carrying value of$118.5 million.

See Note14, “Notes Payable and Long-Term Debt” for further information regarding the Company’s long-term debt.

Foreign Currency

The fair value of the Company’s foreign currency contracts are based upon quoted market prices for similar instruments, thus leading to a Level2 classification within the fair value hierarchy. See Note5, "Derivative Instruments", for further information regarding the Company's foreign currency contracts.

Note7. Inventories

The components of inventories, net are as follows:

The following represents the activity in the inventory valuation allowance for the years ended* December 31:*

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In* December 2023,athird*-party warehouse in Tennessee used to store some of the Company’s leaf tobacco incurred significant tornado damage resulting in damage to the leaf tobacco. As a result, the Company recorded a $15.2 million inventory reserve related to its leaf tobacco inventory, which is included in Other operating income, net in the Consolidated Statement of Income for the year ended* December 31, 2023.*The leaf tobacco inventory is covered by the Company’s stock throughput insurance policy and the Company believes the inventory loss is probable of being fully recovered under the policy. As a result, the Company recorded a $15.2 million insurance recovery receivable which is included in Other current assets in the Consolidated Balance Sheets.

In2022, the Company determined that the incorrect weight had been used in calculating the amount of federal excise tax assessed and paid on its imported MYO cigar wraps during the years2019 -2021. As a result, the Company filed a refund claim for $4.3 million with the Alcohol and Tobacco Tax and Trade Bureau for the overpayment of federal excise taxes, which was approved and paid. The Company filed an additional claim for $1.7 million in2023, which was approved and paid in2024. The refunds are presented in Other operating income in the Consolidated Statements of Income.

Note8. Other Current Assets

Other current assets consists of:

Note9. Property, Plant and Equipment, Net

Property, plant and equipment consists of:

Note10. Deferred Financing Costs, Net

Deferred financing costs consist of:

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Note11. Goodwill and Other Intangible Assets

The following table summarizes goodwill by segment:

The Company tests goodwill for impairment annually as of* December 31,or more frequently when events or changes in circumstances indicate that the fair value is below its carrying value. The Company performed a quantitative assessment in evaluating its Zig-Zag and Stoker’s reporting units for impairment as of December 31, 2024.*

For the quantitative assessment, the Company used a discounted cash flow model (income approach) utilizing Level3 unobservable inputs. The Company’s significant assumptions for the discount cash flow model include, but arenot limited to, future cash flow projections, the weighted average cost of capital, the terminal growth rate, and the tax rate. The Company believes the current assumptions and estimates utilized in the discounted cash flow model are both reasonable and appropriate. The Company’s estimates of future cash flows are based on current regulatory and economic climates, recent operating results, and planned business strategies. These estimates could be negatively affected by changes in federal, state, or local regulations or economic downturns. Future cash flow estimates are, by their nature, subjective and actual results* maydiffer materially from the Company’s estimates. If the Company’s ongoing estimates of future cash flows arenot* met or if discount rates change, the Company* mayhave to record impairment charges in future periods. Based on the analysis performed, the Company concluded thatno* impairment exists for its Zig-Zag or Stoker's reporting units as of* December 31, 2024.*

In2023, the Company performed a qualitative assessment in evaluating its Zig-Zag and Stoker’s reporting units. As part of that assessment, the Company considered macro and micro-economic indicators, changes in costs, overall financial performance and other relevant entity-specific events, and notedno indications of impairment. The Company also considered the significant excess of fair values over carrying values as determined in the2022 quantitative assessment. The underlying assumptions utilized during the2022 quantitative assessment remained sufficiently similar in2023 and in line with Company projections. Accordingly, such underlying assumptions on which the previous fair values were based hadnot sufficiently changed from2022 to suggest a material difference in the2023 fair value assessments, and thus indicated that the fair values of the reporting units as of* December 31,*2023 remained above their carrying amounts.

The following tables summarize information about the Company’s other intangible assets. Gross carrying amounts of indefinite-lived intangible assets are shown below:

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In2024, the Company performed a quantitative assessment of its indefinite-lived intangible assets and notedno indicators of impairment as of* December 31, 2024.The Company’s fair value methodology for the quantitative assessment is primarily based on the relief from royalty approach. Significant assumptions in this approach include, but arenot* limited to, projected revenue, the weighted average cost of capital and royalty rate.

In2023, the Company performed a qualitative assessment of its indefinite-lived intangible assets. As part of this assessment, the Company evaluated whether indicators of impairment were present by considering macro and micro-economic factors, along with market and other relevant company-specific events and determined that there wereno indications of impairment as of* December**31,* 2023. In* January 2023,the Company transferred certain of its indefinite-lived formulas within the Zig-Zag segment to amortized intangible assets. The Company began to amortize the formula over its useful life of 15 years and, as a result, incurred additional amortization expense of $0.7 million in2023.* The effect of this change in estimate reduced2023 net income by $0.4 million and reduced2023 basic and diluted earnings per share by $0.02 per share. The estimated annual straight line amortization expense related to this transfer is$0.7 million per year for each of the nextfive years.

Amortized intangible assets consists of:

Annual amortization expense for the nextfive years is estimated to be approximately $1.2 million for2025 and $4.8 million for2026 through2029, assumingno additional transactions occur that require the amortization of intangible assets.

Note12. Other Assets

Other assets consists of:

Debt Security and Non-Marketable Equity Investments

The Company records its non-marketable equity investments without a readily determinable fair value, that arenot accounted for under the equity method, at cost, with adjustments for impairment and observable price changes. Should assumptions underlying the determination of the fair values of the Company’s non-marketable equity and debt security investments change, it could result in material future impairment charges.

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In* January 2024,the Company invested $0.8 million to acquire an 18.7% stake in Teaza Energy, LLC (“TeaZa”). TeaZa is an innovative brand of flavorful oral pouch products that can be dipped or sipped, designed as a health-conscious alternative to high energy drinks and other conventional oral stimulants. The investment was comprised of $0.5 million in cash and a $0.3 million payable to be offset against the Company’s allocated portion of future profit distributions. The Company also has the option to purchase, at fair value, up to 100% of the equity interest from February 1, 2025through June 30, 2026.*The Company accounts for its investment in TeaZa using the equity method of accounting.

In* July 2021,the Company invested $8.0 million in Old Pal Holding Company, LLC (“Old Pal”), with an additional $1.0 million invested in July 2022.The Company invested in the form of a convertible note which includes additional follow-on investment rights. Interest on the convertible note is payable annually in arrears in Julyof each year. Accrued interest of $0.2 million, $0.3 million and$0.3 million was rolled into the convertible note in July 2022,2023 and2024, respectively, resulting in a total investment of $9.8 million. Old Pal is a leading brand in the cannabis lifestyle space that operates a non-plant touching licensing model. The convertible note bears an interest rate of 3.0% per year and matures July 31,2027. Interest and principalnot paid to date are receivable at maturity. Old Pal has the option to extend the maturity date of the convertible note inone-year increments. The interest rate is subject to change based on Old Pal reaching certain sales thresholds. The weighted average interest rate on the convertible note was 3.0% as of December 31, 2024and2023*. Old Pal has the option to convert the note into shares once sales reach a certain threshold. The conditions required to allow Old Pal to convert the note werenot met as of* December 31, 2024*. Additionally, the Company has the right to convert the note into shares at any time. The Company has classified the debt security with Old Pal as available for sale. The Company reports interest income on available for sale debt securities in interest income in our Consolidated Statements of Income. The Company performs a qualitative assessment on a quarterly basis to determine if the fair value of the investment could be less than the amortized cost basis. In addition, the Company utilizes athird-party to perform a quantitative assessment to determine fair value using a Monte Carlo simulation (Level3) when indicated, and at least bi-annually. Based upon a quantitative fair value assessment, the Company determined the fair value to be $6.4 million, $6.9 million and $7.9 million as of* December 31, 2024,2023 and2022, respectively. The Company recorded an allowance for credit losses of $0.8 million, $1.3 million and $1.4 million included in investment loss for the years ended December 31, 2024,2023 and2022, respectively. The Company has recorded an accrued interest receivable of $0.1 million and$0.1 million at December**31,* 2024 and2023, respectively, in Other current assets on our Consolidated Balance Sheets.

In* April 2021,the Company invested in Docklight Brands, Inc. (“Docklight”). In2023,* based on Docklight’s financial results, a decline in the revenue multiples for comparable public companies, and a significant change in Docklight’s business model, the Company deemed the investment in Docklight fully impaired resulting in a loss of $8.7 million which was recorded in investment loss for the year ended* December 31,2023. Fair value was determined using a valuation derived from relevant revenue multiples (Level3). There wereno purchases of inventory from, or amounts payable to Docklight Brands, Inc. at December 31, 2024and2023*.

In* October 2020,the Company acquired a 20% stake in Wild Hempettes, LLC (“Wild Hempettes”). In2023,* based on Wild Hempettes' financial results, the Company deemed its investment in Wild Hempettes to be impaired resulting in a $2.2 million impairment charge included in investment loss for the year ended* December 31,2023. Fair value for the Company’s share of investment in Wild Hempettes was determined using a valuation derived from relevant revenue multiples (Level3). In2024, the Company reached an agreement to return its 20% equity stake to Wild Hempettes forno consideration resulting in an impairment charge of $0.3 million recorded in investment loss for the year ended December 31, 2024.The Company accounted for its 20% share of Wild Hempettes using the equity method of accounting. There wereno purchases of inventory from, or amounts payable to Wild Hempettes at December 31, 2024and2023*. The Company had a $0.2 million receivable from Wild Hempettes at* December 31, 2023*for the return of previously purchased and paid for product.

In* October 2020,the Company invested in BOMANI Cold Buzz, LLC (“Bomani”). In2024,* due to market conditions in the cold brew, alcohol-infused caffeinated beverages industry, the Company has determined that the fair value of Bomani is zero, and thus recorded a $1.8 million impairment which is included in investment loss for the year ended* December 31, 2024.There wereno purchases of inventory from, or amounts payable to Bomani at December 31, 2024and2023*.

In* December 2018,the Company acquired a minority ownership position in General Wireless Operations, Inc. from5G* gaming LLC for $0.4 million. In* December 2024,the Company entered into an agreement to contribute 100% of its interest in SBB, the subsidiary that owns and operates the Company’s CDS segment, to General Wireless Operations, Inc. in exchange for 49% of the issued and outstanding GWO common stock. See Note3,* "Assets Held for Sale and Discontinued Operations" for more information regarding the disposal of the Company's CDS business. There wereno amounts payable to General Wireless Operations, Inc. at* December 31, 2024and2023*.

In* October 2020,the Company invested $15.0 million in dosist™ (“Dosist”), a global cannabinoid company. In2021,* based on the financial results of Dosist and the overall cannabinoid market, the Company deemed its investment was impaired resulting in a loss of $7.1 million recorded in investment loss for the year ended* December 31, 2021.In2022,* after a contemplated sale of the assets of Dosist didnot occur, Dosist entered into an agreement with a new buyer receiving the assets of Dosist for the assumption of its liabilities. As such, the Company considered its remaining investment in Dosist to be fully impaired and recorded an additional loss of $7.9 million in investment loss for the year ended* December 31, 2022.*

The Company had a minority ownership position in Canadian American Standard Hemp (“CASH”). CASH is headquartered in Warwick, Rhode Island, and manufactures cannabidiol isolate (“CBD”) developed through highly efficient and proprietary processes. In2022, as a result of a significant decline in the enterprise value, the Company determined that the fair value of the investment was $0.0 and fully impaired the investment. The impairment resulted in a loss of $4.3 million which is recorded in investment loss for the year ended* December 31, 2022.*

Captive Investments - Available-for-Sale Marketable Securities

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

The investments held within the captive insurance company arenot available for operating activities and are carried at fair value on the Consolidated Balance Sheet as of* December 31, 2024.They consist of money market, stocks, corporate bonds, government securities and real estate investment trusts. The Company believes any investments held with gross unrealized losses to be temporary andnot* the result of credit risk.

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

The following table summarizes the fair value of the Company's captive investments by contractual maturity:

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Note13. Accrued Liabilities

Accrued liabilities consists of:

Note14. Notes Payable and Long-Term Debt

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

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

2026 Notes

On* February 11, 2021,we closed a private offering of $250.0 million aggregate principal amount of our 5.625% senior secured notes due2026* (the*“2026* Notes”). The2026 Notes incurred interest at a rate of5.625%. Interest on the2026 Notes is payable semi-annually in arrears on* February 15and August 15of each year, commencing on August 15,*2021.We used the proceeds from the offering (i) to repay all obligations under and terminate the2018 First Lien Credit Facility, (ii) to pay related fees, costs and expenses and (iii) for general corporate purposes.

Obligations under the2026 Notes were 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 the2026 Notes or the*“2026* Notes Indenture”) or capital markets debt securities of the Company or Guarantors in excess of $15.0 million. The2026 Notes and the related guarantees are secured byfirst-priority liens on substantially all of the assets of the Company and the Guarantors, subject to certain exceptions. We were in compliance with all covenants under the2026 Notes as of* December 31, 2024.*

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The2026 Notes Indenture contains covenants that, among other things, restrict the ability of the Company and its restricted subsidiaries to: (i) grant or incur liens; (ii) incur, assume or guarantee additional indebtedness; (iii) sell or otherwise dispose of assets, including capital stock of subsidiaries; (iv) make certain investments; (v) pay dividends, make distributions or redeem or repurchase capital stock; (vi) engage in certain transactions with affiliates; and (vii) consolidate or merge with or into, or sell substantially all of our assets to another entity. These covenants are subject to a number of limitations and exceptions set forth in the Senior Secured Notes Indenture. For instance, the Company is generally permitted to make restricted payments, including the payment of dividends to shareholders, provided that, at the time of payment, or as a result of payment, the Company isnot in default on its debt covenants; however, there are earnings and market capitalization requirements that ifnot met could limit the aggregate amount of quarterly dividends payable during a fiscal year. The2026 Notes Indenture provides for customary events of default.

The Company incurred debt issuance costs attributable to the issuance of the2026 Notes of $6.4 million which are amortized to interest expense using the straight-line method over the expected life of the2026 Notes.

The2026 Notes were redeemed on* February 20, 2025.See Note24,* "Subsequent Events" for additional information.

2021 Revolving Credit Facility

In connection with the Offering, the Company also entered into a $25.0 million senior secured revolving credit facility (the*“2021* Revolving Credit Facility”) with the lenders party thereto and Barclays Bank PLC, as administrative agent and collateral agent. On* May 10, 2023,the Company and certain of its subsidiaries, as guarantors, entered into an amendment (the “Amendment”) to the2021* Revolving Credit Facility (as amended, the “Amended Revolving Credit Facility”). The Amendment includes certain modifications to the2021 Revolving Credit Facility relating to the replacement of the London Inter-Bank Offered Rate with a Secured Overnight Financing Rate (“SOFR”) as the interest rate benchmark under the2021 Revolving Credit Facility and adjusts certain other provisions to reflect current documentation standards and other agreed modifications.

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

The Company incurred debt issuance costs attributable to the issuance of the Amended Revolving Credit Facility of $0.5 million, with a remaining $0.2 million written off to gain on debt extinguishment upon termination of the facility in2023.

2023 ABL Facility

On* November**7,* 2023, TPB Specialty Finance, LLC, a wholly-owned subsidiary of the Company (the “ABL Borrower”), entered into a new $75.0 million asset-backed revolving credit facility (the*“2023* ABL Facility”), with the several lenders thereunder, and Barclays Bank PLC, as administrative agent (the “Administrative Agent”) and as collateral agent and First-Citizens Bank & Trust Company as additional collateral agent (the “Additional Collateral Agent”). Under the2023 ABL Facility, the ABL Borrower* maydraw up to$75.0* million under revolving credit loans and last-in, last-out (“LILO”) loans. The2023 ABL Facility includes a $40.0 million accordion feature. In connection with the2023 ABL Facility, the Company contributed certain existing inventory to the ABL Borrower. The2023 ABL Facility is secured on afirst-priority basis (subject to customary exceptions) by all assets of the ABL Borrower.

The2023 ABL Facility contains customary borrowing conditions including a borrowing base equal to the sum of (a) the lesser of (1)85% of the lower of (A) the market value (on afirst infirst out basis) of the sum of eligible inventory, plus eligible in-transit inventory of the ABL Borrower and (B)85% of the cost of the sum of eligible inventory, plus eligible in-transit inventory of the ABL Borrower and (2)85% of the net orderly liquidation value (“NOLV”) percentage of the lower of (1)(A) or (1)(B); plus (b)85% of the face value of all eligible accounts of the ABL Borrower minus (c) the amount of all eligible reserves. The2023 ABL Facility also includes a LILO borrowing base equal to the sum of (a) the lesser of: (1)10% of the lower of (A) the market value (on afirst infirst out basis) of the sum of eligible inventory, plus eligible in-transit inventory of the ABL Borrower and (B) the cost of the sum of eligible inventory, plus eligible in-transit inventory and (2)10% of the NOLV percentage of the lower of (1)(A) or (1)(B); plus (b)10% of the face amount of eligible account; minus (c) the amount of all eligible reserves.

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Amounts borrowed under the2023 ABL Facility are subject to an interest rate margin per annum equal to (a) from and after the closing date until the last day of thefirst full fiscal quarter ended after the closing date, (i)1.25% per annum, in the case base rate loans, and (ii)2.25% per annum, in the case of revolving credit loans that are SOFR Loans, (b)(i)2.25% per annum, in the case of LILO loans that are base rate loans, and (ii)3.25% per annum, in the case of LILO loans that are SOFR loans, (c) on thefirst day of each fiscal quarter, the applicable interest rate margins will be determined from the pricing grid below based upon the historical excess availability for the most recent fiscal quarter ended immediately prior to the relevant date, as calculated by the Administrative Agent.

The2023 ABL Facility also requires the Company and its restricted subsidiaries to maintain a fixed charge coverage ratio of at least 1.00 to1.00 as of the end of anyfour consecutive fiscal quarters if excess availability shall be less than the greater of (a)12.5% of the line cap and (b) $9.4 million, at any time and continuing until excess availability is equal to or exceeds the greater of (i)12.5% of the line and (ii)$9.4 million forthirty (30) consecutive calendar days; provided that such$9.4 million level shall automatically increase in proportion to the amount of any increase in the aggregate revolving credit commitments thereunder in connection with any incremental facility.

The2023 ABL Facility shall mature on the earlier of (x)* November 7, 2027and (y) the date that is 91 days prior to the maturity date of any material debt of the ABL Borrower or the Company or any of its restricted subsidiaries (subject to customary extensions agreed by the lenders thereunder); provided that clause (y) shallnot* apply to the extent that on any applicable date of determination (on any date prior to the date set forth in clause (y)), (A) the sum of (x) cash that is held in escrow for the repayment of such material debt pursuant to arrangements satisfactory to the Administrative Agent, (y) cash that is held in accounts with the Administrative Agent and/or the Additional Collateral Agent, plus (z) excess availability, is sufficient to repay such material debt and (B) the ABL Borrower has excess availability of at least $15.0 million after giving effect to such repayment of material debt, including any borrowings under the commitments in connection therewith.

The Company hasnot drawn any borrowings under the2023 ABL Facility but has letters of credit of approximately $2.3 million outstanding under the facility and has an available balance of $57.4 million based on the borrowing base as of* December 31, 2024*.

The Company incurred debt issuance costs attributable to the2023 ABL Facility of $2.6 million which are amortized to interest expense using the straight-line method over the expected life of the2023 ABL Facility.

Convertible Senior Notes

In* July 2019,the Company closed an offering of $172.5 million in aggregate principal amount of its 2.50% convertible senior notes due July 15, 2024 (the “Convertible Senior Notes”). The Convertible Senior Notes were senior unsecured obligations of the Company and the remaining outstanding balance of $118.5 million was retired with cash on July 15, 2024.*

In2022, a wholly owned subsidiary of the Company repurchased $10.0 million in aggregate principal amount of the Convertible Senior Notes on the open market resulting in a $0.9 million gain on extinguishment of debt. Subsequent principal repurchases occurred in2023 for an aggregate principal amount of $44.0 million resulting in a gain on extinguishment of debt of $1.9 million. Including amounts repurchased in2022, a total of $54.0 million in aggregate principal amount of the Convertible Senior Notes had been repurchased as of* December 31,2023. The repurchased notes were retired on July 1, 2024,withno principal amounts remaining outstanding or held bythird* parties as of* December 31,2024. As of December 31, 2023,*$118.5 million aggregate principal was recorded in current liabilities on the Company’s Consolidated Balance Sheet.

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Note15. Income Taxes

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

Deferred tax assets and liabilities consists of:

At* December 31, 2024*, the Company had state net operating loss (“NOL”) carryforwards for income tax purposes of approximately $23.6 million, which expire between2034 and2042, $27.2 million of which has an indefinite carryforward period. The Company has determined that, at* December 31, 2024and2023* its ability to realize future benefits of its state NOL carryforwards doesnot meet the “more likely thannot” criteria in ASC740, Income Taxes. Therefore, a valuation allowance for state NOL carryforwards of $3.1 million and $2.9 million has been recorded at* December**2024* and2023, respectively. The Company has determined that at* December 31, 2024* and2023, its ability to realize future benefits of its capital loss carryforward, unrealized loss on investments and foreign NOL carryforwards donot meet the “more likely thannot” criteria in ASC740, Income Taxes. Therefore, a valuation allowance for capital loss carryforward of $4.1 million, unrealized loss on investments of $3.1 million and foreign NOL carryforwards of $1.8 million has been recorded at* December 31, 2024*

and a valuation allowance for unrealized loss on investments of $6.4 million and foreign NOL carryforwards of $1.7 million has been recorded as of* December 31, 2023.*

ASC740-10-25 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 than50 percent likely of being realized upon ultimate settlement. The Company has determined that they didnot have any uncertain tax positions requiring recognition as a result of the provisions of ASC740-10-25. The Company’s policy is to recognize interest and penalties accrued on uncertain tax positions as part of interest expense. For the years ended* December 31, 2024*,2023, and2022, no estimated interest or penalties were recognized for the uncertainty of tax positions taken. The Company files income tax returns in the U.S. federal jurisdiction and various state jurisdictions. In general, the Company isno longer subject to U.S. federal and state tax examinations for years prior to2021.

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Reconciliation of the federal statutory rate and the effective income tax rate for the years ended* December 31*is as follows:

The permanent differences for the years ended* December 31, 2024,*2023 and2022 arenot significant in the aggregate.

Note16. 401(k) Retirement Savings Plan

The Company sponsors a voluntary401(k) retirement savings plan. Eligible employees* mayelect to contribute up to 15% of their annual earnings subject to certain limitations. For the2024*,2023 and2022 plan years, the Company contributed 4% to employees who contributed 4% or more of their annual earnings. Employees contributing less than 4% received a 100% match on their contributions. Additionally, for all years presented, the Company made discretionary contributions of 1% to all employees, regardless of an employee’s contribution level. Company contributions to this plan were approximately $1.5 million for2024, $1.4 million for2023 and $1.5 million for2022.

Note17. Lease Commitments

The Company’s leases consist primarily of leased property for manufacturing, warehouse, corporate offices and retail space as well as vehicle leases. At lease inception, the Company recognizes a lease right of use asset and lease liability calculated as the present value of future minimum lease payments. Some leases* mayrequire payment of other components such as taxes, insurance, maintenance and operating expenses. When payments related to these other components are considered fixed, they are included in the determination of the lease liability due to the Company’s election to combine lease and non-lease components and account for them as a single lease component. Otherwise, they are recognized as variable payments, along with variable paymentsnot* based on a rate or index, in the period in which the obligation for those payments is incurred.

In general, the Company doesnot recognize renewal periods within the lease terms as there areno significant barriers to ending the lease at the initial term. Leases with an initial term of12 months or less arenot recorded on the balance sheet. Lease expense for these leases is recognized on a straight-line basis over the lease term.

The components of lease expense consist of the following:

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The Company's lease balances consist of the following:

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

Nearly all the lease contracts for the Company donot provide a readily determinable implicit rate. For these contracts, the Company uses a discount rate that approximates its incremental borrowing rate at the time of the lease commencement.

The following table illustrates the Company's future minimum rental payments for non-cancelable leases as of* December 31, 2024*:

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Note18. Share Incentive Plans

On* March 22, 2021,the Company’s Board of Directors adopted the Turning Point Brands, Inc.2021 Equity Incentive Plan (the“2021* Plan”), pursuant to which awards* maybe granted to employees, non-employee directors, and consultants. In addition, the2021* Plan provides for the granting of nonqualified stock options to employees of the Company or any subsidiary of the Company. Pursuant to the2021 Plan,1,290,000 shares, plus 100,052 shares remaining available for issuance under the2015 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. The2021 Plan is scheduled to terminate on* March 21, 2031.The2021* 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* December 31, 2024*, net of forfeitures, there were 381,717 Restricted Stock Units (“RSUs”),125,213 options and 75,059 Performance Based Restricted Stock Units (“PRSUs”) granted under the2021 Plan. There are 808,063 shares available for future grant under the2021 Plan.

On* April 28, 2016,the Board of Directors of the Company adopted the2015* Plan, pursuant to which awards could have been granted to employees, non-employee directors, and consultants. In addition, the2015 Plan provided for the granting of nonqualified stock options to employees of the Company or any subsidiary of the Company. Upon adoption of the2021 Plan, the2015 Plan was terminated, and the Company determinedno additional grants would be made under the2015 Plan. However, all awards issued under the2015 Plan that havenot been previously terminated or forfeited remain outstanding and continue unaffected. There areno shares available for grant under the2015 Plan.

Stock option activity for the2015 and2021 Plans is summarized below:

Under the2015 and2021 Plans, the total intrinsic value of options exercised during the years ended* December 31, 2024*,2023, and2022, was $2.6 million, $0.3 million, and $0.7 million, respectively.

At* December 31, 2024*, under the2015 and2021 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 areno longer suitable for this purpose. Due to our limited trading history, we are using the simplified method presented by SEC Staff Accounting BulletinNo. 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.

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The following table outlines the assumptions for options granted under the2015 Plan.

The following table outlines the assumptions for options granted under the2021 Plan.

The Company has recorded compensation expense related to the options based on the provisions of ASC718 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 $0.5 million, $0.7 million and $1.1 million for the years ended* December 31, 2024,2023 and2022, respectively. At December 31, 2024*, the options have been fully expensed with zero remaining.

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 afive-year period. PRSUs will vest on the measurement date, which isno more than 65 days after the performance period provided the applicable service and performance conditions are satisfied. At* December 31, 2024*, there are 372,218 PRSUs outstanding.

The following table outlines the PRSUs granted and outstanding as of* December 31, 2024*.

The Company recorded compensation expense related to the PRSUs of approximately $3.4 million, $3.0 million and $2.9 million in the consolidated statements of income for the years ended* December 31, 2024,2023 and2022, respectively, based on the probability of achieving the performance condition. Total unrecognized compensation expense related to these awards at December 31, 2024*, is $2.7 million, which will be expensed over the service period based on the probability of achieving the performance condition.

RSUs are stock units subject to service-based vesting conditions overone tofive years. At* December 31, 2024*, there are 222,007 RSUs outstanding.

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The following table outlines the RSUs granted and outstanding as of* December 31, 2024*.

The Company has recorded compensation expense related to the RSUs based on the provisions of ASC718 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 $3.3 million, $2.9 millionand $1.3 million for the years ended* December 31, 2024,2023 and2022, respectively. Total unrecognized compensation expense related to RSUs at December 31, 2024*, is $2.2 million, which will be expensed over 1.9 years.

Note19. Contingencies

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

Other major tobacco companies are defendants in product liability claims. In a number of these cases, the amounts of punitive and compensatory damages sought are significant and, if such a claim were brought against the Company, could have a material adverse effect on our business and results of operations.

The CDS segment has several subsidiaries engaged in making, distributing, and selling liquid nicotine products. As a result of the overall publicity and controversy surrounding the industry generally, many companies have received informational subpoenas from various regulatory bodies and in some jurisdictions regulatory lawsuits have been filed regarding marketing practices and possible underage sales. We expect that our subsidiaries will be subject to some such cases and investigative requests. To the extent that litigation becomes necessary, we believe that the subsidiaries have strong factual and legal defenses against claims that they unfairly marketed products.

The probable losses, if any, associated with any such lawsuits arenot currently reasonably estimable and therefore arenot accrued.

Note20. Earnings Per Share

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

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

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Note21. Segment Information

In accordance with ASC280, Segment Reporting, the Company hastwo reportable segments, Zig-Zag products and Stoker’s products. The Zig-Zag products segment markets and distributes (a) rolling papers, tubes, and related products; (b) finished cigars and MYO cigar wraps; and (c) lighters and other accessories. The Stoker’s products segment (a) manufactures and markets moist snuff, (b) contracts for and markets loose-leaf chewing tobacco products, and (c) FRE, its modern oral product. The Company's products are distributed primarily through wholesale distributors in the U.S. and Canada. Corporate unallocated includes the costs and assets of the Companynot assigned toone of thetwo reportable segments and includes corporate overhead expense, including executive management, finance, legal and information technology salaries, and professional services such as audit, external legal costs and information technology services, as well as costs related to the FDA premarket tobacco product application. The Company hadone customer that accounted for 10.2% of net sales in2024, of which 54% was in the Stoker's product segment and 46% was in the Zig-Zag products segment. The Company hadno customer that accounted for more than10% of net sales in2023, or2022.

The Company’s CODM is its President and Chief Executive Officer and uses segment operating income as the measure of earnings to evaluate the performance of each segment and to make decisions about allocating resources, including employees, property, plant and equipment, as well as financial and capital resources. On a quarterly basis, the CODM reviews segment operating income budget-to-actual variances to assess segment performance and make resource allocation decisions. For both reportable segments, cost of sales is the significant segment expense that is regularly provided to the CODM.

The accounting policies of these segments are the same as those of the Company. Corporate costs arenot directly charged to thetwo reportable segments in the ordinary course of operations.

The tables below present financial information about reportable segments:

(3) Includes costs related to PMTA of $3.6 million, $2.1 million and $4.6 million in 2024, 2023, and 2022, respectively.

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Net Sales: * Domestic and Foreign*

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

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Note22. Dividends and Share Repurchase

The Company currently pays a quarterly cash dividend. Dividends are considered restricted payments under the Senior Secured Notes Indenture. The Company is generally permitted to make restricted payments provided that, at the time of payment, or as a result of payment, the Company isnot in default on its debt covenants; however, there are earnings and market capitalization requirements that ifnot met could limit the aggregate amount of restricted, quarterly dividends during a fiscal year. During the years ended* December 31, 2024,*2023 and2022, the Company paid cash dividends of $0.28 per common share for $4.9 million, $0.26 per common share for $4.5 million and $0.24 per common share for $4.3 million, respectively.

On* February 25, 2020,the Company’s Board of Directors approved a $50.0 million share repurchase program which is intended for opportunistic execution based upon a variety of factors including market dynamics. The program is subject to the ongoing discretion of the Board of Directors. On October 25, 2021,the Board of Directors increased the approved share repurchase program by $30.7 million, and by an additional $24.6 million on February 24, 2022.On November 6, 2024,the Board of Directors of the Company increased the Company’s share repurchase authorization by $77.9 million to an aggregate amount of $100.0 million. The total number of shares repurchased for the year ended December 31, 2024was 154,945 shares for a total cost of $5.1 million and an average price per share of $32.60. As of December 31, 2024*, $100.0 million remains available for share repurchases under the program. There wereno shares repurchased for the year ended* December 31, 2023*. The Company repurchased 1,021,052 shares for a total cost of $29.2 million for the year ended* December 31, 2022.*

Note23. Selected Quarterly Financial Information (Unaudited)

The following table presents the quarterly operating results:

The amounts presented in the table above are computed independently for each quarter. As a result, their sum may not equal the total year amounts.

Note24. Subsequent Events

On* January 2, 2025,the Company contributed 100% of its interest in South Beach Brands LLC (“SBB”), the subsidiary that owns and operates the Company’s Creative Distribution Solutions (“CDS”) segment, to General Wireless Operations, Inc. (“GWO”) in exchange for a 49% equity interest in GWO. GWO is a joint venture between the Company and Standard General, LP entered into in December 2018.Under certain circumstances the Company has the right to redeem the contribution of SSB from GWO at fair market value. In addition, the Company received an option with a 15-year term to purchase the remaining 51% of GWO at an exercise price initially set at $22.0 million, which decreases over time based on certain tax sharing payments to GWO. The Company will provide certain transition services to GWO in connection with the operation of SBB on an arm’s length basis. The Company determined that, upon completion of the SBB exchange transaction, it willnot* have a controlling financial interest in GWO and, as a result, will deconsolidate SBB on* January 2, 2025,*and account for its interest in GWO under the equity method of accounting.

2032 Notes

On* February 19, 2025,the Company entered into an indenture relating to the issuance and sale of $300.0 million aggregate principal amount of its 7.625% Senior Secured Notes due2032* (the*“2032* Notes”), by and among the Company, the guarantors party thereto and GLAS Trust Company LLC, as trustee and notes collateral agent. Obligations under the2032 Notes are guaranteed by the Company’s current wholly-owned domestic restricted subsidiaries that guaranteed its2026 Notes. The2032 Notes and the related guarantees are secured byfirst-priority liens on substantially all of the assets of the Company and the guarantors, subject to certain exceptions. Proceeds from the offering were approximately $294.0 million and were used to redeem the2026 Notes and for general corporate purposes.

2026 Notes

On* February 20, 2025 (the “Redemption Date”), the Company used a portion of the proceeds from the issuance and sale of the2032* Notes to redeem all $250.0 million of its outstanding2026 Notes at a redemption price equal to 100% of the aggregate principal amount of the2026 Notes, plus accrued and unpaid interest thereon to, but excluding the Redemption Date. Upon redemption of the2026 Notes, the indenture governing the2026 Notes was satisfied and discharged in accordance with its terms.

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