Turning Point Brands, Inc.

Previous wording

The following Management’s Discussion and Analysis (“MD&A”) relates to the unaudited financial statements of Turning Point Brands, Inc., included elsewhere in this Quarterly Report on Form 10-Q. The MD&A is intended to enable the reader to understand the Company’s financial condition and results of operations, including any material changes in the Company’s financial condition and results of operations since December 31, 2025, and as compared with thethree months ended March 31, 2025*.* The MD&A is provided as a supplement to and should be read in conjunction with the unaudited consolidated financial statements and notes thereto included in this Quarterly report on Form 10-Q, as well as“Management’s Discussion and Analysis of Financial Condition and Results of Operations”* contained in the Annual Report on Form 10-K for the fiscal year ended December 31, 2025 (the*“2025 Annual Report”).

Current wording

The following Management’s Discussion and Analysis (“MD&A”) relates to the unaudited financial statements of Turning Point Brands, Inc., included elsewhere in this Quarterly Report on Form 10-Q. The MD&A is intended to enable the reader to understand the Company’s financial condition and results of operations, including any material changes in the Company’s financial condition and results of operations since December 31, 2025, and as compared with thethree and six months ended June 30, 2025*.* The MD&A is provided as a supplement to and should be read in conjunction with the unaudited consolidated financial statements and notes thereto included in this Quarterly report on Form 10-Q, as well as“Management’s Discussion and Analysis of Financial Condition and Results of Operations”* contained in the Annual Report on Form 10-K for the fiscal year ended December 31, 2025 (the*“2025 Annual Report”).

Previous wording

On February 20, 2026, the U.S. Supreme Court issued a ruling regarding tariffs imposed under the International Emergency Economic Powers Act (“IEEPA”) on goods imported into the United States, concluding that such tariffs were unauthorized. As of the date of this report, the Company has paid approximately $17.9 million in tariffs subject to the ruling.

Current wording

On February 20, 2026, the U.S. Supreme Court issued a ruling regarding tariffs imposed under the International Emergency Economic Powers Act ("IEEPA") on goods imported into the United States, concluding that such tariffs were unauthorized. The Company paid approximately $17.9 million in IEEPA tariffs.

Previous wording

The Company continues to monitor developments related to this ruling, as well as changes in U.S. and foreign trade, import, and export policies, which could have a material impact on the Company’s financial position, results of operations, and cash flows.

Current wording

The Company continues to monitor developments related to the ruling, including any ongoing legal, regulatory, or administrative actions. In addition, following the U.S. Supreme Court's decision, the U.S. administration announced additional tariffs under Section 122 of the Trade Act of 1974 and could implement additional tariffs in the future. Changes in U.S. and foreign trade, import, and export policies could have a material impact on the Company's financial position, results of operations, and cash flows.

Previous wording

Net Sales: For the three months ended March 31, 2026, consolidated net sales increased $17.8 million, or 16.8% compared to the prior year period, driven primarily by an increase in the Stoker’s products segment.

Current wording

Net Sales: For the three months ended June 30, 2026, consolidated net sales increased $26.3 million, or 22.6% compared to the prior year period, driven primarily by an increase in the Stoker’s products segment.

Previous wording

For the three months ended March 31, 2026, net sales in the Zig-Zag products segment decreased $10.6 million, or 22.4% compared to the prior year period. The decrease in net sales was driven primarily by declines of $7.4 million in U.S. papers and wraps, $1.7 million in the Clipper lighter business, and $0.9 million in our Canadian products.

Current wording

For the three months ended June 30, 2026, net sales in the Zig-Zag products segment decreased$11.6 million, or 24.8% compared to the prior year period. The decrease in net sales was driven primarily by declines of $4.7 million in U.S. papers and wraps, $6.2 million in the Clipper lighter business, and $1.0 million in our Canadian products. We were able to sell the majority of the Clipper inventory in the prior year and do not expect meaningful additional revenue from Clipper in future periods.

Previous wording

For the three months ended March 31, 2026, net sales in the Stoker’s products segment increased $28.4 million, or 48.1% compared to the prior year period. The increase in net sales was primarily driven by $29.7 million of growth in modern oral products.

Current wording

For the three months ended June 30, 2026, net sales in the Stoker’s products segment increased $38.0 million, or 54.5% compared to the prior year period. The increase in net sales was primarily driven by $38.4 million of growth in modern oral products.

Previous wording

Gross Profit: For the three months ended March 31, 2026, consolidated gross profit increased $8.7 million, or 14.6% compared to the prior year period. Gross profit as a percentage of net sales decreased to 55.0% for the three months ended March 31, 2026, compared to 56.0% for the three months ended March 31, 2025. The overall increase in gross profit was driven by increases in net sales in the Stoker's products segment and driven by margin contribution from modern oral products.

Current wording

Gross Profit: For the three months ended June 30, 2026, consolidated gross profit increased $27.1 million, or 40.6% compared to the prior year period. Gross profit as a percentage of net sales increased to 65.5% for the three months ended June 30, 2026, compared to 57.1% for the three months ended June 30, 2025. The overall increase in gross profit was driven by increases in net sales in the Stoker's products segment, margin contribution from modern oral products, and $12.3 million reduction in cost of sales as a result of tariff refunds.

Previous wording

For the three months ended March 31, 2026, gross profit in the Zig-Zag products segment decreased $4.6 million, or 18.1% compared to the prior year period. Gross profit as a percentage of net sales increased to 57.1% of net sales for the three months ended March 31, 2026, from 54.1% of net sales for the three months ended March 31, 2025, driven primarily by product mix.

Current wording

For the three months ended June 30, 2026, gross profit in the Zig-Zag products segment decreased $0.5 million, or 2.1% compared to the prior year period. Gross profit as a percentage of net sales increased to 63.9% of net sales for the three months ended June 30, 2026, from 49.1% of net sales for the three months ended June 30, 2025, driven primarily by product mix and by $2.4 million reduction in cost of sales as a result of tariff refunds.

Previous wording

Operating Income: For the three months ended March 31, 2026, consolidated operating income decreased $10.7 million, or 46.2% compared to the prior year period. Operating income as a percentage of net sales decreased to 10.0% of net sales for the three months ended March 31, 2026 from 21.8% of net sales for the three months ended March 31, 2025, primarily driven by increased selling, general and administrative costs.

Current wording

Operating Income: For the three months ended June 30, 2026, consolidated operating income decreased $9.6 million, or 36.5% compared to the prior year period. Operating income as a percentage of net sales decreased to 11.7% of net sales for the three months ended June 30, 2026 from 22.6% of net sales for the three months ended June 30, 2025, primarily driven by increased selling, general and administrative costs, partially offset by $12.3 million reduction in cost of sales as a result of tariff refunds.

Previous wording

For the three months ended March 31, 2026, operating income in the Stoker’s products segment decreased $4.4 million, or 18.1% compared to the prior year period. Operating income as a percentage of net sales decreased to 22.6% of net sales for the three months ended March 31, 2026 from 40.8% of net sales for the three months ended March 31, 2025, primarily driven by margin contribution of modern oral products and higher sales and marketing costs to drive sales.

Current wording

For the three months ended June 30, 2026, operating income in the Stoker’s products segment decreased $0.2 million, or 0.5% compared to the prior year period. Operating income as a percentage of net sales decreased to 27.8% of net sales for the three months ended June 30, 2026 from 43.2% of net sales for the three months ended June 30, 2025, primarily driven by higher sales and marketing costs offset by margin contribution of modern oral products and $9.9 million reduction in cost of sales as a result of tariff refunds.

Previous wording

Included in consolidated operating income are costs of the Company which are not assigned to one of the two reportable segments and include: (i) corporate overhead expense, including executive management, finance, legal and information technology salaries, and professional services, such as audit, external legal costs and information technology services, as well as (ii) costs related to the FDA premarket tobacco product application. For the three months ended March 31, 2026, unallocated costs were $18.5 million compared to $17.9 million in the prior year period, an increase of $0.6 million or 3.6%, primarily driven by joint venture related corporate expenses.

Current wording

Included in consolidated operating income are costs of the Company which are not assigned to one of the two reportable segments and include: (i) corporate overhead expense, including executive management, finance, legal and information technology salaries, and professional services, such as audit, external legal costs and information technology services, as well as (ii) costs related to the FDA premarket tobacco product application. For the three months ended June 30, 2026, unallocated costs were $22.0 million compared to $18.5 million in the prior year period, an increase of $3.5 million or 18.8%, primarily driven by joint venture related corporate expenses.

Previous wording

**Other Expense, net:**For the three months ended March 31, 2026, other income increased $0.1 million compared to the prior year period due to an honorarium gift in the current year period that was not applicable in the prior year period.

Current wording

**Other Expense, net:**For the three months ended June 30, 2026, other expense increased $0.1 million compared to the prior year period due to an honorarium gift in the current year period that was not made in the prior year period.

Previous wording

Income From Equity Method Investments: For the three months ended March 31, 2026, income from investments in equity securities increased $2.8 million compared to the prior year period as a result of GWO.

Current wording

Income From Equity Method Investments: For the three months ended June 30, 2026, income from investments in equity securities increased $2.7 million compared to the prior year period as a result of GWO.

Previous wording

Income Tax (Benefit) Expense:** **Our income tax benefit of $2.8 million was (25.2%of income before income taxes for the three months ended March 31, 2026. Our effective income tax rate was 11.4% for the three months ended March 31, 2025. The change in tax rate is primarily attributable to the release of a valuation allowance on deferred tax assets.

Current wording

Income Tax Expense:** **Our income tax expense of $3.7 million was 26.3% of income before income taxes for the three months ended June 30, 2026. Our effective income tax rate was 20.0% for the three months ended June 30, 2025. The change in tax rate is primarily attributable to the release of a valuation allowance on deferred tax assets in the current year period.

Previous wording

Net Income Attributable to Non-Controlling Interest:** **Net income attributable to non-controlling interest was $2.3 million and $1.4 million, respectively, for the three months ended March 31, 2026 and 2025. The increase in non-controlling interest compared to the prior year period is primarily due to higher sales volumes and improved net income.

Current wording

Net Income Attributable to Non-Controlling Interest:** **Net income attributable to non-controlling interest was $6.7 million and $2.5 million, respectively, for the three months ended June 30, 2026 and 2025. The increase in non-controlling interest compared to the prior year period is primarily due to higher sales volumes and improved net income of our joint venture.

Previous wording

Net Income Attributable to Turning Point Brands, Inc.: Due to the factors described above, net income attributable to Turning Point Brands, Inc. for the three months ended March 31, 2026 and 2025, was $11.7 million and $14.4 million, respectively.

Current wording

Net Income Attributable to Turning Point Brands, Inc.: Due to the factors described above, net income attributable to Turning Point Brands, Inc. for the three months ended June 30, 2026 and 2025, was $3.6 million and $14.5 million, respectively.

Previous wording

Selling, General, and Administrative Expenses: For the three months ended March 31, 2026, selling, general, and administrative expenses increased $19.4 million, or 53.2% compared to the prior year period, primarily due to increased shipping and selling costs related to the increase in modern oral sales in the quarter compared to the prior year period. Selling, general and administrative expenses in the three months ended March 31, 2026, included $0.3 million of expense related to PMTA, $2.9 million of stock options, restricted stock and incentives expense, $0.2 million of legal expenses incurred in connection with litigation related to an insurance claim, and $0.1 million of expense related to corporate restructuring. Selling, general and administrative expenses in the three months ended March 31, 2025, included $1.7 million of stock options, restricted stock and incentives expense, $1.6 million of expense related to PMTA, $0.2 million of transaction costs, and $0.2 million of expense related to the implementation of the new ERP and CRM systems.

Current wording

Selling, General, and Administrative Expenses: For the six months ended June 30, 2026, selling, general, and administrative expenses increased $56.1 million, or 73.1% compared to the prior year period primarily due to increased shipping and selling costs related to the increase in modern oral sales, increased salaries and benefits resulting from additional sales headcount, and higher sales and advertising expenses in the current year period compared to the prior year period. Selling, general and administrative expenses in the six months ended June 30, 2026, included $3.5 million of expense related to PMTA, $5.6 million of stock options, restricted stock and incentives expense, $0.8 million of legal expenses incurred in connection with litigation related to an insurance claim, and $0.2 million of expense related to corporate restructuring. Selling, general and administrative expenses in the six months ended June 30, 2025, included $3.2 million of expense related to PMTA, $3.3 million of stock options, restricted stock and incentives expense, $0.7 million of transaction costs, and $0.2 million of expense related to the implementation of the new ERP and CRM systems.

Previous wording

For the three months ended March 31, 2026, operating income in the Zig-Zag products segment decreased $5.7 million, or 33.7% compared to the prior year period. Operating income as a percentage of net sales decreased to 30.6% of net sales for the three months ended March 31, 2026 from 35.8% of net sales for the three months ended March 31, 2025, primarily driven by improved margins on product mix offset by an increase in sales and marketing costs.

Current wording

For the six months ended June 30, 2026, operating income in the Zig-Zag products segment decreased $11.7 million, or 36.9% compared to the prior year period. Operating income as a percentage of net sales decreased to 27.7% of net sales for the six months ended June 30, 2026 from 33.6% of net sales for the six months ended June 30, 2025, primarily driven by an increase in sales and marketing costs offset by improved margins on product mix and $2.4 million reduction in cost of sales as a result of tariff refunds.

Previous wording

**Loss on Extinguishment of Debt:**There was no loss on extinguishment of debt for the three months ended March 31, 2026. Loss on extinguishment of debt for the three months ended March 31, 2025 was $1.2 million as a result of the redemption of the 2026 Notes in February 2025.

Current wording

**Loss on Extinguishment of Debt:**There was no loss on extinguishment of debt for the six months ended June 30, 2026. Loss on extinguishment of debt for the six months ended June 30, 2025 was $1.2 million as a result of the redemption of the 2026 Notes in February 2025.

Previous wording

As of March 31, 2026, we have $192.4 million of cash on hand and $72.6 million of availability under the 2023 ABL Facility. We have no borrowings outstanding under our 2023 ABL Facility as of March 31, 2026. Our principal uses for cash are working capital, debt service, and capital expenditures.

Current wording

As of June 30, 2026, we have $268.3 million of cash on hand and $70.7 million of availability under the 2023 ABL Facility. We have no borrowings outstanding under our 2023 ABL Facility as of June 30, 2026. Our principal uses for cash are working capital, debt service, and capital expenditures.

Previous wording

Our adjusted working capital, which we define as current assets less cash and current liabilities, increased $35.1 million compared to the prior year end. The increase in working capital is primarily the result of a $1.7 million increase in accounts receivable, an $21.6 million increase in inventory and a $8.0 million increase in other current assets, partially offset by an increase of $15.5 million in accounts payable and a $19.2 million decrease in accrued liabilities. With our strong cash balance, free cash flow generation and borrowing availability under the 2023 ABL Facility, we expect to have ample liquidity to satisfy our operating cash requirements for the foreseeable future.

Current wording

Our adjusted working capital, which we define as current assets less cash and current liabilities, increased $24.2 million compared to the prior year end. The increase in working capital is primarily the result of a $25.4 million increase in inventory and a $15.0 million increase in other current assets, partially offset by a decrease of $3.0 million in accounts receivable, an increase of $14.9 million in accounts payable and a $1.7 million decrease in accrued liabilities. With our strong cash balance, free cash flow generation and borrowing availability under the 2023 ABL Facility, we expect to have ample liquidity to satisfy our operating cash requirements for the foreseeable future.

Previous wording

For the three months ended March 31, 2026, net cash used in operating activities was $22.3 million, a increase of $39.7 million compared to the prior year period. The increase is primarily due to unfavorable changes of $34.5 million in working capital, $1.2 million in other assets, decrease in net income, net of non-cash items of $6.3 million. The primary drivers of non-cash items were a $1.6 million increase in deferred tax benefit, a $0.4 million increase in depreciation and amortization, a $2.8 million increase in income from equity method investment and a $1.2 million decrease in loss on extinguishment of debt compared to the prior year period. The decrease in cash from working capital compared to the prior year period was primarily driven by the timing of payments.

Current wording

For the six months ended June 30, 2026, net cash provided by operating activities was $4.1 million, a decrease of $25.2 million compared to the prior year period. The decrease is primarily due to $14.0 million in working capital, decrease in net income, net of non-cash items of $15.2 million, and partially offset by, $4.0 million in other assets. The primary drivers of non-cash items were a $3.1 million increase in deferred tax benefit, a $5.9 million increase in income from equity method investment, $1.2 million increase in gain on investments, $2.3 million increase in stock compensation expense and a $1.2 million decrease in loss on extinguishment of debt compared to the prior year period. The decrease in cash from working capital compared to the prior year period was primarily driven by the timing of payments.

Previous wording

For the three months ended March 31, 2026, net cash used in investing activities was $5.1 million, a decrease of $0.2 million compared to the prior year period, primarily due to an increase in capital expenditures of $3.0 million offset by $2.8 million decrease for investments.

Current wording

For the six months ended June 30, 2026, net cash used in investing activities was $11.6 million, an increase of $3.0 million due to payment on an option agreement of $4.9 million partially offset by a reduction in capital expenditures and payments for equity investments.

Previous wording

For the three months ended March 31, 2026, net cash used in financing activities was $2.7 million, a decrease of $41.2 million compared to the prior year period, primarily due to a net decrease in cash of $43.4 million related to the February 2025 issuance of the 2032 Notes, and $2.5 million related to stock compensation activity.

Current wording

For the six months ended June 30, 2026, net cash provided by financing activities was $52.8 million, an increase of $12.4 million compared to the prior year period, primarily due to an increase of equity offering proceeds of $59.6 million, offset by to a net decrease in cash of $42.7 million related to the February 2025 issuance of the 2032 Notes, $2.5 million decrease for tax distributions, and $1.3 million related to stock compensation activity.

Previous wording

On February 25, 2020, our Board of Directors approved a $50.0 million share repurchase program, which is intended for opportunistic execution based upon a variety of factors including market dynamics. The program is subject to the ongoing discretion of the Board of Directors. On October 25, 2021, the Board of Directors increased the approved share repurchase program by $30.7 million, and by $24.6 million on February 24, 2022. On November 6, 2024, the Company's Board of Directors increased the Company’s share repurchase authorization by $77.9 million to an aggregate amount of $100.0 million. On November 4, 2025, the Company's Board of Directors increased the share repurchase authorization by $100.0 million to an aggregate amount of $200.0 million. For the three months ended March 31, 2026, there were no repurchases under the share repurchase program. As of March 31, 2026, there was $200.0 million in remaining repurchase authority under the plan.

Current wording

On February 25, 2020, our Board of Directors approved a $50.0 million share repurchase program, which is intended for opportunistic execution based upon a variety of factors including market dynamics. The program is subject to the ongoing discretion of the Board of Directors. On October 25, 2021, the Board of Directors increased the approved share repurchase program by $30.7 million, and by $24.6 million on February 24, 2022. On November 6, 2024, the Company's Board of Directors increased the Company’s share repurchase authorization by $77.9 million to an aggregate amount of $100.0 million. On November 4, 2025, the Company's Board of Directors increased the share repurchase authorization by $100.0 million to an aggregate amount of $200.0 million. For the six months ended June 30, 2026, there were no repurchases under the share repurchase program. As of June 30, 2026, there was $200.0 million in remaining repurchase authority under the plan.

Previous wording

The Company entered into an at-the-market offering program (the "ATM Program") on December 13, 2024, with B. Riley Securities Inc. and Barclays Capital Inc. Between August 15, 2025, and September 11, 2025, the Company sold 1,014,262 shares of our Common Stock under the ATM Program at an average selling price of $98.59 per share for gross proceeds of $100.0 million, less underwriter's commission and expenses of approximately $2.5 million, for net proceeds of $97.5 million. The shares were issued from repurchased common stock on a first in first out basis. The Company recorded the gain, corresponding to the difference in between the reacquisition cost of treasury stock and the value of treasury stock reissued, into APIC within the Consolidated Statements of Changes in Stockholders' Equity. As of March 31, 2026, there was $200.0 million of capacity remaining under the ATM Program.

Current wording

The Company entered into an at-the-market offering program (the "ATM Program") on December 13, 2024, with B. Riley Securities Inc. and Barclays Capital Inc. During the quarter ended June 30, 2026, the Company sold 672,884 shares of our Common Stock under the ATM Program at an average selling price of $90.30 per share for gross proceeds of $60.8 million, less underwriter's commission and expenses of approximately $1.2 million, for net proceeds of $59.6 million. The shares were issued from repurchased common stock on a first in first out basis. The Company recorded the gain, corresponding to the difference in between the reacquisition cost of treasury stock and the value of treasury stock reissued, into APIC within the Consolidated Statements of Changes in Stockholders' Equity. As of June 30, 2026, there was $139.2 million of capacity remaining under the ATM Program.

Previous wording

The Company has not drawn any borrowings under the 2023 ABL Facility but has letters of credit of approximately $2.3 million outstanding under the facility and has an available balance of $72.6 million based on the borrowing base as of March 31, 2026.

Current wording

The Company has not drawn any borrowings under the 2023 ABL Facility but has letters of credit of approximately $2.3 million outstanding under the facility and has an available borrowing base of $70.7 million based on the borrowing base as of June 30, 2026.

Previous wording

Income Statements for the three months ended March 31, 2026 and 2025 (unaudited):

Current wording

Income Statements for the three and six months ended June 30, 2026 and 2025 (unaudited):