Good morning and welcome to the Turning Point Brands first quarter 2021 earnings conference call. All participants will be in listen-only mode. All lines have been placed on mute to prevent any background noise. After today's presentation, there will be an opportunity to ask questions. Please note, this event is being recorded. I would now like to turn the conference over to Louie Reformina, the incoming Chief Financial Officer. Please go ahead.

Thank you. Good morning everyone. This is Louie Reformina, our incoming CFO. Joining me are Turning Point Brands' President and CEO, Larry Wexler, Graham Purdy, Chief Operating Officer, and Bobby Lavan, our outgoing CFO. This morning, we issued a news release covering our first quarter results. This release is located in the IR section of our website, where a replay of today's conference call will also be available. In this call, we will discuss our consolidated and segment operating results and provide our perspective on our progress against our strategic plans. As is customary, I direct your attention to the discussion of forward-looking and cautionary statements in today's press release and the risk factors in our filings with the Securities and Exchange Commission. The disclosure outlines various factors that could cause actual results to differ materially from projections or forward-looking statements that may be cited in today's discussion. These forward-looking statements and projections are not guarantees of future performance and you should not place undue reliance upon them, except as provided by federal securities laws and we undertake no obligation to publicly update or revise any forward-looking statements. In the call today, we will reference certain non-GAAP financial measures. These measures and reconciliations to GAAP can be found in today's earnings release, along with reasons why management believes that they provide useful information. I will now turn the call over to Larry Wexler, our CEO.

Thank you Louie and good morning everyone. Thank you for joining the call. We started the year with another strong quarter. In the first quarter, revenue was up 19% to $108 million, above our prior guidance range. And adjusted EBITDA was up 57% to $28 million. Revenue growth was led by our core Zig-Zag and Stoker's segments, which were up a combined 27% despite challenging comparisons from last year's lockdown related inventory runs. A number of favorable trends that started in 2020 have continued even as the country has begun to open up. Our Zig-Zag products segment saw another quarter of tremendous growth as we continued to outperform a healthy market with our execution. New product SKUs in e-commerce were strong contributors to growth and we ramped up distribution of Blunt Wraps during the quarter. We acquired the rights to this brand in a Durfort transaction last year. Canada also outperformed with recreational marketing results now consolidated within this segment. In Stoker's, MST drove our gains as same-store sales growth continued its strong trend. Stoker's remains the fastest-growing brand in MST according to MSAi and continues to be well-positioned for the secular shift to the value category. NewGen saw solid growth during the quarter despite continued disruption resulting from industry reactions to the PMTA process. Encouragingly, the FDA has stepped up its enforcement efforts, issuing warning letters to 31 manufacturers in March after issuing 29 letters in February and 19 in January. We expect continued volatility for NewGen as the PMTA process improves and still continues. In addition, late in the quarter, vaping benefited from volatility as the industry responded to the looming implementation date of the PACT Act in the second quarter. Customers bought forward late in March and competitors experienced some disruption. The PACT Act is creating further barriers to entry in the vape distribution business as it has increased both the cost and logistical complexities of shipping vape products to customers. As a result, we are expecting more of our competitors to exit the market in the short term, which will create additional volatility but provide optionality for more long-term upside for our business. We are also very excited about our recent investment in Docklight Brands, which has the global rights to the Bob Marley brand for cannabis and related use. Bob Marley is one of the most iconic brands in the cannabis space and is a perfect complement to Zig-Zag. It fits well with our strategy of building one of the best brand houses in the cannabis space. We will be rolling out the current line of Marley CBD topical products through our distribution infrastructure later this year with an emphasis on the B2C online opportunity in the early stages. With over $180 million of liquidity in our balance sheet, we remain well-capitalized to pursue further investments and acquisitions to add value to our company and enhance our growth profile. Overall, our performance at the start of the year enabled us to raise our guidance and we look forward to continuing our momentum. With that and to add some additional color and perspective on our quarter and the path forward, let me turn the call over to Graham Purdy, Chief Operating Officer.

Thank you Larry. Let me now give you a quick snapshot of the performance from the segment level. Zig-Zag products saw double-digit growth in the quarter, led by strong double-digit growth in both U.S. rolling papers and MYO cigar wraps. In the U.S., Zig-Zag paper's position as the leading premium and overall paper brand strengthened, increasing its market share in the measured universe by 3.5 points year-over-year to 33.3%, according to MSAi. This was the seventh consecutive quarter Zig-Zag has realized year-over-year share growth. All our major product lines contributed to this growth, supplemented by our new products and our expanding e-commerce platform. In paper cones, we were the number one brand in the MSAi measured channel with 41.4% market share in the first quarter, up 21.4 points from the previous year. Our cone sales more than quadrupled year-over-year. It was over 19% of our U.S. paper sales in the first quarter and we would expect it to continue to ramp through the year. We continue to lead the growth and penetration of product in convenience stores and are expanding our presence in the non-measured alternative channel, including head shops and dispensaries, where most of that market currently exists and where Zig-Zag is still underrepresented. As a reminder, cones are highly accretive to our business. Cones are a more convenient product for the adult consumer and one cone effectively sells for four to ten times the price of an individual sheet of our regular rolling paper at retail, a significant increase to our addressable market on a per usage basis. In Canada, we had a strong quarter of growth. Recreational marketing, which is now being consolidated contributed low single digits to our segment sales as their business continues to accelerate. Zig-Zag is now in dispensaries that cover roughly 75% of the Canadian market and is gaining share within that channel. E-commerce, which was non-existent last year was a big driver of growth, once again accounting for double digits of our U.S. paper sales during the quarter. Stoker's products saw double-digit growth in the quarter. The majority of the growth was again driven by moist snuff same-store sales gains. Stoker's market share was up to 5.3%, a little over 50 basis points compared to a year ago according to MSAi. Stoker's moist is now represented in stores representing 61.2% of industry volumes, 4.5 points above last year's level, which still leaves a long runway for further growth. Total company chewing tobacco sales saw low single-digit growth during the quarter. Stoker's Chew gained an impressive 2.6 share points with 24.7% share in the first quarter according to MSAi. Stoker's has continued to gain share every year we have owned the business. With the continued secular shift into the value category and Stoker's positioning as a leading value brand, the chewing tobacco business is well-placed to provide us with a stable annuity stream of cash flow going forward. Moving to NewGen where we once again had a resilient quarter in a disruptive environment. In our vape distribution business, we saw strong growth and healthy gross margin improvement in the quarter despite continued competitive pressure in the market related to the PMTA process. The segment also benefited from advanced buying in anticipation of stricter shipping regulations around vaping as a result of the implementation of the PACT Act in the second quarter. Within Nu-X, our white nicotine pouch product free and Wild Hempettes contributed to our growth. While we continue to expect short-term volatility in the vape distribution business, we are optimistic about the optionality in the segment as the market begins to consolidate. The PACT Act is another catalyst as it will create challenges for our competitors by increasing the logistical requirements to service vape customers. While this will increase costs and introduce short-term disruption as the industry adjusts to new law, we believe this will accelerate the consolidation in the industry and position larger players like us well going forward. And with that, I will turn it to Louie for a review of our first quarter financial performance. Louie?

Thank you Graham. Our performance in the first quarter was once again ahead of our plan. Turning to the segment reviews. Zig-Zag products' net sales in the quarter increased 41.8% to $41 million with strong double-digit growth in U.S. rolling papers, MYO cigar wraps, and Canadian papers which benefited from roughly $2 million to $3 million of deliveries pushed into the first quarter of 2021. Total Zig-Zag segment volume increased 36.9% while price mix increased 4.9%. According to MSAi, first quarter industry volumes for U.S. rolling papers increased double digits with over half the growth driven by cones. Our volumes grew at two times the rate of the overall market. And if you strip us out, we grew 3.5 times the rate of our competitors. This excludes the incremental volume growth we are seeing from the alternative and e-commerce channels. MYO cigar wrap industry volumes were up strong double digits in the quarter. During the quarter, we saw the segment's gross margin expand significantly by 490 basis points to 60.7%. This was the result of the financial benefits of eliminating royalty payments to Durfort resulting in higher margin for our MYO cigar wrap product and the accretive contribution from our e-commerce business, which is currently trending above the segment average. Zig-Zag accounted for 58% of our segment operating income in the first quarter and continues to be our fastest growing segment. Stoker's products' net sales increased 10.4% to $29.3 million in the quarter. Net sales for the MST portfolio grew 17% and represented 63% of Stoker's revenues in the quarter, up from 59% a year earlier. Total Stoker's volume increased 5.1% with price mix advancing 5.3%. The year-over-year industry volumes for MST declined by approximately 2% with chewing tobacco declining by approximately 4%. Stoker shipments to retail continued to outpace the industry in the quarter, growing its MSAi share in both chewing tobacco and MST. Moving to our NewGen segment. Net sales increased 6% to $37.4 million. We continue to expect near-term volatility due to the PMTA process in 2021, along with the impact of the PACT Act. For the quarter, NewGen gross profit increased 9.2% to $12.5 million. Segment gross margin expanded 100 basis points to 33.4%. Moving to the consolidated business. Adjusted EBITDA for the quarter was up 57% to $28 million as compared to the prior year. We achieved 60% incremental margins during the quarter, reflecting the strong performance in our core segments as we leveraged our fixed cost structure. In this morning's release, we also updated our 2021 guidance as follows. Net sales of $422 million to $440 million. This is up from previous guidance of $412 million to $432 million. This includes net sales of $103 million to $109 million in the second quarter. Adjusted EBITDA for the full year is now expected to be $103 million to $108 million, up from previous guidance of $99 million to $105 million. For Zig-Zag, we now expect strong double-digit sales growth, up from double digits previously. As a reminder, in 2020, our cigar wraps business was impacted by $5 million from manufacturing-related disruptions in the second quarter of last year, which we made up for in the fourth quarter. So the manufacturing impact was a wash for the year, but we will have an impact in comparisons in the upcoming quarter. We estimate that the net benefit from COVID on the overall Zig-Zag segment last year was $7 million. For Stoker's, we expect high single-digit sales growth. We saw some benefit from our competitor being temporarily out of the market in the middle of the year in our loose leaf chewing business, so we will have a tough comparison for our loose leaf business in the upcoming quarters. We estimate that the net benefit from COVID in 2020 for Stoker's was around $3 million spread out from Q2 to Q4. For NewGen, we now expect a mid to low single-digit decline in revenue. This is up from previous guidance of mid-single-digit sales declines. This includes single-digit declines for vape distribution from previous guidance of double-digit declines, offset by growth in Nu-X. We expect the second quarter to be a challenging quarter, so we take a pragmatic view of the market and project a significantly increased logistical cost and the market impact around the PACT Act implementation. We will also be comping against a quarter with COVID tailwinds. On COVID, we previously called out a benefit of $5 million in Q2 of last year from our competitor being offline. We also benefited from an increase in our B2C e-commerce business as more people stayed at home, especially in Q2. We estimate that the overall impact to NewGen to have been $15 million from COVID in 2020, with $10 million of that in Q2. Moving to our balance sheet. We ended the quarter with $167 million of cash and $189 million of available liquidity. This puts us in an incredibly strong position to execute on an active pipeline of opportunities we are currently evaluating to grow our business.

Thanks Louie. We had a strong start to the year. Our core businesses, especially Zig-Zag, continued to perform exceptionally. And we are optimistic about the longer-term prospects of our NewGen business as we believe that we have a competitive advantage navigating the PMTA process and the PACT Act which are likely to be transformational events for the industry. With our business momentum and our balance sheet, we remain well-positioned as a company. Our performance would not be possible without the continued efforts of our employees and I want to personally thank them once again for their commitment and contribution to our success. I also want to take time to thank Bobby Lavan for his contributions to the company over the last three years. Bobby has been instrumental in reshaping our balance sheet and repositioning our company for growth. We wish Bobby all the best in his next opportunity. Thank you for participating in the call today. And with that, I would like to open up the call to questions.

We do have a question from the line of Vivien Azer with Cowen.

Hi. Thank you. Good morning.

Hi Vivien.

So I wanted to start off with the Zig-Zag segment, really tremendous growth, far better than we were looking for. The share momentum certainly is encouraging and it seems like you guys have incremental distribution opportunities even from here. I was wondering if you could help us think about framing EPD or percent distribution? It's easier to track in measured channels but it's a little bit more nebulous when you guys start expanding into non-measured channels. So how should we think about that? Thanks.

Yes. So you are right. It is harder to track in the non-measured channels. Our only estimates of the alternative channel is about 40% of the market but we may have underestimated that. We still think that we are in the high single digits, low double digits share in that alternative channel. So there is still plenty of runway for us to grow there, especially with the 30% share that we have in the measured channel. So I think we are still just getting started in terms of our efforts in the alternative channel.

Understood. Thanks for that. And just on the revenue accretion that you are seeing from cones. It's certainly showing up in the gross margin, which is great to see. But when you said that cones can go from anywhere from a four to 10X premium, that strikes me as a very wide range relative to a single sheet. So what drives the variability in that pretty tough competition?

Yes. So it's really kind of depending on the product you are switching from. So if you look kind of on our website, if you look at a book of French orange papers, that's $2.50 for a booklet of 32. And so that drives a four-time increase on the retail price for that product. But if you look at our unbleached rolling papers, which comes in a pack of 50, that's a ten times increase to the price of the unbleached paper.

Perfect. Okay. Thanks for that context. Last one, housekeeping item on the Zig-Zag segment. Can you quantify the magnitude of the revenue shift, I believe it was from Canada, out of 4Q into 1Q?

Yes. So that was just a delayed shipment from Canada. So that's about $2 million to $3 million that we experienced shifting over from Q4 of last year to Q1 of this year.

Perfect. Okay. Moving on to the Stoker's segment. I was hoping to get your perspectives on some of the commentary coming out of Capitol Hill around tobacco tax conversation, please?

Is that a tax question? I didn't realize you had broken that out.

That's right. It's a tax question.

So as you know, you have been following this business for a long time. There are always conversations about taxes. And taxes go up at the state level all the time. The experience that we have had, that we have seen is that there is really low activities in our markets. We do see some shifting to value after significant tax increases in states. As you know, the Durbin Bill is the first proposal. It's very extreme. We expect it to come in better than that. And even if it did, we are very well positioned. We did some back of the envelope analysis that says after implementation of Durbin Bill, a pack of cigarettes would be $8 and change and a can of Stoker's would be $5 and change. So I think we are still very well positioned even if that tax bill goes through.

Yes. That makes sense from a supply and demand perspective, for sure Larry. And then if you could just expand on that thought and just speak to the implications for a federal tax on vape?

Well, there are many implications from that. One is that once the federal government taxes your product, it tends to become, not a partner, but it certainly legitimizes it and it may relieve some of the pressure. We believe that vape consumers, even if the states have put on state excise taxes, state with the product, consumers tend to have incorporated their products into their daily lives. Ultimately, unfortunately, the consumers will pay the tax. Almost all of the taxes go through to the consumer and consumers will pay the tax.

Understood. Thanks very much for the color.

Your question is from the line of Susan Anthony with B. Riley Financial.

Thanks. Nice job in the quarter. It's good to see the accelerated growth continue into the first quarter. I was wondering if maybe you could talk a little bit about the longer-term operating margin opportunity for the Stoker's and Zig-Zag segments? I guess, how much opportunity is there to continue to expand the margins there?

Yes. So we will start out with the Zig-Zag segment. We were not as focused on expanding the gross margins of the Zig-Zag segment. Part of that is going to be driven by the product mix. For example, we mentioned paper cones, which is a highly accretive product for us from an addressable market perspective. But it may come at a lower gross margin than what we have for our traditional paper products, which is fine because it expands the gross profit dollar opportunities. So what we are really focused on with Zig-Zag is leveraging the gross profit dollars on the fixed cost SG&A for that segment. So don't look for too much gross margin expansion on the Zig-Zag segment from here. On the Stoker's, that's a different story because MST is a product that we manufacture in-house. So we should still keep driving the incremental margins as we grow the volumes of that business.

Okay. Great. That's really helpful. And then maybe can you talk a little bit on the Nu-X brands and the response you are seeing from the consumer? It seems like with a better guidance there in the NewGen category, it looks like it's doing a bit better than expected?

Yes. So part of that is being driven by the PACT Act implementation that we mentioned earlier. So we did see some pull forward in sales as our customers kind of pre-bought in advance of higher shipping costs as a result of the PACT Act. There is going to be some short-term volatility but we are seeing a big opportunity for us as the market consolidates with our competitors going away. So I think that's part of what you are seeing in the strength on the NewGen side of the business.

Okay. Great. And then I guess just last one really quick, if maybe you can give us an update on what you are seeing on the acquisition front? Where you are seeing the opportunity in terms of segment and kind of where you are really focused on?

Sure. So we just did this investment in Docklight which we are very excited about. The focus there is really, we want to build a house of brands in the cannabis space that complements our investment in dosist. We are looking to do a few more of these, not too many. And you know, we kind of view this as a way of dipping our toes in the water and eventually acquiring these brands into part of the consolidated company. We have mentioned that we are active in the cigar space. It is a $2.5 billion market opportunity for us. So we are evaluating opportunities from an acquisitions perspective there. So look for us to do something there in the short to medium term. We are also focused on expanding our product offerings. So we are touching 210,000 retail outlets in North America. There are a lot of other products that go into these stores, which are mostly convenience stores that we can drive through the same sales infrastructure that we are currently using. So we are looking at what we would call an expansion.

Okay. Great. I guess just one follow-up, I guess, for the investment such as Docklight. How are you guys thinking in terms of the timeframe there eventually making a full investment in the company?

So Docklight comes with an option for investing another chunk into the business. Eventually, the way we are approaching the cannabis segment is, we think that the market today is going to be significantly different than the market five years from now. So making investments, small investments in the companies like dosist and Docklight with an opportunity to increase our stake and eventually fold them into our company is the course that we are taking there.

Great. Okay. Thanks so much. Good luck for the rest of the year.

And your next question is from the line of Eric Des Lauriers with Craig-Hallum.

All right. Great. Thanks for the question and congrats on another really strong quarter again. Focusing on the Zig-Zag business, obviously really strong growth there as well and I am just trying to parse through that measured versus the alternative channel opportunity. How should we think about that opportunity in terms of papers versus wraps? Any major difference in either current distribution or sort of market share potential that you guys see for papers versus wraps in that alternative channel?

Yes. So the alternative channel is really mostly a papers opportunity. So part of that is the need of a tobacco license to sell our wraps product. And so that fits mostly in our measured channel still. So really the opportunity is in terms of expanding our presence in alternative more of a papers business. And that's true for both the U.S. and Canada.

Okay. And then I am assuming that it's sort of a higher mix of cones in the alternative channel than in the measured channel. But any sort of ability to quantify the opportunity for cones versus booklets in that alternative channel?

Yes. So it is a heavier mix of cones in the alternative channel versus papers. And we think that the cones market is as large as the paper booklets market and it is more represented in the alternative channel today than it is in the convenience store channel. Really, we are driving the growth in the convenience store chain right now.

And your next question is from the line of Greg Pendy with Sidoti.

Hi guys. Thanks for taking my questions. Just real quick on the FDA warning letters. Are those predominantly open tank players? Or is that just a mix of both vape type of players?

The bulk of them are the open tank players, a lot of mostly liquids.

Okay. Great. And as we are thinking about, I guess, this year, I believe you took price increases in Stoker's in May and July, if I am not mistaken. Is there an expectation for some price increases coming through this year around those times?

The price increases in Louie's comments are fairly regular. So yes, we expect the schedule to be somewhat similar to last year's.

Okay. Great. And then just one final question. Can you just kind of, just in general, how should we be thinking about in Zig-Zag, the e-commerce channel? How big is that right now? Or is it just too small to quantify at this point?

So within our U.S. papers business, it's double digits of our sales. So we expect that to continue to ramp for us through the year.

And there are no further questions. Mr. Reformina, do you have any final remarks?

I will turn the call over to Larry.

Well, thank you everybody for joining the call. We look forward to seeing you again in the next quarter. And stay safe and see you in July. Thank you.

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.