Turning Point Brands Raises Guidance To $422 Million For 2021

For a company that mostly sells papers, Turning Point Brands (NYSE: TPB) is turning into a behemoth in the cannabis industry. The company announced during its recent earnings results that it was increasing its guidance for net to a range of $422 million to $440 million. This is up from the previous guidance of $412 million to $432 million. This increase 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.

Breaking Down The Growth

Most of the cannabis companies that are turning in triple-digit quarterly sales figures tend to be those selling actual cannabis, whereas Turning Point is mostly due to sales of its rolling papers and chewing tobacco. The company’s vape business may end up declining for the year as the PACT Act begins to affect vape distribution. The newly acquired Docklight will bring on brands like Marley Natural, but those cannabis sales haven’t hit the books yet.

When it comes Zig-Zag papers and cones, the company said it now expects strong double-digit sales growth, up from double digits previously. In the company’s earnings call Chief Business Development Officer Louis Reformina said “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.”

The chewing tobacco brand Stoker’s is now expected to turn in high single-digit sales growth. Reformina said, “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 comp 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.” The company said that 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.

Just as the vape industry was recovering from its health crisis, another was on the horizon, namely the PACT Act. The company said that 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.” Turning Point said it now expects a mid to low single-digit decline in revenue in its NewGen vape business. This is up from previous guidance of mid-single-digit sales declines.

The company said it expects the second quarter to be a challenging quarter, so it is taking a pragmatic view of the market and from a significantly increased logistical cost and the market impact around the PACT Act implementation. The company estimates that the overall impact to NewGen to have been $15 million from COVID in 2020, with $10 million of that in Q2.

Cash To Burn

Turning Point ended the quarter with $167 million of cash and $189 million of available liquidity. This puts the company in an incredibly strong position to execute on an active pipeline of opportunities that it is are currently evaluating.

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