TPB 8.31.26

I'll bring this up, and I don't want to devolve too much into a discussion of Haypp, but it's an interesting dynamic that I think is a positive for Haypp and a negative, although maybe not that much of a negative, for TPB. It might just have no impact or be neutral. But it's just the launch of ZYN ULTRA. You mentioned that people prefer FRE and ALP to ZYN and many other pouch products. Clearly, the players are trying to address it. You have ZYN launching a new ZYN ULTRA product that contains moisture. I also think a big part of it is the higher strength levels. More people are trying to develop a product that feels closer to ALP and FRE. It's early because I think ZYN ULTRA only started launching in June of this year. But I'm just curious what you're seeing based on any evidence you've gathered, or, more generally, how you're thinking about any potential impact on TPB.

With these guys, my own 2 cents is that they’re still only at a 5%-5.5% share of the category, so it probably doesn't really register. In general, anything that expands the category and makes it easier for people to get a higher dosage strength level makes it more likely that someone who's a cigarette smoker will adopt and stick to adopting products. A lot of those ZYN customers could be a new funnel into FRE and ALP customers in some ways. It's interesting because, directionally, Haypp benefits directly from increased product competition and promotional activity, both as a retailer and through its Media & Insights business. Turning Point can’t necessarily benefit directly from heightened competition in the category. In general, it's probably going to be negative. But just curious how you're thinking about the impact of some of those category dynamics on TPB.

I don't think it's even remotely close. Yeah.

Yeah, I'm aware of some of them. I'm not normally trafficking in that circle of the internet, but I'm aware of some of them.

So he's the watch flipper.

Yeah, it's an interesting point about these guys potentially having a marketing muscle that the big tobacco majors might not. It might be that those guys aren't suited to the task of building a new category from the ground up, rather than just leaning on the loyalty of some guy who's been smoking Camel and only Camel for the last 30 years and isn't going to switch. That's a good point.

I think segueing into an adjacent topic related to these product launches is the PMTA process accompanying some of these approvals. You also have the FDA’s guidance from May, which puts many of these brands in a position where they’re comfortable launching their products even before PMTA approval. There are maybe a couple of things to discuss around that. One, I don't know if you owned it at the time, but there was a point in April of this year when there was reporting that some nicotine pouch approvals were moving more slowly, and some of that was driven by concerns about youth use among some FDA staff.

I think it's important to note that, since then, not only have we had the updated enforcement guidance the FDA put out in May, which is positive, but you've also had a change in the commissioner. I forget exactly when that was, but Trump didn’t formally fire the last FDA commissioner; he pushed him out because he was moving too slowly on a lot of things, including some on the medical side. But some of it was clearly because he wasn't approving stuff on the nicotine pouch and e-cigarette side fast enough. I don't know if it's a coincidence, but you'll note that since then, there has been a wave of new product approvals in August. There were several. I think there might have been some in July. The point is, before the prior commissioner was pushed out and the new interim one was put in, the last nicotine pouch approval was in December of 2025. Then, after the commissioner was replaced by this interim commissioner, all of a sudden, on August 4th, you see a batch of approvals; then on August 19th, another; and then on August 21st, another.

Granted, a lot of them have been from the same manufacturers that already had some products approved, because they were all from on! and ZYN. They approved ZYN ULTRA and a couple of new on! dosages and flavors. But you went from something like 20 approved products to, like, 43 now. I don't know how long that takes, and if this whole process is a black box, maybe they would’ve gotten to this point anyway, even under the previous FDA commissioner. But it's hard to deny the timing of everything, and it does seem like there's a step change in how fast new products are getting approved, which is maybe a slight negative from a competitive perspective, but it also increases the chance that you get a PMTA approval, which is potentially the main blocker of being able to turn on Louisville production and really start to see that big gross margin inflection.

Somewhat related, you might not even need PMTA approval, because as long as they have this guidance as of May, there's some risk it might reset the clock on the PMTA. They want to do that because this thing goes so fast; all of a sudden, there's new data if you change where you're sourcing the product from. But honestly, these guys are already part of the Fast Track program. I think there might be a world where, even if PMTA approval doesn’t come sooner, they're comfortable starting the reshoring process without the PMTA. The company hasn’t said this, although things seem to be picking up. So, in my mind, given some of the regulatory developments you've seen, I think there's a better chance we won't wait quite as long for the start of reshoring and the margin expansion that comes with it.

Now, even once that starts, it takes a while for the margins to flow through. I think they said it's because it's a gradual changeover and needs to work its way through your inventory and so forth. I think they described it as a 12-month ramp-up. But margins will be ramping up all the while once they start. So I feel a little bit better about that leg of the thesis. It's purely a timing thing, but I feel a bit better about the timing perspective, given some of the regulatory developments you've seen. I don't know if you have any thoughts on that.

Yeah, and again, I'm speculating a little bit there. I think it's a possibility. I still think they'd prefer to have the PMTA first, but maybe we're a bit closer, and if things keep going at this brisk pace, we might get to these guys sooner.

So I have no idea. The PMTA process is a bit of a black box. 4 manufacturers are part of the FDA’s nicotine pouch pilot program, including these guys, right? on! and ZYN have already had many products approved. They're the only two manufacturers whose products are approved. I don't know how many of those are still in the queue, but each has roughly 20 SKUs approved for size, strength, and combinations. And then ZYN is also on the ZYN ULTRA side.

I’d suspect VELO is probably next to start getting stuff approved, and then maybe these guys come after. But obviously, they sometimes zigzag a little bit. As you saw, the ZYN ULTRA was approved after a lot of ZYN products had already been approved, and a bunch of on! products were approved in between. But that's my best guess on how it plays out: once you start seeing some VELO approvals, we might not be that far from FRE and ALP approvals. It's definitely something to monitor. But the unequivocal positive is that things seem to be picking up, and maybe markedly so. You saw some of the on! products they approved recently. I don't know what the basis is for, given how much of a black box this process can be. Like, in what world are you approving rich berry and cappuccino flavors for on! and not mint or spearmint for FRE, ALP, and VELO?

Yeah, I think in general these guys very rarely deny. It's almost always more like what Altria sued over: they declined to issue an opinion or otherwise took too long. That's what happens. It's very rare. I don't think there's a world in which they're actively denied. There's just no way.

I really wish I did because it’s puzzling to me. At some level, your theory makes sense because that's actually a natural use of capital. But also, buying out the other 50% based on what this thing is really worth should be a substantial figure, given how well ALP is doing. I think they had about $270 million in cash on the most recent balance sheet. I don't know if they did any ATM issuance after the quarter-end close.

Yeah, you need quite a bit. I don't know what it's worth at this juncture, or whether they buy back only somewhere, not the remaining 50%. But it should be a big outlay given what this brand is actually worth, which is a good thing for us as shareholders. I don't think $270 million plus whatever ATM proceeds they have recently is really getting you there. But I can't think of what else they'd really be doing it for. So I wish I had better insight, but I don't. Have you had a chance to ask management that question directly, or have you only asked it to IR?

So they didn't say anything. Did he frame it as what the intended use of the proceeds is, or did he ask directly whether they were going to buy back a portion of this?