Q3 2021 Turning Point Brands Inc Earnings Call
Good morning, My name is Chris and I'll be your conference operator today.
At this time I'd like to welcome everyone to the turning point brands 2021, Q3 earnings call.
All lines have been placed on mute to prevent any background noise.
After the Speakers' remarks, there'll be a question and answer session.
If you'd like to ask a question. During this time simply press Star then the number one on your telephone keypad.
And if he would like to withdraw your question. Please press star one again.
Thank you Louie Ret for Mena, Chief Financial Officer, you may begin.
Thank you. Good morning, everyone. This is Louis rescue me and our Chief Financial Officer, joining me are turning point Brands', President and CEO, Larry Wexler, Graham Purdy Chief operating officer.
This morning, we issued a news release covering our third quarter results. This release is located in the IR section of our website at Www Dot turning point brands Dot Com, 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 in our strategic plan as discussed me I direct your attention to the discussion of forward looking and cautionary statement in today's press release and the risk factors in our filings with the SEC.
Closure 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 the federal Securities laws, we undertake no obligation to publicly update or <unk>.
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 all reasons why management believes that they provide useful information I will now turn the call over to Larry Wexler our CEO.
Yes.
Thank you Louise and good morning, everyone. Thank you for joining the call.
Our third quarter performance fell in line with our expectations revenue was up 6% to $110 million. However, our core business was up 11%.
Adjusted EBITDA was up 10% to $26 million and outpaced revenue growth.
Zig Zag saw 17% growth during the quarter as a result of contributions from our strategic initiatives, including paper cones e-commerce and growth within our newly consolidated Canadian business.
This was despite a headwind we had in our router business from a trade inventory load that he pulled forward sales into the previous quarter.
We're excited about our upcoming product launches in the fourth quarter and beyond and new marketing initiatives aimed to energizing Zig zag brand to drive growth going forward.
Stoker saw a 2% growth driven by double digit growth in M. S T.
MFC continued its steady share gain and continues to be favorably positioned for the secular shift in Nevada to the value category.
New Gen, which navigated around another quarter of disruption around the PMT a process declined 3% during the quarter.
22% growth in gross profits from the comparable period in the previous year. When we saw a transitory pricing pressure ahead of the PMT a deadline.
This year the quarter was challenged by the uncertainties around market denial waters or M. D. O's issued by the FDA related to the PMT AIDS.
We disclosed in mid September that we received an M. D O for certain of our proprietary vapor products, which was primarily comprised of our non menstrual and non tobacco E liquids.
Based on the rationale outlined in the M D.
We believe that there was an oversight in the handling of our application.
A letter appeared to be a form letter, which was similar to those received by numerous other industry participants many of which we believe did not have complete applications in.
In addition, there were references in the M D O that conflicted with the actual application we submitted.
We filed a petition for relief earlier this month and were subsequently notified by the FDA that our NDA was were rescinded.
Our applications are now been put back under review.
We have dedicated significant time and resources to the PMT a process, having spent close to $19 million. Since we began the process, including $1 million. Just this past quarter to ensure that we had a robust application that demonstrated that the marketing. These products are appropriate for the protection of public health.
In other words, taking into account the risk of these products attracting never users use informer users.
It did it demonstrates just how effective these products.
These vapor products are in motivating consumers to dramatically reduce or completely cease use of combustible cigarettes.
We believe our application makes this case, but a lot of science behind it and a strong very very chain and capabilities has produced an application that sets us apart.
As an example of the depth of our science, including in our filings our population health impact model, which was developed specifically for our filings was recently published in a peer review journal.
Yeah.
Would you rescission of the <unk>, we're looking forward to engaging with the FDA and having an evidence based scientific review of our products and are hopeful that the FDA will maintain a pathway to market for <unk>.
Tension lowering potentially lower risk products for more than 30 million adult cigarette smokers in United States.
As we await the ultimate outcome of the PMT a process, we've had to manage through a dynamic environment created by the uncertainties around the process over the last two months <unk> have been issued to most of the E liquid vape market, but without clarity from the FDA on the actual products, including Mds, which has led to uncertainty with.
Our customers on what products they can carry.
Meanwhile, disposable vape products, some of which are still under review offering a wide variety of flavors and have been taking share in the market.
In addition, both illiquid and disposable vape manufacturers announced witching their product offerings to synthetic nicotine, which is currently viewed as a gray area regarding FDA regulation.
Yes, I say this is creating a lot of confusion in the market and requiring us to be nimble, while ensuring we are compliant.
To effectively compete you have to balance carrying enough inventory and a diversified portfolio, while mitigating our risk on products that may have to come off the market as.
As a result of this trade off we have been reducing our inventory exposure, which in the short term will impact ourselves until we get clarity on the regulatory and competitive landscape.
Last week. The USPS also issued its final rule, eliminating the shipping of E cigarettes under the Pacte Act.
The major private character carriers for the most part had already stopped shipping vapor products earlier this year.
This will require us to ramp up and shipped into alternative shipping network, which we have been building throughout the year.
We think we think we can get through the quarter.
<unk>.
We think we can get there through during this quarter, but we also have to manage competing against players their skirting regulations until there is enforcement.
We believe the hurdles created by both the PMT a process in the pack and hold and ultimately be a positive for us from a competitive standpoint in the longer term in this large category, but it may cause some disruption in the shorter term as our customers and consumers adjust to an evolving market.
So the cloud is short term visibility created by this environment. We believe it is prudent for us to adjust our expectations for our vape business as reflected in the guidance we issued this morning.
While we manage through this transitory period.
We are being conservative in that guidance.
We will remain nimble in our with our vape business, but longer term, we still believe that vacancy rates will not go away and.
And we are well positioned to serve them with our products and most importantly, our distribution infrastructure as you await clarity from the PMA process and eventual FDA enforcement.
Now, let's move on to capital deployment.
Today, we announced an increase share repurchase program reflects our positive outlook on the prospects of our company.
In August we increased our stake in recreation marketing from 50% to 65%.
Recreation marketing has been instrumental to our growth in Canada, including placing zig zag and close to 80% of the volume weighted distribution within private dispensaries in the country.
They are quickly becoming a one stop shop for alternative smoking accessory products in Canada through an extensive variety of third party and proprietary product offerings.
Ration marketing will also be transitioning is named the turning point brands, Canada cooperation to better reflect the strategic importance and how integral they are to the organization.
While this quarter was otherwise relatively quiet from the acquisition and investment standpoint, we maintain a very healthy pipeline of opportunities synergistic to our company and with over $150 million of liquidity at the end of the quarter, we remain well positioned to capitalize on these opportunities.
Looking forward, while our vape business has created unwanted volatility and certainly grab the whole of the headlines and interest regarding our company.
Recently.
It is important to note that our core business with Zig Zag and stokers, which competes comprises the vast majority of our segment operating income are performing well and continue remains favorably positioned in their markets.
Remain optimistic in the outlook of our core business and we will continue to adapt our business appropriately to a dynamic market.
I'll add some color and perspective on our quarter and the path forward, Let me turn the call over to Graham Purdy Chief operating officer.
Alright, 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 U S. Rolling papers, and our Canadian business that more than doubled as a result of the growth and consolidation of record wrecked marketing.
Our <unk> cigar wraps business saw a low single digit decline from the previous year.
The business would have grown if not for a trade inventory load that pulled forward sales into the second quarter.
In the U S.
His exact papers continued its position as the leading premium and overall paper brand with 33% share in the measured market. According to MSCI.
The exact share dropped by one six points as we comped against a noisy period when industry participants experienced COVID-19 related supply shortages.
During the quarter, our paper cones had 39 share of the segment in the measured channel. According to MSCI up two five points from the previous year as our volumes nearly doubled.
Paper cones now comprise approximately 20% of our sales in our U S papers business after minimal sales two years ago.
There is more room for penetration of accounts within the measured channel is roughly 30% of stores that receive paper products received comes during the quarter.
Outside the measured channel.
Our business continues its nice growth trajectory with our e-commerce platform nearly doubling in sales from the prior year, while we are enhancing our initiatives to penetrate had shop dispensaries and in product manufacturers.
And Canada Recreation marketing, which has now been consolidated continues to experience strong organic growth ramp with even bigger reach after the acquisition of <unk> a distributor in Western Canada.
Recreation has reached breakeven from an operating operating profit standpoint, and is poised for further growth.
Extensive set of products that have been added to their portfolio.
The outlook for our zigzag segment remains bright with a full pipeline of new product introductions, including Zig Zag hemp wraps and his exact natural leaf tobacco wrapped up this quarter.
Next year, we aimed to reintroduce exact cigar and launch them more diversified portfolio of cone and wrap offerings.
Cigars as the $2 5 billion plus market from a manufacturer revenue standpoint. It is fairly consolidated market. So will not be easy, but it does not take much share to have a meaningful impact to our business over the next few years.
We're also excited about new marketing initiatives, our team is launching to Reenergize zig zagging the adult consumer space.
We launched the Youtube channel during the quarter and we will be launching an exciting new concept called Zig Zag studio in December with plans to include a video series podcast limited edition apparel in collaboration with partners that have a wide adult audience reach.
Moving to our Stoker segment.
Stokers product saw low single digit growth in the quarter with double digit growth from MST again being the driver.
Within MST, our growth was strong despite comping against Covid related consumption benefits last year, and a trade inventory reduction in the quarter.
<unk> market share was five 6% up 50 basis points compared to a year ago. According to MSA.
Stokers moist snuff is now in stores, representing 62% of industry volumes to six points above last year's level, which still leaves a long runway for further growth through same store sales growth and filling our distribution gaps.
Chewing tobacco sales saw high single digit decline during the quarter again after comping against a quarter that saw double digit growth when a competitor experienced COVID-19 related disruptions in the prior year period.
Stokers Chew was the number one chewing tobacco brand in the third quarter and despite the tough comp gained 130 basis points with $25 six shared according to MSCI.
With the continued secular shift into the value category and stokers 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 new Gen, where we continued to manage through a disruptive environment.
Our vape distribution business saw high single digit declines due to the market dynamics, resulting from the <unk>.
Along with the pull forward of sales into the second quarter ahead of major parts of the implementation of the path Act.
Larry detailed the challenging environment. We are currently operating in with our vape distribution business.
We do believe we can be favorably positioned with our business as the regulatory process unfolds.
Earlier in the year, we had already developed a completely new distribution system outside of USPS, Fedex and UBS comprised of LPL shippers last mile carriers.
And retail drop ship locations for convenient adult consumer pickup in anticipation of the Pacte Act.
We believe that there are a number of competitors, particularly in the BDC segment, who will have difficulties restructuring their systems, which provides a longer term opportunity.
We expect some volatility in the fourth quarter as we activate the system as the new rent regulations were implemented without any transition period.
Outside of eight wild Hampton free contributed to our growth as we continue to rollout of both these products.
And with that I'll turn it to Louis for a review of our third quarter financial performance Louie.
Thank you Glenn.
Performance in the third quarter was in line with our expectations turning.
Turning to the segment reviews.
Zig Zag products net sales in the quarter increased 17, 4% to $42 2 million with a 21% increase in our U S. Rolling papers business and more than doubling of our Canadian business due to the accounting consolidation of rec market.
This was partially offset by a 2% decline in our cigar apps business due to the previously mentioned pull forward.
Total is exact segment volume increased 17%, while price mix if reserve <unk>, 4%.
According to MSCI third quarter industry volumes for U S. Rolling papers increased low single digits in the measured channel.
<unk> cigar wraps industry volumes were up double digits in the quarter.
During the quarter, we saw the segment's gross margin contracted by 300 basis points to 56, 1%, primarily as a result of the consolidation of recreation marketing and it.
Our current quarterly period in its acquisition of BBW, which carried lower gross margins.
<unk> accounted for 53% of our segment operating income in the third quarter and it continues to be our fastest growing segment.
Stoker products net sales increased two 4% to $35 million in the quarter net sales for the MST portfolio grew 10% and represented 64% of stokers revenues in the quarter. This is up from 59% a year earlier.
Chewing tobacco declined 9% due to tough comps mentioned earlier.
Total service volumes decreased four 1% driven by the chewing tobacco declined with price mix advancing six 5%.
Segment gross margins expanded by 220 basis points to 56, 1% during the quarter.
Driven by price across the segment and fixed cost leverage in our MSP business.
Year over year industry volumes for MST were down mid single digits with chewing tobacco declined by approximately 7%.
<unk> rated shipments to retail continued to outpace the industry in the quarter growing its MSCI share in both chewing tobacco and MST.
Moving to our new Gen segment net sales decreased three 2% to $37 2 million.
We experienced a high single digit decline in sales were impacted by the regulatory environment and pull forward of sales in our base distribution business.
For the quarter <unk> gross profit increased 22, 4% to $13 5 million with gross margins expanding 760 basis points to 36, 2% as the comparable period in the previous year saw temporary pricing pressure.
Liquidations ahead of the PMT a submission deadline.
Now moving to the consolidated business.
Just the EBITDA for the quarter was up 10% to $26 3 million, we achieved 41% incremental EBITDA margins during the quarter that reflect the strong performance in our core segments as we leveraged our fixed cost structure.
Incremental margins were strong despite consolidation of recreation marketing just currently operating at breakeven.
And also having seen an increase of $1 1 million of higher shipping expenses.
Note that we did add back $1 million of PMT related expenses during the quarter compared to $5 3 million last year. The expenses during the quarter, one planned going into the year and were incurred to bolster our application ahead of the initial <unk> received.
Now moving on to guidance.
With the limited visibility around the PMT, a regulatory landscape, we are reducing our exposure temporarily.
<unk> business to mitigate the risk and that will impact ourselves.
We're also currently managing further implementation of the pack backed by the U S. Postal service and are transitioning into alternative shipping network, which will cause disruption during the quarter.
Labs are causing a significant reduction to our vape business with <unk> being the largest driver.
In addition, and to a lesser extent, we are experiencing logistical supply chain related delays that are pushing some sales of new products into the first quarter of 2022.
With that backdrop, we updated our 2021 guidance as follows.
Net sales of $433 million to $443 million. This is compared with previous guidance of $447 million to $462 million.
This range is unusually wide for this point in the year given the limited visibility in the beef regulatory landscape.
Adjusted EBITDA for the full year is now expected to be $104 million to $108 million.
<unk> guidance of $100 million to $113 million.
<unk> is expected to make up only mid to high single digits of our overall company EBITDA.
For us exactly we expect strong double digit sales growth as a reminder, in 2020, a cigar wraps business benefited from $5 million in backlog build in the fourth quarter as we recovered from manufacturing related disruptions early in the year, which will affect our year over year comps, but we still expect growth for the overall segment in the quarter even against.
At that time.
For <unk>, we expect mid to high single digit sales growth compared to previous guidance of high single digit growth.
Guidance is being impacted by a slight reduction in trade inventory.
For new Gen. We now expect a decline in revenue compared to previous guidance of flat sales growth.
This includes a double digit decline for vape distribution compared to previous guidance of low single digit declines offset by growth in U S.
For the fourth quarter, we expect $93 million to $100 million in sales with growth in the Zig Zag and stoker segments and a double digit decline in new Gen. Due to the limited visibility in our baby business.
Now to help bridge that guidance.
We took down guidance by $16 5 million on the revenue side of the midpoint.
Roughly 3 million of that was due to the new products that are being pushed into the first quarter given supply chain and logistical delays.
The rest of the decline is primarily due to the disruption in our base business.
Within the vape business most of the decline in your outlook there.
Transitory impact from the fact that as we ramp up our.
Our logistics network through the quarter.
And the rest is through the market dynamics that we mentioned previously.
Moving to our balance sheet, we ended the quarter with over $130 million of cash on the balance sheet of $102 million of available liquidity.
We repurchased six 4 million of shares during the quarter and today announced the board increased our share repurchase program by $30 7 million to $50 million, which we aim to use opportunistically and reflects the positive outlook, we have on our company.
During the quarter, we prepaid $10 million seller note related to the acquisition of deferred assets, but note that carried a seven 5% interest coupons and were able that we were able to repay at below par, resulting in net 0.4 million gain on extinguishment of debt subsequent to the quarter. We also received notification of forgiveness for $7 five.
Unsecured loan, which will result in the extinguishment of debt in the <unk>.
Fourth quarter.
Regarding acquisitions and investments our pipeline of opportunities to help create that that business remains active.
With that I'll turn the call back to Larry for closing comments.
Thank you Louis.
I would like to note that in our distribution business our run rate. Thus far in October has been has performed better than our implied guidance. We hope that our guidance proves is conservative, but we have only limited control and visibility over how the regulatory environment is unfolding and the disruption that is creating in the marketplace.
We will also have to see how customers adjust to the new shipping options as a result of the pack that and that transition is happening real time as we speak.
That's why we felt it was prudent to adjust our expectations accordingly.
I would like to close by.
Reiterating that our core business continues to perform well and remains favorably positioned.
This strong performance is a result of the hard work of our employees I want to thank them personally once again for their commitment and contribution to our success.
Thank you for participating in the call today and with that I'd like to open the call to questions.
Thank you at this time I'd, just like to remind everyone. If you'd like to ask a question. Please press Star then the number one on your telephone keypad.
And our first question is from Vivien <unk> with Cowen Your line is open.
Hi, Thank you good morning.
Good morning.
I'll just start with guidance.
The market is clearly taking down the stock more than the implied percentage reduction.
Revenues and EBIT, which clearly tells you that the problem isn't just with the guidance revision, but kind of how the year I think has been calibrated thus far so.
Larry Undrawn Louis like as you reflect back on the positive guidance revision you guys did in July.
How are you guys thinking about regulatory inventory disruptions, but it doesn't seem like the path that is new right. We were talking about that last quarter.
The disruption from.
Competitor inventories due to COVID-19.
It was known to so just trying to get a better understanding of what changed because you guys were so much more constructive heading into the July planning around your full year guide and you're walking into that essentially all back.
And so let me, let me give a call it a number so are.
Guidance increase in July it reflected the strong quarter, we had in Q2.
It didn't really change our guidance on the second half of the year by much now. So if you look at what has changed with <unk>.
Our guidance for Q4.
Some of that is the the 3 million that I mentioned, where these new products that we had forecasted where we are likely getting our containers that will not be able to get into a market until Q1 of next year and so those are those are just increase logistical challenges that we saw over the last few months.
And the rest was the vape business.
With the vape business.
The market has been <unk>.
Credibly dynamic, especially with the <unk> that we've seen over the last couple of months and the shift in terms of the product offerings.
Within the market in the past that implementation.
Ill, let Larry kind of give the details.
And Kim suddenly without a transition period to our alternative shipping network.
Yes, we are.
A bunch of comments to the USPS.
For the implementation of the Path Act and one thing we had stress very strongly what is that.
Need to be a transition period to set up this altered the alternative distribution network that we had in place, but it takes time to activate.
Almost all of our recommendations were taken by the USPS except for that one.
And so that caught us a little bit off guard.
Okay fair enough.
Given all these moving pieces I appreciate the color on the revenue shifts into one Q I.
I recognize we still have.
Two months left in 2021 can you offer any more color around your expectations for zig zag heading into 2022, youre going to be cycling.
<unk>.
Exclusive brands. So I think it would be helpful to just manage expectations around that thanks.
Sure Yeah, So we feel pretty bullish about our zig zag Ms. Our outlook has not changed on Zig Zag in growth next year is going to be driven by continued advances in our growth initiatives specifically the <unk> e-commerce in our bus shelter in Kendall and that can be supplemented with new product offerings.
The exact count perhaps it doesn't naturally.
We have reps that we launched this quarter, regardless of the massive opportunity that we think incrementally can add to our sales over the next few years and we have some more new products that we havent or pipeline that we're pretty excited about as well.
Okay fair enough thanks for the questions.
The next question is from Susan Anderson with B Riley Your line is open.
Hi, good morning.
Larry I just wanted to follow up I think you commented at the end there that October is trending better than my guide I guess is that across all of the segments or just the ones that you lowered or I mean would.
Could that potentially continue throughout the rest of the quarter.
Okay Susan.
Good morning.
No I was specifically addressing the.
The new Gen business, the vape business.
Just trying to highlight that the.
The guide is not reflective of the underlying.
The trend in the in the business that has a large component of the transition to the new logistics system that we're setting up.
It's going to be a tough couple a couple of weeks until we get that in place.
Got it okay. That's helpful.
And then just really quick on the gross margin. The total gross margin for fourth quarter should we expect that to be similar to what we saw in first three third quarter in the high 48.
49% range.
Yes, I think from a segment level I would expect a similar gross margin.
Can you take away from what we saw in Q3.
And obviously with the yeah, so it'll be kind of similar.
What we've seen there and then the mix slightly better because we'll have less new gen sales in Q4.
Versus Q3.
Can you just just to kind of.
I'll add some color on the.
The pack that shipping it's important to note that this is it.
Changed it to where you will get our we'll get we'll get we'll get our logistics network up eventually by the end of the quarter.
And we think this is a big positive for us going forward, because we do think that fits all.
Advantage to us in the BDC.
Business going forward as other people likely will not have the same.
We'll not have the same kind of capabilities, we have to manage through this and as Larry mentioned the.
We're trending better.
Your heart forecast has this happened Thursday. So these transitions transitions are happening real time.
Our.
<unk> is ahead of our 18, Mark Waxman, our logistics team with <unk>, they've done a phenomenal job. So far this year in managing a lot of the changes that we've seen.
It could be better than we expect but we're literally operating up half a week of data and giving the gift, giving us guidance for the quarter.
Okay, that's really helpful.
And then maybe if you could talk a little bit I think.
You mentioned in the press release as now with the Recreation partnership.
<unk> and our Canada with more products there maybe.
Can you remind us which products are already in Canada, China, and I guess, just the timeline for getting more in there.
Sure.
Selling zigzag indices, and recreation marketing basically selling zig zag into dispensaries. There. So we've reached almost 80% of the volume weighted distribution or private market.
And yes, we're also complementing that with the.
Other products.
Within new Gen that we saw.
Finally through that in a decent amount of recreation marketing sales is third party products as well along with <unk> proprietary set of products that they develop on their own.
They have a brand called choice leaf, which is alternative wrap products that they are selling as well and they're continuing to ramp those products.
Okay, and then just last one really quick on the Stoker just revenue growth guidance.
Slight decline in guidance there I think you mentioned trade inventory reduction.
That.
Is that the only driver there or are you still expecting <unk> to be impacted in fourth quarter.
Yeah, sorry, Susan this is Graham.
I think I think.
What happened to us in the third quarter was essentially an unwind of between a half a week in a week.
Trade inventory a lot of noise out there relative to the.
The tax increase which.
We don't we don't necessarily think.
We will move through this year, but just a lot of noise in the system.
Still comfortable with the with how our MST.
Product is progressing in the marketplace, and we feel well positioned with our with our stokers chew in tobacco and the value segment.
Let me just let me just add something to <unk> comment.
The benefit of that occurs I don't know, which one it is of having been around here a long time and I've seen this behavior by wholesalers when they.
Start hearing about the potential implementation of the FEP increased because of the.
Floor taxes, that's generally added to the bill.
Don't know.
Good to see you or total rationality for that but.
In 2009.
In our business and.
There may be occurring again, you will see it let's say.
Great. Okay. Thanks for all the details you guys. Good luck the rest of the year.
Thank you.
The next question is from Eric <unk> with Craig Hallum Capital Group. Your line is open.
Great. Thanks for taking my questions.
First one for me within new Gen. What's the size of the distribution business.
And anything you can give us from a dollar or a mixed basis would be great.
And then how should we think about fixed costs during this.
Rapid period, presumably.
Presumably you got some increased cost with that shift too.
Alternative logistics channels, but just wondering if we should.
I expect some negative operating leverage during this declining period. Thanks.
Sure so within <unk> and I would think about it is over 90%.
Distribution.
Profits are really coming from.
The base distribution.
In that segment.
Our fixed costs have come down a little bit, but it's important to note that there is also high pretty high variable cost in that in.
In that new Gen business. So if you look at kind of the our.
Our sales have you bridge our guidance.
Our zigzag products out that are being deferred come in somewhere around 50% contribution margin in our sales from our new Gen segment are coming in at about 20%.
Contribution margins.
Okay. That's helpful and then.
Within Zig Zag.
So obviously, you're going to see that we got some.
New products coming online in Q1, I understand there was a bit of a shift.
Yes, I guess the shift from Q4 into Q1.
As we look beyond those reps and at our cigar portfolio that you guys acquired.
Not necessarily looking for guidance, but just what's the what's a reasonable timeframe that we can expect.
You guys to begin to monetize that.
That IP.
When we could expect some.
Zig zag cigar or cigarette allow products to hit the market here as we look towards 2002.
Yeah, Hey, Craig it's Graham.
So we're already monetizing them with the products that.
We acquired in the deal through Tabak, obviously the prize for US is the expansion of zigzag.
The marketplace, we see a distinct opportunity around the natural leaf cigars segment, I think you Youll start CNS bear some fruits.
Towards the end of the first quarter into the second.
Yeah.
Okay, great. Thanks, guys.
Again that is star one if you'd like to ask a question. Our next question is from Gaurav Jain with Barclays. Your line is open.
Hi.
Good morning, everyone.
So just a question that just probably similar to some of the questions that have been asked earlier, but the staff is clearly down a lot today.
Foreign investors looking at <unk>.
NATO, Dan if people are trying to let's say have a clear view on the stock how should we think.
On the opportunity with turning point brands. If you could just help us think through.
Asking for guidance, but just sort of some broad.
Sort of.
Ranges.
Rich.
How fast can stoker MST rule, how big guns exactly become is there any way to quantify those numbers.
Yes. So look if you look at the segment by segment Zig Zag, our outlook hasn't changed we think we've got a nice secular.
Secular tailwind here with what Youre seeing in terms of cannabis consumption in the changing perception around.
Usage, where essentially becoming.
Like like having a drink.
I think that is a that is rapidly evolving and that cycle. It still is still there.
And we feel bullish about our ability to outperform the market with some of the new products that we are launching into growth initiatives that we have because we think we still have a strong runway for growth on the distribution gains.
I think.
We're probably not going to see double digit growth.
On the overall segment, but we still feel pretty good about growth.
In that segment over the next couple of years.
And then the way we positioned Neogen as this has tremendous optionality you clearly there is a big short term reduction in Q4, as we have to manage the risk associated with that business, but that is not something that we can think it's permanent and we think as VP MTA regulatory process unfolds.
And as people have to comply with the pack that we think we are significantly advantage given our infrastructure to tackle what we think is a massive opportunity in terms of share gains in that in that business.
Larry I'll, let you add your color on.
No we were fairly pleased with the core business.
I mentioned, the core business up 11%.
This quarter.
<unk>.
The new products are particularly the wrap products are positioned in a place where the reps are growing the fastest.
And we have this tremendous cigar opportunities can take look were going against some very big competitors in cigars very concentrated market.
<unk> been successful in the past.
And we think it's an opportunity and I think the opportunity will rollout over too.
2022.
And it takes some time to get the distribution and get our branded products in the market, but very confident that we can get.
Get our piece of that market.
Okay. That's very helpful. The second question is just on the comment around the months enough market I think I heard the number that the market was down 5% in <unk>.
Q3.
This is Blake.
Slowdown post the Covid bump, which happened and if you could share how things have been in October so far.
As the market continuing to slow down or has it picked up.
Yeah, I think Uh huh.
Graham.
Yes, I think youre seeing a shift back to sort of the historical.
Rates with moist snuff that we saw.
Pre the noise of of Covid.
So I think kind of the way to think about it as the category was tracking in 2019.
From a.
Where we are today perspective, we feel pretty good about.
Where the business has been thus far and continuing on that trajectory.
Great. Thanks, a lot.
Yes.
The next question is from Richard Evans with Mono River Capital Management. Your line is open.
Oh, Hi, just a couple of housekeeping questions. I was wondering if you could give us the absolute dollar amount that the consolidation of recreation contributed in the quarter.
Sure.
Sure so.
Really two pieces of recreation marketing.
And so there is a D VW piece, which is.
What we call our inorganic growth and there is a recreation marketing piece, which came from very low levels last year that we've grown this year the penetration on zig zag, so that contributed about $5 million of sales during the quarter with roughly little.
Split roughly evenly between between the two.
Those two pieces.
Okay. So that's $5 million of benefit from now so I guess in prior quarters, you Didnt consolidated negative.
Yes.
I would say last year was minimal levels and recreation marketing so.
We view the growth within the base recreation businesses as organic growth as a decent amount of those sales or is exact sales into through record rec market.
Okay.
The last couple of quarters, you've kind of called out the split between in dollar amounts between reps and papers I was wondering if you can kind of get that disclosure to go for the U S business.
Sure so on.
Youll see an hour.
The investor presentation.
Break out of.
Papers and wraps, but wraps in the in the third quarter was about $17 million in.
And sales.
In U S papers, which we include with the.
E Commerce is about.
<unk> about 17 million as well.
Okay alright. Thanks.
We have no further questions at this time I'll turn the call back over to the presenters.
Well, thank you for <unk>.
Joining the call we look forward to talking to at the end.
After the fourth quarter. Thank you very much.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating and you may now disconnect.
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