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Long Short Value

7 Jul, 11 tweets, 3 min read

$TPB Long Thesis Thread:

Turning Point Brands is an extremely well run Other Tobacco Products (OTP) Company that focuses on non-cigerette tobacco products. They focus on high margin OTP products.

Several attractive dynamics will drive significant gains over the next decade.

Long Thesis Highlights:
•PMTA regulation will force small OTP players out of business or to sell to larger players like TPB
•Zig Zag has a huge growth runway
•Vape volumes not materially impacted by Vapegate
•Huge opp in CBD and Cannabis
•Strong Mangement / Cap Allocation

1) PMTA regulation starts in Sept 2020. TPB has been preparing and investing to support all their products in PMTA. They have also been doing PMTA support for others.

PMTA will materially change the OTP segment. It creates a regulatory barrier to entry, that benefits TPB

2) PMTA will create significant opportunities for TPB to buy solid product lines at cheap valuations as many OTPs will have to pull products in the US or invest significantly in PMTA testing/support. Many will just choose to sell instead. tobaccoreporter.com/2020/05/01/sta…

3) TPB owns the Zig Zag rolling paper brand, a top rolling paper brand in the US/Canada. Zig Zag has grown at high double digit rates for last few years. I expect as cannabis legalization continues to ramp in US and they expand the product line growth has a long runway

4) Vapegate was a huge deal for the OTP industry and caused TPB stock to decline by 75% last year. From Vapegate came the vape flavor ban. As management has recently noted the impact from the flavor ban was minimal ( ~15%) as vape volumes has held up in 2020.

5) TPB has several opportunities in CBD and Cannabis. They have a diverse product offering in CBD right now as well as a 20% stake in Canadian American Standard Hemp (“CASH”) which will position them to enter the cannabis market in Canada and eventually the US

6) Managment has shown a high aptitude for Capital Allocation and strategic M&A. I regard their CEO Larry Wexler as one of the top small cap company managers.

Look at their track record of quick and decisive moves and you should come away impressed.

7) Underlying and supporting the entire business is a Distribution and Sales network that has been carefully developed over the last few years. It includes Online (B2C, B2B), and a national/regional sales team that connects their products to over 200,000 outlets.

8) Combining this distribution with ample opportunities to add new products makes M&A extremely attractive, as they can easily plug in new products into a large number of outlets quickly.

9) At the current valuation on a TTM basis includes impacts from a reorg around VapeGate changes in Q4. Excluding that impact the company is very cheap on a forward basis right now.

My 2-3 year target for $TPB is $50-60 a share.

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