Debra Borchardt
Analysts seem to think Turning Point Brands (NYSE: TPB) may benefit from the courtroom controversy with competitor Raw Brands. In the company’s recent conference call regarding fourth-quarter earnings, two analysts asked about the issue. While they didn’t specifically say Raw, it was clear who they were referring to.
Vivien Azer of Cowen & Company coyly asked if Turning Point would comment on the “competitive landscape,” but CEO Graham Purdy dodged the question and made some vague remarks about there always being some ins and outs of new products.
Azer persisted, and Purdy responded, “I think I would just add from the competitive perspective that we are monitoring that external competitive environment very closely and remain focused on continuing to grow the Zig-Zag brand and continuing to focus on the long heritage and quality that Zig-Zag brings to market while monitoring the competitive environment very closely.”
Next came Craig-Hallum Capital Group. Senior Research Analyst Eric Des Lauriers picked up where Azer left off and more pointedly asked, “One of your competitors there recently received a court order to stop selling certain products based on false claims. Just wondering if you see this as more of an opportunity to take share?”
Des Lauriers also wanted to know if the company had gotten any feedback from its sellers about the situation.
This time Summer Frein, CMO of Turning Point, took the question. “We, as you noted, have been following that activity very closely. We have been engaged with both our consumers and especially our retail customers, to your point, because they’re interested in what’s going on in the market as well. I think for us, we believe it’s important to really stay focused on Zig-Zag.”
Clearly, the analysts seem to think there may be an opportunity for Turning Point to capitalize on the troubles experienced by competitor Raw, which recently went on an apology tour after being forced to admit its claims about organic hemp products were false. However, the company seemed to expect the question and was prepared to punt.
Instead, the company focused on the benefit from cannabis legalization and new markets. With flower continuing to be a market-leading category, the company believes Zig-Zag will stay strong.
However, higher interest rates are prompting some customers to hold lighter inventories.
On a positive note, the proliferation of smoke shops in legal states has created a growing channel for Zig-Zag products, Frein said on the call: “We believe that improving our presence in this faster-growing channel represents a tremendous opportunity as we estimate it currently represents half of the papers in the ancillary accessories market.”
Still, the company is girding itself for a weaker first quarter, saying they currently expect a year-over-year decline in Q1 EBITDA. That should give way to year-over-year stability in adjusted EBITDA for the balance of the year though.
The company also suggested that it may consider adjusting the maturity of its July 2024 convertible note if the financial markets cooperate.
So, while Turning Point may not want to comment publicly on the troubles of a competitor, the analysts definitely seemed to think the company would benefit.
