Turning Point Brands Inc: Pot Stock Soars on Q1 Earnings Beat; Raises 2021 Guidance

Turning Point Brands Stock Up 144% Year-Over-Year

Shares of cannabis and tobacco accessories giant Turning Point Brands Inc (NYSE:TPB) have been on a tear over the last year.

Since bottoming in March 2020, TPB stock has soared 276%. Turning Point Brands stock has also climbed roughly 145% year-over-year and 18% year-to-date.

Those gains might just be the beginning. Turning Point Brands recently reported strong first-quarter results, topping its earnings guidance. Moreover, the company provided strong second-quarter guidance and raised its full-year guidance.

For income investors, TPB stock also provides quarterly dividends, which the company recently raised by 10% to $0.055 per share.

Chart courtesy of StockCharts.com

TPB Stock Overview

Turning Point Brands has long been a go-to company for tobacco users. Even if you don’t smoke, chances are good you’ve heard of “Zig-Zag”-branded products, including rolling papers.

Now, with more states legalizing medical and recreational cannabis, Turning Point Brands is a go-to company for pot smokers.

Turning Point Brands is also a leading manufacturer of alternative smoking accessories and consumables with active ingredients (i.e., nicotine or caffeine).

The company operates in three segments, the core of which is its Zig-Zag smoking products segment, which includes cigarillos, cigarette papers, rolling trays, make-your-own (MYO) cigarette tobacco, MYO cigar tobacco, and cigar wraps. (Source: “Our Business,” Turning Point Brands Inc, last accessed April 27, 2021.)

“Stoker’s” is the company’s smokeless products segment, which includes moist snuff and chewing tobacco. Key brands in this segment include Stoker’s, “Beech-Nut,” and “Trophy.”

Turning Point Inc’s “NewGen” segment markets e-cigarettes, e-liquids, vaporizers, cannabidiol (CBD) tinctures, and other products. Brands in this segment include “Vapor Beast,” “VaporFi,” “Direct Vapor,” and “Nu-X.”

Agreement to Increase Expansion of CBD Products

On April 20, Turning Point announced an $8.7-million strategic investment in Docklight Brands, Inc., a marijuana company with brands that celebrate Bob Marley, including “Marley Natural” cannabis and “Marley” CBD. (Source: “Turning Point Brands Enters Into Strategic Agreements With Docklight Brands to Support Expansion of Bob Marley Cannabis and CBD Products,” Turning Point Brands Inc, April 20, 2021.)

As a result of this transaction, Turning Point Brands now has access to two of the most iconic names in cannabis: Bob Marley and Zig-Zag.

The Marley CBD skincare line, which includes after-sun, hand cream, balm, and roll-on products, is currently available nationally in more than 12,000 stores, including select “7-Eleven,” “Circle K,” “Safeway,” and “Dollar General” locations, with additional availability expected through Turning Point Brands Inc’s partner network.

“Our goal is to build an expansive portfolio of the most innovative brands in the cannabis industry and to distribute these products across our vast partner network,” said Larry Wexler, CEO. (Source: Ibid.)

“Adding Marley products to our portfolio alongside our legacy Zig-Zag brand marks yet another milestone as we continue to leverage our brands and expand our distribution infrastructure,” concluded Wexler.

Strong Q1 Results; Management Raises Guidance

For the first quarter ended March 31, 2021, Turning Point announced that its revenue increased 18.7% year-over-year to $107.6 million. This tops the company’s previous guidance in the range of $97.0 to $102.0 million. (Source: “Turning Point Brands Announces First Quarter 2021 Results, Increases 2021 Guidance,” Turning Point Brands Inc, April 27, 2021.)

The company reported first-quarter net income of $11.8 million, or $0.57 per share, a 162% increase over its first-quarter 2020 net income of $4.5 million, or $0.22 per share.

Turning Point Brands Inc’s adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) increased 57.4% to $28.0 million from $17.8 million in the same prior-year period. Its adjusted earnings were $0.80 per share, compared to $0.51 in the same prior-year period. Wall Street was looking for adjusted earnings per share of $0.64.

The company ended the quarter with total liquidity of $188.9 million, made up of $167.4 million of cash and $21.4 million of revolving credit facility capacity.

For the second quarter of fiscal 2021, Turning Point Brands Inc expects to report net sales of $103.0 to $109.0 million. In the second quarter of 2020, the company reported net sales of $105.0 million.

Thanks to the strength of its first-quarter results, Turning Point Brands raised its guidance for fiscal 2021. The company now expects full-year revenue to be in the range of $422.0 to $440.0 million. Back in February, the company was calling for full-year 2021 revenue of $412.0 to $432.0 million.

In 2020, Turning Point Brands reported full-year revenue of $405.1 million.

Analyst Take

Turning Point Brands stock isn’t exactly an under-the-radar stock, but most people probably don’t think of it as a pot stock. They should. The company’s Zig-Zag product segment accounted for 38% of its total first-quarter sales. With more states advancing pot legalization during the first quarter, the segment’s outlook looks bright.

On top of that, Turning Point Brands Inc increased its exposure in the cannabis space through the addition of the Marley product line.

All of which helped the company raise its full-year guidance.