Turning Point Brands Inc (TPB) 2021 Q3 法說會逐字稿

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.

(Operator Instructions)

Louie Reformina, Chief Financial Officer, you may begin.

Thank you. Good morning, everyone. This is Louie Reformina, our Chief Financial Officer. Joining me are Turning Point Brands' President and CEO, Larry Wexler; and 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.turningpointbrands.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 a perspective on our progress in our strategic plan. As discussed, may I direct your attention to the discussion of forward-looking and cautionary statements in today's press release and the risk factors in our filings with the SEC. The disclosure 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 the future performance, and you should not place undue reliance upon them, except as provided by the federal securities laws. And we undertake no obligation to publicly update or revise any forward-looking statements.

In the call today, we will reference certain financial measures. These measures and reconciliations to GAAP can be found in today's earnings release, along with reasons why management believes that they provide useful information.

I will now turn the call over to Larry Wexler, our CEO.

Thank you, Louie, 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 wraps business from a trade inventory load that had pulled forward sales into the previous quarter. We are excited about our upcoming product launches in the fourth quarter and beyond and new marketing initiatives aimed to energize the Zig-Zag brand to drive growth going forward.

Stoker's saw a 2% growth, driven by double-digit growth in MST. This offset a decline in our chewing tobacco business, which faced a very challenging comp against the third quarter of 2020 when it saw double-digit growth as a result of a competitor being offline due to a COVID-related disruption.

MST continued its steady share gain and continues to be favorably positioned for the secular shift in the -- to the value category. NewGen, which navigated around another quarter of disruption around the PMTA process declined 3% during the quarter but saw a 22% growth in gross profits from the comparable period in the previous year when we saw transitory pricing pressure ahead of the PMTA deadline.

This year, the quarter was challenged by the uncertainties around market denial orders or MDOs, issued by the FDA related to the PMTAs. We disclosed in mid-September that we received an MDO for certain of our proprietary vapor products, which was primarily comprised of our non-menthol and nontobacco e-liquids.

Based on the rationale outlined in the MDO, we believe that there was an oversight in the handling of our application. Our 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 addition, there were references in the MDO 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 MDOs were rescinded. Our applications have now been put back under review.

We have dedicated significant time and resources to the PMTA 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. Or in other words, taking into account the risk of these products attracting never users, use and former users, it demonstrated how effective these products -- these vapor products are in motivating consumers to dramatically reduce or completely cease the use of combustible cigarettes.

We believe our application makes this case with a lot of science behind it, and our strong regulatory team and capabilities has produced an application that sets us apart. As an example of the depth of our science, included in our filing, our population health impact model which was developed specifically for our filings was recently published in a peer-reviewed journal.

With the recission of the MDOs, we are 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 potentially lowering -- potentially lower-risk products for the more than 30 million adult cigarette smokers in the United States.

As we await the ultimate outcome of the PMTA process, we have had to manage through a dynamic environment created by the uncertainties around the process. Over the last 2 months, MDOs have been issued to most of the e-liquid vape market but without clarity from the FDA on the actual products included in the MDOs, 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 are offering a wide variety of flavors and have been taking share in the market. In addition, both e-liquid and disposable vape manufacturers are now switching their product offerings to synthetic nicotine, which is currently viewed as a gray area regarding FDA regulation.

Needless to 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, we 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 a result of this trade-off, we have been reducing our inventory exposure which in the short term will impact our sales 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 PACT Act. The major private carriers, for the most part, had already stopped shipping vapor products earlier this year. This will require us to ramp up and shift into our alternative shipping network, which we have been building throughout the year.

We think we can get through the quarter, but we think -- we can get there through -- during this quarter, but we also have to manage competing against players that are skirting regulation until there is enforcement. We believe the hurdles created by both the PMTA process and the PACT Act 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.

With the clouded 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 vape consumers will not go away, and we are well positioned to serve them with our products, and most importantly, our distribution infrastructure as we await clarity from the PMTA process and eventual FDA enforcement.

Now let's move on to capital deployment. Today, we announced an increased share repurchase program that 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 in 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 proprietary product offerings. ReCreation Marketing will also be transitioning its name to Turning Point Brands Canada Corporation to better reflect their strategic importance and how integral they are to the organization.

While this quarter was otherwise relatively quiet from an acquisition and investment standpoint, we maintain a very healthy pipeline of opportunities synergistic to our company. 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 grabbed the whole of the headlines and interest regarding our company. Recently, it is important to note that our core business with Zig-Zag and Stoker's, which competes -- comprises a vast majority of our segment operating income are performing well and continue to remain favorably positioned in their markets. We remain optimistic in the outlook of our core business, and we will continue to adapt our vape business appropriately to a dynamic market.

To add some color and perspective on our quarter and the path forward, let me turn the call over to Graham Purdy, Chief Operating Officer.

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 a Canadian business that more than doubled as a result of the growth and consolidation of ReC Marketing. Our MYO 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., Zig-Zag papers continued its position as the leading premium and overall paper brand with 33% share in the measured market according to MSAi. Zig-Zag share dropped by 1.6 points as we comped against a noisy period when industry participants experienced COVID-related supply shortages.

During the quarter, our paper cones had 30.9 share of the segment in the measured channel according to MSAi, up 2.5 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 2 years ago. There is more room for penetration of cones within the measured channel as 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 head shop, dispensaries and in-product manufacturers. In Canada, ReCreation Marketing, which has now been consolidated, continues to experience a strong organic growth ramp with even bigger reach after the acquisition of DBW, a distributor in Western Canada. ReCreation has reached breakeven from an operating profit standpoint and is poised for further growth in an extensive set of products that have been added to their portfolio.

The outlook for our Zig-Zag segment remains bright with a full pipeline of new product introductions, including Zig-Zag Hemp wraps and the Zig-Zag natural leaf tobacco wrap this quarter. Next year, we aim to reintroduce Zig-Zag Cigar and launch a more diversified portfolio of cone and wrap offerings. Cigars is a $2.5 billion plus market from a manufacturer revenue standpoint. It is a fairly consolidated market, so it 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 are also excited about new marketing initiatives our team is launching to reenergize Zig-Zag in the adult consumer space. We launched a YouTube channel during the quarter, and we'll 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's segment. Stoker's 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. Stoker's market share was 5.6%, up 50 basis points compared to a year ago according to MSAi. Stoker's moist snuff is now in stores, representing 62% of industry volumes, 2.6 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 a high single-digit decline during the quarter after comping against a quarter that saw double-digit growth when a competitor experienced COVID-related disruptions in the prior year period. Stoker's Chew was the #1 chewing tobacco brand in the third quarter and despite the tough comp gained 130 basis points with 25.6 share according to MSAi. With the continued secular shift into the value category and Stoker's 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 NewGen, where we continue to manage through a disruptive environment. Our vape distribution business saw high single-digit declines due to the market dynamics resulting from the PMTA, along with a pull-forward of sales into the second quarter ahead of major parts of the implementation of the PACT Act. Larry detailed the challenging environment we are currently operating in with our vape distribution business, but 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 UPS comprised of LTL shippers, last-mile carriers and retail drop-ship locations for convenient adult consumer pickup in anticipation of the PACT Act. We believe that there are a number of competitors, particularly in the B2C segment, who will have difficulties restructuring their systems which provides a longer-term opportunity. However, we expect some volatility in the fourth quarter as we activate the system as the new regulations were implemented without any transition period. Outside of vape, WildHemp and Free contributed to our growth as we continue to roll out of both these products.

And with that, I'll turn it to Louie for a review of our third quarter financial performance. Louie?

Thank you, Graham. Our performance in the third quarter was in line with our expectations. Turning to 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 wraps business due to the previously mentioned pull forward.

Total Zig-Zag segment volume increased 17.0%, while price mix increased 0.4%. According to MSAi, third quarter industry volumes for U.S. rolling papers increased low single digits in the measured channel. MYO cigar wraps industry volumes were up double digits in the quarter.

During the quarter, we saw the segment's gross margin contract by 300 basis points to 56.1%, primarily as a result of the consolidation of ReCreation Marketing in the current quarterly period and its acquisition of DVW, which carried lower gross margin.

Zig-Zag accounted for 53% of our segment operating income in the third quarter, and it continues to be our fastest-growing segment. Stoker's products net sales increased 2.4% to $30.5 million in the quarter. Net sales for the MST portfolio grew 10% and represented 64% of Stoker's revenues in the quarter. This is up from 59% a year earlier, while chewing tobacco declined 9% due to tough comps mentioned earlier. Total Stoker's volumes decreased 4.1%, driven by the chewing tobacco decline with price mix advancing 6.5%.

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 MST business. Year-over-year industry volumes for MST were down mid-single digits with chewing tobacco declining by approximately 7%. Stoker's rated shipments to retail continued to outpace the industry in the quarter, growing its MSAi share in both chewing tobacco and MST.

Moving to our NewGen segment. Net sales decreased 3.2% to $37.2 million. We experienced a high single-digit decline as sales were impacted by the regulatory environment and pull forward sales in our vape distribution business. For the quarter, NewGen 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 with liquidations ahead of the PMTA submission deadline.

Now moving to the consolidated business. Adjusted EBITDA for the quarter was up 10% to $26.3 million. We achieved 41% incremental EBITDA margins during the quarter. That reflects the strong performance in our core segments as we leveraged our fixed cost structure. Our incremental margins were strong despite consolidation of ReCreation Marketing, which is 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 PMTA-related expenses during the quarter compared to $5.3 million last year. The expenses during the quarter were on plan going into the year, and we're encouraged to bolster our application ahead of the initial MDO we received.

Now moving on to guidance. With the limited visibility around the PMTA regulatory landscape, we are reducing our exposure temporarily in our vape business to mitigate the risk and that will impact our sales. We're also currently managing further implementation of the PACT Act by the U.S. Postal Service and our transitioning into alternative shipping network, which will cause disruption during the quarter. These drivers are causing a significant reduction to our vape business with the PACT Act being the larger 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 to 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 vape regulatory landscape.

Adjusted EBITDA for the full year is now expected to be $104 million to $108 million compared to previous guidance of $108 million to $113 million. NewGen is expected to make up only mid- to high single digits of our overall company EBITDA.

For Zig-Zag, we expect strong double-digit sales growth. As a reminder, in 2020, our 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 that comp.

For Stoker's, 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 NewGen, we now expect a decline in revenue compared to previous guidance of flat sales growth. This includes a double-digit decline for our vape distribution compared to previous guidance of low single-digit declines, offset by growth in Nu-X.

For the fourth quarter, we expect $93 million to $100 million (sic, see press release, $93 million to $103 million) in sales with growth in the Zig-Zag and Stoker's segments and a double-digit decline in NewGen due to the limited visibility in our vape business.

Now to help bridge that guidance, we took down guidance by $16.5 million on the revenue side at 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 vape business. Within the vape business, most of the decline in the outlook is due to the transitory impact from the PACT Act as we ramp up our logistics network through the quarter and the rest is due to 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 and $152 million of available liquidity. We repurchased $6.4 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 a $10 million seller note related to the acquisition of Durfort assets. The note had carried a 7.5% interest coupon and we are able to -- we were able to repay at the low par resulting in a $0.4 million gain on extinguishment of debt. Subsequent to the quarter, we also received notification of forgiveness for a $7.5 million unsecured loan, which will result in the extinguishment of debt in the fourth quarter. Regarding acquisitions and investments, our pipeline of opportunities to help create value for the business remains active.

With that, I'll turn the call back to Larry for closing comments.

Thank you, Louie. I would like to note that in our vape distribution business, our run rate thus far in October has been -- has performed better than our implied guidance. We hope that our guidance proves us conservative where we have only limited control and visibility over how the regulatory environment is unfolding and disruption it is creating in the marketplace. We will also have to see how customers adjust to the new shipping options as a result of the PACT Act 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, and 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.

(Operator Instructions) And our first question is from Vivien Azer with Cowen.

So I think we should start with guidance. The market is clearly taking down the stock more than the implied percentage reduction to your revenues and EBIT, which clearly tells you that the problem isn't just with the guidance provision, but kind of how the year, I think, has been telegraphed thus far.

So Larry and/or Louie, like as you reflect that on the positive guidance for vision you guys did in July, how are you guys thinking about regulatory and inventory disruptions? So it doesn't seem like the PACT Act is new, right? We were talking about that last quarter. The disruption from competitor inventories due to COVID, that was known too. So just trying to get a better understanding of what changed because you guys were so much more constructive heading into the July print around your full year guide, and you're walking that essentially all back?

So let me give color on numbers. So our guidance increase in July reflected the strong quarter we had in Q2. We 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 our guidance for Q4, some of that is the $3 million that I mentioned for these new products that we had forecasted where we are likely getting [containers] that will not be able to get into market until Q1 of next year. And so those are just increased logistical challenges that we saw over the last few months.

And the rest was the vape business. And with the vape business, the market has been incredibly dynamic, especially with the MDOs that we've seen over the last couple of months and the shift in terms of the product offerings within the market. And the PACT Act implementation, I'll let Larry kind of give the details, that came suddenly without a transition period to our alternative shipping network.

Yes, Vivien, we had submitted a bunch of comments to the USPS for the implementation of the PACT Act. And one thing we had stressed very strongly was that there needed to be a transition period to set up the alternative distribution network that we had in place, but it takes time to activate. Almost all 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 shift into 1Q. I recognize we still have 2 months left in 2021, but can you offer any more color around your expectations for Zig-Zag heading into 2022? You're going to be cycling 2 years of very explosive growth, and so I think it would be helpful to manage expectations around that.

Sure. Yes. So we feel pretty bullish about our Zig-Zag business. Our outlook has not changed on Zig-Zag. And growth next year is going to be driven by continued advances in our growth initiatives, specifically paper cones, e-commerce in our push alternative channel, and that's going to be supplemented with new product offerings. The Zig-Zag Hemp wraps and Zig-Zag Natural wraps that we launched this quarter. Cigar is a 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 have in our pipeline that we're pretty excited about as well.

The next question is from Susan Anderson with B. Riley.

Larry, just wanted to follow up. I think you commented at the end there that October was trending better than the implied guide. I guess, is that across all of the segments or just the ones that you lowered? Or I mean, would you get -- could that potentially continue throughout the rest of the quarter?

Okay. Susan, I was specifically addressing the NewGen business, the vape business. Just trying to highlight that the guide is not reflective of the underlying trend 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 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 the first through third quarter in that high 48%, 49% range?

I think from a segment level, I would expect a similar gross margin across each segment from what we saw in Q3. Yes. Obviously, with the -- yes, so it will be kind of similar to what we've seen there. And then the mix is slightly better because we'll have less NewGen sales in Q4 versus Q3.

So just to kind of add some color on the PACT Act shipping, it's important to note that this is -- it's transitory. 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 this will advantage us on the B2C business going forward as other people likely will not have the same -- will not have the same kind of capabilities we have to manage through this.

And as Larry mentioned, we're trending better. It's very hard to forecast because this happened Thursday. So these transitions are happening real time. Our vape team -- as the head of our vape team Marc Waxman, then our logistics team with Jim Azbill, 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 it's -- we're literally operating off half a week of data in giving this guidance for the quarter.

Okay. That's really helpful. And then maybe if you could talk a bit, I think you mentioned in the press release is now with the ReCreation partnership, it will allow you to enter Canada with more products. So maybe can you remind us which products are already in Canada and which are not? And I guess, just the time line for getting more in there?

Sure. We're selling Zig-Zag, it's a ReCreation Marketing basically selling Zig-Zag into dispensaries there. So we show almost 80% of the value-weighted distribution in the private market. We're also complementing that with other products within NewGen that we saw through that. And a decent amount of ReCreation Marketing sales is third-party products as well, along with a proprietary set of products that they develop on their own. So 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's revenue growth guidance, the slight decline in guidance there. I think you mentioned the trade inventory reduction. Is that -- what's -- is that the only driver there? Are you still expecting loose leaf chew to be impacted in fourth quarter?

Yes. Sorry, Susan. This is Graham. No, I think what happened to us in the third quarter was essentially an unwind of between a half a week and a week of trade inventory. A lot of noise out there relative to the tax increase, which we don't necessarily think we'll move through this year, but just a lot of noise in the system. We're still comfortable with how our MST product is progressing in the marketplace, and we feel well positioned with our Stoker's chewing tobacco in the value segment.

So let me just add something to Graham's comment. I have the benefit or the curse, 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 a FET increase because of the floor tax that's generally added to the bill. Don't know, it's hard to see total rationality for that, but we saw in 2009 in our business, and that may be reoccurring again. We'll see if we'll see.

The next question is from Eric Des Lauriers with Craig-Hallum Capital Group.

First one for me, within NewGen, what's the size of the vape distribution business? And anything you can give us from a dollar or a mix basis would be great? And then how should we think about fixed costs during this disruptive period? Presumably, you've got some increased costs with that shift to alternative logistics channels. But just wondering if we should expect some negative operating leverage during this declining period?

Sure. So within NewGen, I would think about it as over 90% vape distribution. So the profits are really coming from the vape distribution in that segment. Our fixed costs have come down a little bit, but it's important to note that there's also high -- pretty high variable costs in the NewGen business. So if you look kind of the -- our sales, if you bridge our guidance, our -- the Zig-Zag product sales that are being deferred come in at somewhere around 50% contribution margin. And our sales from our NewGen segment are coming in at about 20% contribution margins.

Okay. That's helpful. And then within Zig-Zag, so obviously, good to see that we got some new products coming online in Q1. I understand there was a bit of a shift -- or yes, I guess, a shift from Q4 into Q1. As we look beyond those wraps and at the cigar portfolio that you guys acquired, not necessarily looking for guidance, but just what's a reasonable time frame that we can expect you guys to begin to monetize that IP? And when we could expect some Zig-Zag cigar or cigarillo products to hit the market here as we look towards '22?

Yes. Craig, it's Graham. So we're already monetizing with the products that we acquired in the deal through -- it's about -- obviously, the price for us is the expansion of Zig-Zag into the marketplace. We see a distinct opportunity around the natural leaf cigar segment. And I think you'll start seeing us bear some fruits towards the end of the first quarter into the second.

(Operator Instructions) Our next question is from Gaurav Jain with Barclays.

So just a question which is probably similar to some of the questions that have been asked earlier, but the stock is clearly down a lot today. So for an investor looking at your company today and people are trying to, let's say, have a 3-year view on the stock, how should we think on the opportunity with Turning Point Brands? If you could just help us think through, I'm not asking for guidance, but just sort of some broad sort of ranges in which how fast can Stoker's and MST grow, how big can Zig-Zag 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 tailwind here with what you're seeing in terms of cannabis consumption and the changing perception around cannabis usage where it's actually becoming like having a drink. And I think that is rapidly evolving and that cycle tailwind is still there. And we feel bullish about our ability to outperform the market with some of the new products that we are launching and the growth initiatives that we have.

Stoker's, 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 position NewGen is this has tremendous optionality. Clearly, there's 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 think is permanent. And we think as the PMTA regulatory process unfolds and as people have to comply with the PACT Act, we think we are significantly advantaged given our infrastructure to tackle what we think is a massive opportunity in terms of share gains in that business. Larry, I'll let you add your color on --.

No, we're fairly pleased with the core business. I think I mentioned the core business is up 11% this quarter. The new products are, particularly the wrap products are positioned in a place where the wraps are growing the fastest. And we have this tremendous cigar opportunities to take.

Look, we're going against some very big competitors and cigar is a very concentrated market. We have been successful in the past. And we think it's an opportunity. And I think the opportunity will roll out over 2022. And it's going to take some time to get the distribution and get our products in the market. But very confident that we can get our piece of that market.

Okay. That's very helpful. The second question is just the comment around the moist snuff market. I think I heard a number that the market was down 5% in Q3. So is this like a slowdown post the COVID bump, which happened? And if you could share how things have been in October so far? Is the market continuing to slow down? Or has it picked up?

Yes, I think -- this is Graham. Yes, I think you're seeing a shift back to sort of the historical rates with moist snuff that we saw pre the noise of COVID. And so I think kind of the way to think about it is sort of how 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.

The next question is from Richard Evans with Mara River Capital Management.

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. So there's really 2 pieces of ReCreation Marketing. And so there is a DVW piece, which is what we call inorganic growth, and there's the ReCreation Marketing piece, which came from very low levels last year that we've grown this year with penetration on Zig-Zag. So that contributed about $5 million of sales during the quarter with roughly a little -- split roughly evenly between the 2 -- those 2 pieces.

Okay. So that's $5 million of benefit for now because I guess in prior quarters, you didn't consolidate it and now you did?

Yes. But there was -- I would say, last year, minimal levels in ReCreation Marketing. So we view the growth within the base ReCreation business is as organic growth as a decent amount of those sales are Zig-Zag sales into -- through ReC Marketing.

Okay. And the last couple of quarters, you kind of called out the split between in dollar amounts between wraps and paper. I was just wondering if you can kind of give that disclosure again for the U.S. business?

Sure. So on -- you'll see on our -- the investor presentation, the breakout of papers and wraps. But wraps in the third quarter was about $17 million in sales and U.S. papers, which we include with e-commerce is about $17 million as well.

We have no further questions at this time. I'll turn the call back over to the presenters.

Well, thank you for joining the call. We look forward to talking to you at the end of the -- 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.