TPB US Equity☆

Item 1A. Risk Factors

The risk factors summarized and detailed below could materially harm our business, operating results and/or financial condition, impair our future prospects and/or cause the price of our common

stock to decline. These are not all of the risks we face and other factors not presently known to us or that we currently believe are immaterial may also affect our business if they occur. Material risks that may affect our business, operating

results and financial condition include, but are not necessarily limited to, those relating to:

Risks Related to Our Business and Industry

• our dependence on a small number of third-party suppliers and producers;

• failure to maintain consumer brand recognition and loyalty of our customers;

• intense competition and our ability to compete effectively;

• contamination of our tobacco supply or products;

• uncertainty and continued evolution of the markets for our products;

Risks Related to Legal, Tax and Regulatory Matters

• increase in tax of our products could adversely affect our business;

• possible increasing international control and regulation;

• failure to comply with environmental, health and safety regulations;

• imposition of significant tariffs on imports into the U.S.;

• significant product liability litigation;

Risks Related to Financial Results, Finances and Capital Structure

• our amount of indebtedness;

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Risks Related to our Common Stock

General Risks

• adverse impact of climate change;

• our reliance on information technology;

• failure to manage our growth;

• fluctuations in our results;

• exchange rate fluctuations;

• adverse U.S. and global economic conditions;

• infringement on or misappropriation of our intellectual property;

• third-party claims that we infringe on their intellectual property; and

Risks Related to Our Business and Industry

Sales of tobacco products are generally expected to continue to decline.

As a result of restrictions on advertising and promotions, increases in regulation and excise taxes, health concerns, a decline in the social acceptability of tobacco and tobacco-related

products, increased pressure from anti-tobacco groups, and other factors, the overall U.S. market for tobacco products has generally been declining in terms of volume of sales and is expected to continue to decline. These factors have intensified

over time, especially as it relates to regulation. The general climate of declining sales of tobacco products is principally driven by the long-standing declines in cigarettes. OTP, on the other hand, has been more resilient as measured by MSAi.

Our tobacco products comprised approximately 52% of our total 2023 net sales and, while some of our sales volume declines have been offset by higher prices or by increased sales in other product categories, there can be no assurance that these

price increases or increased sales can be sustained, especially in an environment of increased regulation, product characteristic restrictions, and taxation and changes in consumer spending habits.

We depend on a small number of key third-party suppliers and producers for our products.

Our operations are largely dependent on a small number of key suppliers and producers to supply or manufacture our products pursuant to long-term contracts. In 2023, our two most important

suppliers and producers were: (i) Swedish Match (acquired in 2022 by Philip Morris International Inc.), which produces all of our loose-leaf chewing tobacco in the U.S.; and (ii) RTI, which provides us with exclusive access to the Zig-Zag® cigarette paper and related accessories in the U.S. and Canada. See Item 1 – “Business –

Distribution and Supply Agreements”. Many of our suppliers compete with us in one or more product categories. For example, we have a supply agreement with Swedish Match to manufacture our loose-leaf chewing tobacco, and Swedish Match also

manufactures its own brand of loose-leaf chewing tobacco, which it sells in the same channels as we do.

All of our loose-leaf tobacco products are manufactured for us by Swedish Match pursuant to a ten-year renewable agreement, which we entered into in 2008. The agreement will automatically be

renewed for five successive ten-year terms unless either party provides at least 180 days’ notice prior to a renewal term of its intent to terminate the agreement or unless otherwise terminated in accordance with the provisions of the agreement.

If a notice of non-renewal is delivered, the contract will expire two years after the date on which the agreement would have otherwise been renewed. Under this agreement, we retain the rights to all marketing, distribution and trademarks over the

loose-leaf brands that we own or license. The agreement renewed for an additional ten-year term in 2018. We share responsibilities with Swedish Match related to process control, manufacturing activities, quality control, and inventory management

with respect to our loose-leaf products. We rely on the performance by Swedish Match of its obligations under the agreement for the production of our loose-leaf tobacco products. Any significant disruption in Swedish Match’s manufacturing

capabilities or our relationship with Swedish Match, a deterioration in Swedish Match’s financial condition, or an industry-wide change in business practices with respect to loose-leaf tobacco products could have a material adverse effect on our

business, results of operations, and financial condition. We entered into these agreements when Swedish Match was an independent company. In 2022, Swedish Match was acquired by Phillip Morris International. While Swedish Match continues to honor

all obligations to us and has indicated that they will continue to do so in the future, relationship dynamics may change over time in light of their new owners.

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All of our Zig-Zag® premium cigarette papers, cigarette tubes, and

injectors are sourced from RTI, pursuant to the Distribution Agreements. The Distribution Agreements were initially entered into with Bolloré. In November 2020, Bolloré sold its rights to its trademarks for the Zig-Zag®

brand name in the U.S. and Canada to RTI and, in connection with the sale, assigned the Distribution Agreements and the License Agreements to RTI. RTI is an affiliate of one of our competitors. The Distribution Agreements were most recently

renewed in 2012 and pursuant to such agreements, we renegotiate pricing terms every five years.

Pursuant to agreements with certain suppliers, we have agreed to store tobacco inventory purchased on our behalf and generally maintain a 12- to 24-month supply of our various tobacco products

at their facilities. We cannot guarantee our supply of these products will be adequate to meet the demands of our customers. Further, a major fire, violent weather conditions, or other disasters that affect us or any of our key suppliers or

producers, including RTI or Swedish Match, as well as those of our other suppliers and vendors, could have a material adverse effect on our operations. For example, in December 2023, a third-party warehouse in Tennessee used to store some of the

Company’s leaf tobacco incurred significant tornado damage including damage to the Company’s leaf tobacco. Although we have insurance coverage for these events, including Company’s stock throughput insurance, which in the above case allowed the

Company to book a $15.2 million insurance recovery receivable, a prolonged interruption in our operations, as well as those of our producers, suppliers, or vendors, could have a material adverse effect on our business, results of operations, and

financial condition. In addition, we do not know whether we will be able to renew any or all of our agreements on a timely basis, on terms satisfactory to us, or at all.

Any disruptions in our relationships with RTI or Swedish Match or any other significant supplier, a failure to renew any of our agreements, an inability or unwillingness by any supplier to

produce sufficient quantities of our products in a timely manner or finding a new supplier would have a significant impact on our ability to continue distributing the same volume and quality of products and maintain our market share, even during

a temporary disruption, which could have a material adverse effect on our business, results of operations and financial condition.

We may be unable to identify or contract with new suppliers or producers in the event of a disruption to our supply of products.

In order to continue selling our products in the event of a disruption to our supply, we would have to identify new suppliers or producers that would be required to satisfy significant

regulatory requirements. Only a limited number of suppliers or producers (if any) may have the ability to produce our products at the volumes we need, and it could be costly or time-consuming to locate and approve such alternative sources.

Moreover, it may be difficult or costly to find suppliers to produce small volumes of our new products in the event we are looking only to supplement current supply as suppliers may impose minimum order requirements. In addition, we may be unable

to negotiate pricing or other terms with our existing or new suppliers as favorable as those we currently enjoy. Even if we were able to successfully identify new suppliers and contract with them on favorable terms, these new suppliers would also

be subject to stringent regulatory approval procedures that could result in prolonged disruptions to our sourcing and distribution processes.

Furthermore, there is no guarantee that a new third-party supplier could accurately replicate the production process and taste profile of our existing products. We cannot guarantee that a

failure to adequately replace our existing suppliers would not have a material adverse effect on our business, results of operations, and financial condition.

Our licenses to use certain brands and trademarks may be terminated or not renewed.

We are reliant upon brand recognition in the OTP markets in which we compete as the OTP industry is characterized by a high degree of brand loyalty and a reluctance to switch to new or

unrecognizable brands on the part of consumers. Some of the brands and trademarks under which our products are sold are licensed to us for a fixed period of time in respect of specified markets, such as our Distribution and License Agreements for

use of the Zig-Zag® name and associated trademarks in connection with certain of our cigarette papers and related products.

See Item 1 – “Business - Distribution and Supply Agreements” for a discussion of these agreements and their major provisions.

We have a number of Licensing Agreements with RTI. The first of these governs licensing, sourcing and the use of the Zig-Zag® name with respect to cigarette papers, cigarette tubes, and cigarette injector machines, the second of which governs licensing, sourcing and the use of the Zig-Zag® name with respect to e-cigarettes, vaporizers, and e-liquids, and the third of which governs the licensing, sourcing and use of the

Zig-Zag trademark on paper cones. In 2023, we generated approximately $180.5 million in net sales of Zig-Zag® products, of

which approximately $75.4 million was generated from products sold through the License Agreements. In the event that one or more of these Licensing Agreements are not renewed, the terms of the agreements bind us under a five-year non-compete

clause, under which we cannot engage in direct or indirect manufacturing, selling, distributing or otherwise promoting of cigarette papers of a competitor to Zig-Zag® without RTI’s consent, except in

limited instances. We do not know whether we will renew these agreements on a timely basis, on terms satisfactory to us, or at all. As a result of these restrictions, if our Licensing Agreements with respect to the Zig-Zag® trademark are terminated, we may not be able to access the markets with recognizable brands that would be positioned to compete in these segments.

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In the event that the licenses to use the brands and trademarks in our portfolio are terminated or are not renewed after the end of the term, there is no guarantee we will be able to find a

suitable replacement, or if a replacement is found, that it will be on favorable terms. Any loss in our brand-name appeal to our existing customers as a result of the lapse or termination of our licenses could have a material adverse effect on

our business, results of operations, and financial condition.

We may not be successful in maintaining the consumer brand recognition and loyalty of our products.

We compete in a market that relies on innovation and the ability to react to evolving consumer preferences. The alternative smoking accessories and tobacco industries in general, and the OTP

industry, in particular, are subject to changing consumer trends, demands, and preferences. Therefore, products once favored may over time become disfavored by consumers or no longer perceived as the best option. Consumers in the OTP market have

demonstrated a high degree of brand loyalty, but producers must continue to adapt their products in order to maintain their status among these customers as the market evolves. The Zig-Zag® brand has strong brand recognition among smokers, and our continued success depends in part on our ability to continue to differentiate the brand names that we own or

license and maintain similarly high levels of recognition with target consumers. Trends within the alternative smoking accessories and OTP industries change often. Our failure to anticipate, identify, or react to changes in these trends could,

among other things, lead to reduced demand for our products. Factors that may affect consumer perception of our products include health trends and attention to health concerns associated with tobacco and other products we sell, price-sensitivity

in the presence of competitors’ products or substitute products, and trends in favor of new Creative Distribution Solutions products that are currently being researched and produced by participants in our industry. For example, we have witnessed

a shift in consumer purchases from chewing tobacco to moist snuff due to its increased affordability. Along with our biggest competitors in the chewing tobacco market, which also produce moist snuff, we have been able to shift priorities and

adapt to this change. A failure to react to similar trends in the future could enable our competitors to grow or establish their brands’ market shares in these categories before we have a chance to respond.

Consumer perceptions of tobacco-based products are likely to continue to shift, and our success depends, in part, on our ability to anticipate these shifting tastes and the rapidity with which

the markets in which we compete will evolve in response to these changes on a timely and affordable basis. If we are unable to respond effectively and efficiently to changing consumer preferences, the demand for our products may decline, which

could have a material adverse effect on our business, results of operations, and financial condition.

Regulations may be enacted in the future, particularly in light of increasing restrictions on the form and content of marketing of tobacco products, that would make it more difficult to appeal

to our consumers or to leverage existing recognition of the brands that we own or license. Furthermore, even if we are able to continue to distinguish our products, there can be no assurance that the sales, marketing, and distribution efforts of

our competitors will not be successful in persuading consumers of our products to switch to their products. Many of our competitors have greater access to resources than we do, which better positions them to conduct market research in relation to

branding strategies or costly marketing campaigns. Any loss of consumer brand loyalty to our products or reduction of our ability to effectively brand our products in a recognizable way will have a material effect on our ability to continue to

sell our products and maintain our market share, which could have a material adverse effect on our business, results of operations, and financial condition.

Our distribution efforts rely in part on our ability to leverage relationships with large retailers and national chains.

Our distribution efforts rely in part on our ability to leverage relationships with large retailers and national chains to sell and promote our products, which is dependent upon the strength of

the brand names that we own or license and our salesforce effectiveness. In order to maintain these relationships, we must continue to supply products that will bring steady business to these retailers and national chains. We may not be able to

sustain these relationships or establish other relationships with such entities, which could have a material adverse effect on our ability to execute our branding strategies, our ability to access the end-user markets with our products or our

ability to maintain our relationships with the producers of our products. For example, if we are unable to meet benchmarking provisions in contracts or if we are unable to maintain and leverage our retail relationships on a scale sufficient to

make us an attractive distributor, it would have a material adverse effect on our ability to source products, and on our business, results of operations and financial condition. In addition, there are factors beyond our control that may prevent

us from leveraging existing relationships, such as industry consolidation.

If we are unable to develop and sustain relationships with large retailers and national chains, or we are unable to leverage those relationships due to factors such as a decline in the role of

brick-and-mortar retailers in North America, our capacity to maintain and grow brand and product recognition and increase sales volume will be significantly undermined. In such an event, we may ultimately be forced to pursue and rely on local and

more fragmented sales channels, which will have a material adverse effect on our business, results of operations and financial condition.

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We face intense competition and may fail to compete effectively.

We are subject to significant competition across our segments and compete against companies in all segments that have access to significant resources in terms of technology, relationships with

suppliers and distributors and access to cash flow and financial markets.

The OTP industry is characterized by brand recognition and loyalty, with product quality, price, marketing and packaging constituting the primary methods of competition. Substantial marketing

support, merchandising display, competitive pricing and other financial incentives generally are required to introduce a new brand or to improve or maintain a brand’s market position. Our principal competitors are “big tobacco,” Altria Group,

Inc. (formerly Phillip Morris) and British American Tobacco p.l.c. (formerly Reynolds) as well as Swedish Match (purchased by Philip Morris International Inc.), Swisher International and manufacturers of electronic cigarettes, including

U.K.-based Imperial Brands PLC. These competitors are significantly larger than us and aggressively seek to limit the distribution or sale of other companies’ products, both at the wholesale and retail levels. For example, certain competitors

have entered into agreements limiting retail-merchandising displays of other companies’ products or imposing minimum prices for OTP products, thereby limiting their competitors’ ability to offer discounted products. In addition, the tobacco

industry is experiencing a trend toward industry consolidation, most recently evidenced by the November 2022 acquisition of Swedish Match AB by Philip Morris International Inc., the December 2018 investment in Juul Labs by Altria, the July 2017

acquisition of Reynolds American, Inc., by British American Tobacco p.l.c., and the June 2015 acquisition of Lorillard, Inc., by Reynolds American, Inc. Additional industry consolidation could result in a more competitive environment if our

competitors are able to increase their combined resources, enhance their access to national distribution networks, or become acquired by established companies with greater resources than ours. Any inability to compete due to our smaller scale as

the industry continues to consolidate and be dominated by “big tobacco” could have a material adverse effect on our business, results of operations and financial condition.

“Big tobacco” has also established its presence in the Creative Distribution Solutions products market and has begun to make investments in other adjacent spaces, including health and wellness.

There can be no assurance that our products will be able to compete successfully against these companies or any of our other competitors, some of which have far greater resources, capital, experience, market penetration, sales and distribution

channels than us. In addition, there are currently relatively few U.S. restrictions on advertising for electronic cigarettes and vaporizer products and our competitors, including “big tobacco,” may have more resources than us for advertising

expenses in these spaces, which could have a material adverse effect on our ability to build and maintain market share, and thus have a material adverse effect on our business, results of operations and financial condition.

The competitive environment and our competitive position are also significantly influenced by economic conditions, the state of consumer confidence, competitors’ introduction of low-priced

products or innovative products, higher taxes, higher absolute prices and larger gaps between price categories and product regulation that diminishes the consumer’s ability to differentiate tobacco products. Due to the impact of these factors, as

well as higher state and local excise taxes and the market share of deep discount brands, the tobacco industry has become increasingly price competitive. As we seek to adapt to the price competitive environment, our competitors that are better

capitalized may be able to sustain price discounts for long periods of time by spreading the loss across their expansive portfolios, with which we are not positioned to compete.

We also expect our competitors to continue to improve their technology infrastructure, including with the use of artificial intelligence (“AI”) and machine learning solutions, to interact with clients, suppliers

and other third-parties to sell their products, utilize (and even monetize) their data and support and grow their client base. Our ability to innovate our own technology infrastructure and integrate new technology solutions into our existing

infrastructure will affect our ability to compete.

Competition from illicit sources may have an adverse effect on our overall sales volume, restricting the ability to increase selling prices and damaging brand equity.

Illicit trade and tobacco trafficking in the form of counterfeit products, smuggled genuine products and locally manufactured products on which applicable taxes or regulatory requirements are

evaded, represent a significant and growing threat to the legitimate tobacco industry. Factors such as increasing tax regimes, regulatory restrictions, and compliance requirements have resulted in more consumers switching to illegal, cheaper

tobacco products and providing greater rewards for smugglers. We expect that this trend will continue and even accelerate if additional regulatory requirements make it more difficult or expensive to obtain genuine products. Illicit trade can have

an adverse effect on our overall sales volume, restrict the ability to increase selling prices, damage brand equity and may lead to commoditization of our products.

We have continued to see increases in the sale of illicit or unauthorized tobacco and nicotine products, which the FDA and other agencies have had limited success in combating. If we are unable

to compete against these products, our sales volumes may be negatively materially impacted until and after the implementation of stronger enforcement activity.

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Although we combat counterfeiting of our products by engaging in certain tactics, such as requiring all sales force personnel to randomly collect our products from retailers in order to be

reviewed for authenticity and using a private investigation firm to help perform surveillance of retailers we suspect are selling counterfeit products, no assurance can be given that we will be able to detect or stop sales of all counterfeit

products. In addition, we have in the past and will continue to bring suits against retailers and distributors that sell certain counterfeit products. While we have been successful in securing financial recoveries from and helping to obtain

criminal convictions of counterfeiters in the past, no assurance can be given that we will be successful in any such suits or that such suits will be successful in stopping other retailers or distributors from selling counterfeit products. Even

if we are successful, such suits could consume a significant amount of management’s time and could also result in significant expenses to the Company. Any failure to track and prevent counterfeiting of our products could have a material adverse

effect on our ability to maintain or effectively compete for the products we distribute under our brand names, which would have a material adverse effect on our business, results of operations and financial condition.

Contamination of, or damage to, our products could adversely impact sales volume, market share and profitability.

Our market position may be affected through the contamination of our tobacco supply or products during the manufacturing process or at different points in the entire supply chain. We keep

significant amounts of inventory of our products in warehouses and it is possible that this inventory could become contaminated, or damaged during the storage period. For example, in December 2023, a third-party warehouse in Tennessee used to

store some of the Company’s leaf tobacco incurred significant tornado damage including damage to the Company’s leaf tobacco. Although we have alternative sources of tobacco to ensure we meet all demand, if another event were to occur we may not

have sufficient supply. In addition, our suppliers generally keep significant amounts of our inventory on hand and it is probable that such inventory could become contaminated or damaged even prior to arrival at our premises. If contamination or

damage of our inventory or packaged products occurs, whether as a result of a failure in quality control by us or by one of our suppliers, we may incur significant costs in replacing the inventory and recalling products. We may be unable to meet

customer demand and may lose customers who purchase alternative brands or products. In addition, consumers may lose confidence in the affected product.

Under the terms of our contracts, we impose requirements on our major suppliers to maintain quality and comply with product specifications and requirements, and on our third-party

co-manufacturer to comply with all federal, state and local laws. These third-party suppliers, however, may not continue to produce products that are consistent with our standards or that are in compliance with applicable laws, and we cannot

guarantee that we will be able to identify instances in which our third-party suppliers fail to comply with our standards or applicable laws.

A loss of sales volume from a contamination event may also affect our ability to supply our current customers and, in turn, recapture their business in the event they are forced to switch

products or brands, even if on a temporary basis. We may also be subject to legal action as a result of a contamination, which could result in negative publicity and affect our sales. During this time, our competitors may benefit from an

increased market share that could be difficult and costly to regain. Such a contamination event could have a material adverse effect on our business, results of operations and financial condition.

The market for certain of our products is subject to a great deal of uncertainty and is still evolving.

Novel nicotine and cannabinoid products, having been introduced to the market over the past fifteen years, are at a relatively early stage of development compared to “traditional” tobacco

products, and represent core components of a market that is evolving rapidly, highly regulated and characterized by a number of market participants. Rapid growth in the use of, and interest in, these products is recent, and may not continue on a

lasting basis. The long-term demand trends and market acceptance for these products is subject to a high level of uncertainty. Therefore, we are subject to all of the business risks associated with a new enterprise in an evolving market.

Continued evolution, uncertainty and the resulting increased risk of failure of our new and existing product offerings in this market could have a material adverse effect on our ability to build and maintain market share and on our business,

results of operations and financial condition. Further, there can be no assurance that we will be able to continue to effectively compete in the novel nicotine and cannabinoid products marketplace.

Complications with the design or implementation of our new enterprise resource planning system could adversely impact our business and operations.

We rely extensively on information systems and technology to manage our business and summarize operating results. We are currently engaged in the implementation of a new

enterprise resource planning (“ERP”) system, which is part of the remediation efforts for our material weakness in internal controls over financial reporting discussed below. This ERP system will replace our existing operating and financial

systems. The ERP system is designed to accurately maintain the Company’s financial records, enhance operational functionality and provide timely information to the Company’s management team related to the operation of the business. The ERP

system implementation process requires the investment of significant personnel and financial resources. We may not be able to successfully implement the ERP without experiencing delays, increased

costs and other difficulties. If we are unable to successfully design and implement the new ERP system as planned, or successfully update or integrate our systems when necessary, our financial positions, results of operations and cash flows

could be negatively impacted.

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Risks Related to Legal, Tax and Regulatory Matters

We are subject to substantial and increasing regulation.

The tobacco industry has been under public scrutiny for over 50 years. Industry critics include special interest groups, the U.S. Surgeon General, and many legislators and regulators at the

local, state and federal levels. A wide variety of federal, state, and local laws limit the advertising, sale, and use of tobacco, and these laws have proliferated in recent years. For instance, on May 4, 2022, the FDA proposed two tobacco

products standards related to combusted tobacco products: (1) a ban on menthol as a characterizing flavor of cigarettes; and (2) a ban on all characterizing flavors (including menthol) in cigars, and in May 2023, the FDA proposed additional

requirements for tobacco product manufacturing practice regarding the manufacture, design, packing and storage of tobacco products. Together with changing public attitudes towards tobacco consumption, the constant expansion of regulations has

been a major cause of the overall decline in the consumption of tobacco products since the early 1970s. These regulations relate to, among other things, the importation of tobacco products and shipping throughout the U.S. market, increases in the

minimum age to purchase tobacco products, imposition of taxes, sampling and advertising bans or restrictions, flavor bans or restrictions, ingredient and constituent disclosure requirements, and media campaigns and restrictions on where consumers

may use tobacco products. Additional restrictions may be adopted or agreed to in the future. These limitations may make it difficult for us to maintain the value of any brand.

The trend toward increasing regulation of the tobacco industry experienced over the last few decades is likely to differ between the various U.S. states and Canadian provinces in which we

currently conduct the majority of our business. Extensive and inconsistent regulation by multiple states and at different governmental levels could prove to be particularly disruptive to our business as we may be unable to accommodate such

regulations in a cost-effective manner that allows us to continue to compete in an economically viable way. Regulations are often introduced without industry input and have significantly contributed to reduced industry sales volumes and increased

illicit trade.

In 1986, federal legislation was enacted regulating smokeless tobacco products (including dry and moist snuff and chewing tobacco) by, among other things, requiring health warnings on smokeless

tobacco packages and prohibiting the advertising of smokeless tobacco products on media subject to the jurisdiction of the Federal Communications Commission (“FCC”). Since 1986, other proposals have been made at the federal, state, and local

levels for additional regulation of tobacco products. It is likely that additional proposals will be made in the coming years. For example, the PACT Act initially prohibited the use of the U.S. Postal Service to mail cigarette and smokeless

tobacco products and also amended the Jenkins Act, which established cigarette sales reporting requirements for state excise tax collection, to require individuals and businesses that make interstate sales of certain cigarette or smokeless

tobacco to comply with state tax laws. The PACT Act was later extended to also cover e-cigarette and related products. The extension of the PACT Act has resulted in increased costs and disruption to our Creative Distribution Solutions business,

and those costs may continue to rise if we are unable to adjust our operations to respond relative to our competitors. See “—Many of our products have not obtained premarket authorization from the FDA and are currently marketed pursuant to a

policy of FDA enforcement priorities, which could change. There could be a material adverse impact on our business development efforts if the FDA determines that our products are not subject to this compliance policy, or if our products become

subject to increased regulatory enforcement burdens imposed by the FDA and other regulatory or legislative bodies” below for further details. Additional federal or state regulation relating to the manufacture, sale, distribution, advertising,

labeling, mandatory ingredients disclosure and nicotine yield information disclosure of tobacco products could reduce sales, increase costs, and have a material adverse effect on our business, results of operations, and financial condition.

On June 22, 2009, the Family Smoking Prevention and Tobacco Control Act (the “Tobacco Control Act”) granted the FDA regulatory authority over tobacco products. The Tobacco Control Act also

amended the Federal Cigarette Labeling and Advertising Act, which governs how cigarettes can be advertised and marketed, as well as the Comprehensive Smokeless Tobacco Health Education Act, which governs how smokeless tobacco can be advertised

and marketed. In addition to the FDA and FCC, we are subject to regulation by numerous other federal agencies, including the Federal Trade Commission, the Department of Justice, the Alcohol and Tobacco Tax and Trade Bureau , the U.S.

Environmental Protection Agency, the U.S. Department of Agriculture (“USDA”), the Consumer Product Safety Commission , the U.S. Customs and Border Protection and the U.S. Center for Disease Control and Prevention’s Office on Smoking and Health.

There have also been adverse legislative and political decisions and other unfavorable developments for the tobacco industry concerning cigarette smoking and the tobacco industry generally, which we believe have received widespread public

attention. The FDA has, and other governmental entities have, expressed concerns about the use of flavors in tobacco products and an interest in significant regulation of such use, up to and including bans in certain products. There can be no

assurance as to the ultimate content, timing or effect of any regulation of tobacco products by governmental bodies, nor can there be any assurance that potential corresponding declines in demand resulting from negative media attention would not

have a material adverse effect on our business, results of operations and financial condition. Any such regulation has the potential to increase costs and have a material adverse effect on our business, results of operations, ability to compete,

and financial condition.

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Our products are regulated by the FDA, which has broad regulatory powers.

The vast majority of our 2023 U.S. net sales are derived from the sale of products that are currently regulated by the FDA. The Tobacco Control Act grants the FDA broad regulatory authority

over the design, manufacture, sale, marketing and packaging of tobacco products. Among the regulatory powers conferred to the FDA under the Tobacco Control Act is the authority to impose tobacco product standards that are appropriate for the

protection of the public health, require manufacturers to obtain FDA review and authorization for the marketing of certain new or modified tobacco products and impose various additional restrictions. Such restrictions may include requiring

reduction or elimination of the use of particular constituents or components, requiring product testing, or addressing other aspects of tobacco product construction, constituents, properties or labeling.

Specifically, the Tobacco Control Act (i) increases the number of health warnings required on cigarette and smokeless tobacco products, increases the size of warnings on packaging and in

advertising, requires the FDA to develop graphic warnings for cigarette packages, and grants the FDA authority to require new warnings, (ii) imposes restrictions on the sale and distribution of tobacco products, including significant restrictions

on tobacco product advertising and promotion as well as the use of brand and trade names, (iii) bans the use of “light,” “mild,” “low” or similar descriptors on tobacco products, (iv) bans the use of “characterizing flavors” in cigarettes other

than tobacco or menthol, (v) requires manufacturers to report ingredients and harmful constituents and requires the FDA to disclose certain constituent information to the public, (vi) authorizes the FDA to require the reduction of nicotine and

the potential reduction or elimination of other constituents or additives, including menthol, (vii) establishes resource-intensive pre-market and “substantial equivalence” review pathways for tobacco products that are considered new, (viii) gives

the FDA broad authority to deny product applications thereby preventing the sale or distribution of the product subject to the application (and requiring such product to be removed from the market, if applicable), and (ix) requires tobacco

product manufacturers (and certain other entities) to register with the FDA.

The FDA charges user fees based on the USDA unit calculations pro-rated to the annualized FDA congressionally allocated budget. These fees only apply to certain products currently regulated by

the FDA, which include our core products (other than cigarette paper products), but we may in the future be required to pay such fees on more of our products, and we cannot accurately predict which additional products may be subject to such fees

or the magnitude of such fees, which could become significant. A change in which products are subject to these fees may also impact the amount of fees payable by us (or to which we are subject) due to the reallocation of fees across new product

categories.

Although the Tobacco Control Act prohibits the FDA from issuing regulations banning all cigarettes, all smokeless tobacco products, all little cigars, all cigars other than little cigars, all

pipe tobacco, or all roll-your-own tobacco, or requiring the reduction of nicotine yields of a tobacco product to zero, it is likely that regulations with the FDA promulgated pursuant to the Tobacco Control Act could nonetheless result in a

decrease in sales of these products in the U.S. We believe that such regulation could adversely affect our ability to compete against our larger competitors, who may be able to more quickly and cost-effectively comply with these new rules and

regulations. Our ability to gain efficient and timely market clearance for new tobacco products, or even to keep existing products on the market, could also be affected by FDA rules, regulations and enforcement policies. Some of our currently

marketed products that are subject to FDA regulation will require marketing authorizations from the FDA for us to continue marketing them (e.g., pre-market or substantial equivalence marketing authorizations, as applicable to the product), which

we cannot guarantee we will be able to obtain. In addition, failure to comply with new or existing tobacco laws under which the FDA imposes regulatory requirements could result in significant financial penalties and government investigations of

us. To the extent we are unable to respond to, or comply with, new FDA regulations it could have a material adverse effect on our business, results of operations and financial condition.

Many of our products contain nicotine, which is considered to be a highly addictive substance.

Many of our products contain nicotine, a chemical that is considered to be highly addictive. The Tobacco Control Act empowers the FDA to regulate the amount of nicotine found in tobacco

products, but not to require the reduction of nicotine yields of a tobacco product to zero. Any FDA regulation, whether of nicotine levels or other product attributes, may require us to reformulate, recall and/or discontinue certain of the

products we may sell from time to time, which may have a material adverse effect on our ability to market our products and have a material adverse effect on our business, results of operations and financial condition.

We are required to maintain cash amounts within an escrow account in order to be compliant with a settlement agreement between us and certain U.S. states and territories.

In November 1998, the major U.S. cigarette manufacturers entered into the Master Settlement Agreement (“MSA”) and the Smokeless Tobacco Master Settlement Agreement (“STMSA”) with 46 U.S. states

and certain U.S. territories and possessions. Pursuant to the MSA and subsequent states’ statutes, a “cigarette manufacturer” (which is defined to also include a manufacturer of roll your own (“RYO”)/MYO cigarette tobacco) has the option of

either becoming a signatory to the MSA, or, as we have elected, operating as a non-participating manufacturer (“NPM”) by funding and maintaining an escrow account, with sub-accounts on behalf of each settling state. These NPM escrow accounts are

governed by states’ escrow and complementary statutes that are generally monitored by the Office of the State Attorney General. The statutes require NPM companies to deposit, on an annual basis, into qualified banks’ escrow funds based on the

number of cigarettes or cigarette equivalents, which is measured by pounds of RYO/MYO tobacco sold. NPM companies are, within specified limits, entitled to direct the investment of the escrowed funds and withdraw any interest or appreciation, but

cannot withdraw the principal for twenty-five years from the year of each annual deposit, except to withdraw funds deposited pursuant to an individual state’s escrow statute to pay a final judgment to that state’s plaintiffs in the event of such

a final judgment. The investment vehicles available to us are specified in the state escrow agreements and are limited to low-risk government securities.

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Various states have enacted or proposed complementary legislation intended to curb the activity of certain manufacturers and importers of cigarettes or MYO tobacco that are selling into MSA

states without signing the MSA or who have failed to properly establish and fund a qualifying escrow account. We believe we have been fully compliant with all applicable laws, regulations, and statutes, although compliance-related issues may,

from time to time, be disruptive to our business, any of which could have a material adverse effect on our business, results of operations, and financial condition.

Future changes to the MSA, such as legislation that extends the MSA to products to which it does not currently apply or legislation that limits the ability of companies to receive unused escrow

funds after 25 years, may have a material adverse effect on our business, results of operations and financial condition. For example, Oregon recently passed a law that would create new fees on NPM companies for future sales of cigarettes. Despite

the amounts maintained and funded to the escrow account, compliance with the funding requirements for the escrow account does not necessarily prevent future federal and/or state regulations with respect to the OTP industry from having a material

adverse effect on our business, results of operations and financial condition.

Increases in tobacco-related taxes have been proposed or enacted and are likely to continue to be proposed or enacted in numerous jurisdictions.

Tobacco products, premium cigarette papers and tubes have long been subject to substantial federal, state and local excise taxes. Such taxes have frequently been increased or proposed to be

increased, in some cases significantly, to fund various legislative initiatives or further disincentivize tobacco usage. Since 1986, smokeless products have been subject to federal excise tax. Federally, smokeless products are taxed by weight (in

pounds or fractional parts thereof) manufactured or imported.

Since the State Children’s Health Insurance Program (“S-CHIP”) reauthorization in early 2009, which utilizes, among other things, taxes on tobacco products to fund health insurance coverage for

children, the federal excise tax increases adopted have been substantial and have materially reduced sales in the RYO/MYO cigarette smoking products market, and also caused volume declines in other markets. Although the RYO/MYO cigarette smoking

tobacco and related products market had been one of the fastest growing markets in the tobacco industry in the five years prior to 2009, the reauthorization of S-CHIP increased the federal excise tax on RYO tobacco from $1.10 to $24.78 per pound,

and materially reduced the MYO cigarette smoking tobacco market in the U.S. There have not been any increases enacted since 2009, but bills are introduced regularly, which, if enacted into law, could result in an increase in federal excise and

other tobacco-related taxes. We cannot guarantee that we will not be subject to further increases, nor whether any such increases will affect prices in a way that further deters consumers from purchasing our products and/or affects our net

revenues in a way that renders us unable to compete effectively.

In addition to federal excise taxes, every state and certain city and county governments have imposed substantial excise taxes on sales of tobacco products, and many have raised

or proposed to raise excise taxes in recent years.Approximately one-half of the states tax MST on a weight-based versus ad valorem system of taxation.

Additional states may consider adopting such revised tax structures as well. Tax increases, depending on their parameters, may result in consumers switching between tobacco products or may depress overall tobacco consumption, which is likely to

result in declines in overall sales volumes.

Any future enactment of increases in federal or state excise taxes on our tobacco products or rulings that certain of our products should be categorized differently for excise tax purposes

could adversely affect demand for our products and may result in consumers switching between tobacco products or a depression in overall tobacco consumption, which would have a material adverse effect on our business, results of operations and

financial condition.

Many of our products have not obtained premarket authorization from the FDA and are currently marketed pursuant to a policy of FDA enforcement priorities, which could

change. There could be a material adverse impact on our business development efforts if the FDA determines that our products are not subject to this compliance policy, or if our products become subject to increased regulatory enforcement burdens

imposed by the FDA and other regulatory or legislative bodies.

Since their introduction, there has been significant uncertainty regarding whether, how and when tobacco regulations would apply to Creative Distribution Solutions products, such as electronic

cigarettes or novel nicotine products. Based on a decision in December 2010 by the U.S. Court of Appeals for the D.C. Circuit, the FDA is permitted to regulate electronic cigarettes containing tobacco-derived nicotine as “tobacco products” under

the Tobacco Control Act.

Effective August 8, 2016, FDA’s regulatory authority under the Tobacco Control Act was extended to all remaining tobacco-derived products, including: (i) certain Creative Distribution Solutions

products (such as electronic cigarettes, vaporizers and e-liquids) and their components or parts (such as tanks, coils and batteries); (ii) cigars and their components or parts (such as cigar tobacco); (iii) pipe tobacco; (iv) hookah products; or

(v) any other tobacco product “newly deemed” by the FDA. These deeming regulations apply to all products made or derived from tobacco intended for human consumption, but excluding accessories of tobacco products (such as lighters). Subsequently,

on April 14, 2022, the FDA Center for Tobacco Products also obtained jurisdiction over non-tobacco nicotine products (“NTN Products”), including synthetic nicotine. That law subjects NTN Products to the same requirements as tobacco-derived

products.

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The deeming regulations require us to (i) register with the FDA and report product and ingredient listings; (ii) market newly deemed products only after FDA review and approval; (iii) only make

direct and implied claims of reduced risk if the FDA approves after finding that scientific evidence supports the claim and that marketing the product will benefit public health as a whole; (iv) refrain from distributing free samples; (v)

implement minimum age and identification restrictions to prevent sales to individuals under age 18; (vi) develop an approved warning plan and include prescribed health warnings on packaging and advertisements; and (vii) refrain from selling the

products in vending machines, unless the machine is located in a facility that never admits youth. Newly deemed tobacco products are also subject to the other requirements of the Tobacco Control Act, such as that they not be adulterated or

misbranded. The FDA could in the future promulgate good manufacturing practice regulations for these and our other products, and indeed has indicated it intends to do so, which could have a material adverse impact on our ability and the cost to

manufacture our products.

Marketing authorizations will be necessary in order for us to continue our distribution of certain of our Creative Distribution Solutions, cigar, and other novel nicotine products, such as our

nicotine pouches. The FDA has announced various compliance policies whereby it does not intend to prioritize enforcement for lack of premarket authorization against newly-deemed products, provided that such tobacco products were marketed as of

August 8, 2016; are not marketed in certain manners likely to be attractive to youth; and for which premarket applications were timely submitted. As a result of recent litigation and subsequent FDA Guidance, marketing applications for

newly-deemed products were required to have been submitted no later than September 9, 2020, with the exception of our “preexisting” products (products in commerce as of February 15, 2007) which are already authorized. Under the FDA’s compliance

policy, such products could remain on the market until September 9, 2021, unless the FDA makes an adverse determination prior to that date. Subsequent to September 9, 2021, the FDA indicated its enforcement priority is those applicants who have

received negative action on their application, such as a Marketing Denial Order (“MDO”) or Refuse to File notification and who continue to illegally sell those unauthorized products, as well as products for which manufacturers failed to submit a

marketing application. Further, NTN Product manufacturers were required to file a PMTA by May 14, 2022, in order to continue selling products currently on the market. NTN Products subject of a timely-filed PMTA, and not in receipt of a negative

action, were allowed to remain on the market until July 13, 2022, at which time these products became subject to enforcement, similar to tobacco-derived products remaining under review.

In September 2020, we submitted applications on a timely basis for the appropriate authorizations for our products that are deemed products under the 2016 deeming regulations, not otherwise

grandfathered. We believe that these products satisfy the criteria for current marketing pursuant to the FDA’s compliance policy. For our NTN Products, we filed several PMTAs by May 14, 2022. There can be no guarantee that the FDA will authorize

these products, and the FDA may bring an enforcement action against our products for lack of premarket authorization and/or deny our premarket applications in the meantime. If the FDA were to issue additional MDOs that remained in effect it could

have an adverse impact on our business.

We also have certain previously regulated tobacco products which the FDA removed from review but remain subject to “provisional” substantial equivalence submissions made on March 22, 2011;

however, the FDA has the discretion to reinitiate review of these products. If the FDA establishes regulatory processes that we are unable or unwilling to comply with, our business, results of operations, financial condition and prospects could

be adversely affected.

The anticipated costs of complying with future FDA regulations will be dependent on the rules issued and implemented by the FDA, the timing and clarity of any new rules or guidance documents

accompanying these rules, the reliability and simplicity (or complexity) of the electronic systems utilized by the FDA for information and reports to be submitted, and the details required by FDA for such information and reports with respect to

each regulated product. Failure to comply with existing or new FDA regulatory requirements could result in significant financial penalties and could have a material adverse effect on our business, results of operations, financial condition and

ability to market and sell our products. Compliance and related costs could be substantial and could significantly increase the costs of operating in our product categories.

In addition, failure to comply with the Tobacco Control Act and with FDA regulatory requirements could result in litigation, criminal convictions or significant financial penalties and could

impair our ability to market and sell certain of our products. At present, we are not able to predict whether the Tobacco Control Act will impact our products to a greater degree than competitors in the industry, which would affect our

competitive position.

Furthermore, in addition to the FDA, there are restrictions being proposed or in effect at the federal, state, and local level related to our products. For example, the PACT Act has now been

amended to apply to certain Creative Distribution Solutions products, which has impacts at the federal and state levels. These requirements are in addition to any increased regulation of internet sales that may be in effect or passed

legislatively at the federal, state, or local levels, or promulgated via rulemaking by a government agency. Additionally, state attorneys general have monitored, and in some cases, have issued investigative requests and/or initiated litigation

with regard to companies that sell these products related to online sales, marketing practices, and/or other aspects of the Creative Distribution Solutions business. Increased regulation of additives in tobacco products through federal, state, or

local governments may also adversely affect our products. Some states have also adopted or are considering adopting laws that create a “registry” of products allowed to be sold by licensed distributors and retailers. Certain of our products may

not meet the criteria to be added to or remain on these registries, which may discourage or prevent licensed distributors and retailers from selling such products. The application of these types of restrictions, and of any new laws or regulations

which may be adopted in the future, to these products could result in additional expenses and require us to change our advertising and labeling, and methods of marketing and distribution of our products, any of which could have a material adverse

effect on our business, results of operations and financial condition.

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Some products we sell are subject to developing and unpredictable regulation.

Some of the products sold through our Creative Distribution Solutions distribution vehicles may be subject to uncertain and evolving federal, state and local regulations concerning hemp, CBD

and other non-tobacco consumable products. Regulatory and related enforcement initiatives by authorities related to such products are unpredictable and impossible to anticipate. We believe that all levels of government, that have not already done

so, are likely to seek in some way to regulate these products, but the type, timing, and impact of such regulations remains uncertain. These regulations include or could include restrictions prohibiting certain form factors, such as smokable hemp

products, or age restrictions. Accordingly, we cannot give any assurance that such actions would not have a material adverse effect on the emerging business and our Creative Distribution Solutions strategy.

Significant increases in state and local regulation of our Creative Distribution Solutions products have been proposed or enacted and are likely to continue to be proposed or

enacted in numerous jurisdictions.

There has been increasing activity on the state and local levels with respect to scrutiny of Creative Distribution Solutions products. State and local governmental bodies across the U.S. have

indicated Creative Distribution Solutions products may become subject to new laws and regulations at the state and local levels. Further, some states and cities, have enacted regulations that require obtaining a tobacco retail license in order to

sell electronic cigarettes and vaporizer products. If one or more states from which we generate or anticipate generating significant sales of Creative Distribution Solutions products bring actions to prevent us from selling our Creative

Distribution Solutions products unless we obtain certain licenses, approvals or permits, and if we are not able to obtain the necessary licenses, approvals or permits for financial reasons or otherwise and/or any such license, approval or permit

is determined to be overly burdensome to us, then we may be required to cease sales and distribution of our products to those states, which could have a material adverse effect on our business, results of operations and financial condition.

Certain states and cities have already restricted the use of electronic cigarettes and vaporizer products in smoke-free venues, imposed excise taxes, or limited sales of flavored Creative

Distribution Solutions products. Additional city, state or federal regulators, municipalities, local governments and private industry may enact additional rules and regulations restricting electronic cigarettes and vaporizer products. Because of

these restrictions, our customers may reduce or otherwise cease using our Creative Distribution Solutions products, which could have a material adverse effect on our business, results of operations and financial condition.

Canada and some Canadian provinces have restricted or are contemplating restrictions on the sales and marketing of electronic cigarettes. Furthermore, some Canadian provinces have limited the

use of electronic cigarettes and vaporizer products in public places. These measures, and any future measures taken to limit the marketing, sale and use of Creative Distribution Solutions products may have a material adverse effect on our sales

into Canada.

If our Creative Distribution Solutions products become subject to increased taxes it could adversely affect our business.

Presently the federal government and many states do not tax the sale of Creative Distribution Solutions products like they do the sale of conventional cigarettes or other tobacco products, all

of which generally have high tax rates and have faced significant increases in the amount of taxes collected on their sales. In recent years, however, state and local governments have taken actions to move towards imposing excise taxes on

Creative Distribution Solutions products. As of December 31, 2023, over half of states, as well as, certain localities have imposed excise taxes on electronic cigarettes and/or liquid nicotine. These tax structures may benefit one type of

Creative Distribution Solutions product over another, which may result in consumers switching between Creative Distribution Solutions products, other traditional tobacco products, or may depress overall consumption in general. Should federal,

state and local governments and or other taxing authorities begin or continue to impose excise taxes on Creative Distribution Solutions products, similar to those levied against conventional cigarettes and tobacco products, it may have a material

adverse effect on the demand for these products, as consumers may be unwilling to pay the increased costs, which in turn could have a material adverse effect on our business, results of operations and financial condition.

Our distribution to our wholesalers and retailers is dependent on the demands of their customers who are sensitive to increased taxes and economic conditions affecting their

disposable income.

Consumer purchases of tobacco products are historically affected by economic conditions, such as changes in employment, salary and wage levels, the availability of consumer credit, inflation,

interest rates, fuel prices, sales taxes, and the level of consumer confidence in prevailing and future economic conditions. Discretionary consumer purchases, such as of OTP, may decline during recessionary periods or at other times when

disposable income is lower, and taxes may be higher. As we are currently in an inflationary period, and the Federal Reserve has increased interest rates on several occasions since early 2022, consumer purchasing power has declined. While the

decline has not as of yet, led to a decrease in sales of our products, continued economic pressures in our target consumer market could lead to a decrease in discretionary purchases which could have a material adverse impact on our business

results of operations and financial conditions.

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In addition, some states have begun collecting taxes on internet sales. These taxes apply to our online sales of Creative Distribution Solutions products into those states and may result in

reduced demand from the independent wholesalers who may not be able to absorb the increased taxes or successfully pass them onto the end-user without experiencing reduced demand. Further, as a result of recent court decisions related to the

taxability of internet purchases, states are now able to impose sales tax on internet purchases made from out-of-state sellers, even if the seller does not have a physical presence in the taxing state. Consequently, additional states are likely

to seek or have begun to impose sales tax on our online sales. The requirement to collect, track and remit taxes may require us to increase our prices, which may affect demand for our products or conversely reduce our net profit margin, which

could have a material adverse effect on our business, results of operations and financial condition.

We may be subject to increasing international control and regulation.

The World Health Organization’s Framework Convention on Tobacco Control (“FCTC”) is the first international public health treaty that establishes a global agenda to reduce initiation of tobacco

use and regulate tobacco in an effort to encourage tobacco cessation. Over 180 governments worldwide have ratified the FCTC. The FCTC has led to increased efforts to reduce the supply and demand of tobacco products and to encourage governments to

further regulate the tobacco industry. These efforts have, over time, expanded to focus broadly on consumer products containing nicotine, such as vapor products. The tobacco industry expects significant regulatory developments to take place over

the next few years, driven principally by the FCTC. Regulatory initiatives that have been proposed, introduced or enacted include:

• the levying of substantial and increasing tax and duty charges;

• restrictions or bans on advertising, marketing and sponsorship;

• elimination of duty-free allowances for travelers; and

• encouraging litigation against tobacco companies.

If the U.S. becomes a signatory to the FCTC and/or national laws are enacted in the U.S. that reflect the major elements of the FCTC, our business, results of operations and financial condition

could be materially and adversely affected.

As part of our strategy, we have begun to expand our business into key international locations, such as introducing our moist snuff tobacco products in South America. International expansion

may subject us to additional international regulation, either by the countries that are the object of the strategic expansion or through international regulatory regimes, such as the FCTC, to which those countries may be signatories.

To the extent our existing or future products become subject to international regulatory regimes that we are unable to comply with or fail to comply with, they may have a material adverse

effect on our business, results of operations and financial condition.

Our failure to comply with certain environmental, health and safety regulations could adversely affect our business.

The storage, distribution and transportation of some of the products that we sell are subject to a variety of federal and state environmental regulations. In addition, our manufacturing

facilities are similarly subject to federal, state and local environmental laws. We are also subject to operational, health and safety laws and regulations. Our failure to comply with these laws and regulations could cause a disruption in our

business, an inability to maintain our manufacturing resources, and additional and potentially significant remedial costs and damages, fines, sanctions or other legal consequences that could have a material adverse effect on our business, results

of operations and financial condition.

Imposition of significant tariffs on imports into the U.S., could have a material adverse effect on our business.

We are required to purchase all our cigarette papers, cigarette tubes and cigarette injector machines under the Distribution Agreements from the supplier in France. Additionally, a substantial

portion of our Creative Distribution Solutions products are sourced from China. In 2018, the U.S. imposed significant additional tariffs on certain goods imported from outside the U.S. by executive administrative action, and these tariffs remain

in place. These additional tariffs apply to a significant portion of our Creative Distribution Solutions products and may result in increased prices for our customers and in turn, reduced demand where customers are unable to absorb the increased

prices or successfully pass them onto the end-user. Future administrations could impose additional tariffs. If the U.S. were to impose additional tariffs on goods we import, it is likely to make it more costly for us to import goods from other

countries. While the current or future administrations may have a desire to repeal some or all of these tariffs no assurance can be given that they will do so. As a result, our business, financial condition and results of operations could be

materially adversely affected.

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The scientific community has not yet studied extensively the long-term health effects of certain substances contained in some of our products.

Electronic cigarettes, vaporizers and many of our Creative Distribution Solutions products were recently developed and therefore the scientific community has not had a sufficient period of time

to study the long-term health effects of their use. Currently, there is no way of knowing whether these products are safe for their intended use. If the scientific community were to determine conclusively that use of any or all of these products

poses long-term health risks, market demand for these products and their use could materially decline. Such a determination could also lead to litigation and significant regulation. Loss of demand for our product, product liability claims and

increased regulation stemming from unfavorable scientific studies on these products could have a material adverse effect on our business, results of operations and financial condition.

We are subject to significant product liability litigation.

The tobacco industry has experienced, and continues to experience, significant product liability litigation. Most tobacco liability lawsuits have been brought against manufacturers and sellers

of cigarettes by individual plaintiffs, often participating on a class-action basis, for injuries allegedly caused by cigarette smoking or by exposure to cigarette smoke. However, several lawsuits have also been brought against manufacturers and

sellers of smokeless products for injuries to health allegedly caused by use of smokeless products. In addition to the risks to our business, results of operations and financial condition resulting from adverse results in any such action, ongoing

litigation may divert management’s attention and resources, which could have an impact on our business and operations. There can be no assurance that we will not sustain losses in connection with such lawsuits and that such losses will not have a

material adverse effect on our business, results of operations and financial condition.

In addition to current and potential future claims related to our core tobacco products, we are subject to several lawsuits alleging personal injuries resulting from malfunctioning vaporizer

devices and may be subject to claims in the future relating to our other Creative Distribution Solutions products. We are still evaluating these claims and the potential defenses to them. As a result of their relative novelty, electronic

cigarette and vaporizer product manufacturers and sellers have only recently become subject to litigation. We may see increasing litigation over Creative Distribution Solutions products or the regulation of our products, as the regulatory regimes

surrounding these products develop. For a description of current material litigation to which we or our subsidiaries are a party, see Item 3 “Legal Proceedings” and Note 18 “Contingencies” in Notes to the Consolidated Financial Statements in Part

II, Item 8 of this Annual Report on Form 10-K, for additional information.

As a result, we may face substantial costs due to increased product liability litigation relating to new regulations or other potential defects associated with Creative Distribution Solutions

products we ship, which could have a material adverse effect on our business, results of operations and financial condition.

Risks Related to Financial Results, Finances and Capital Structure

We have a substantial amount of indebtedness that could affect our financial condition.

As of December 31, 2023, we had $250.0 million in aggregate principal amount of our 5.625% senior secured notes due 2026 (the “Senior Secured Notes”) outstanding and $118.5 million in aggregate

principal amount outstanding under our 2.50% Convertible Senior Notes due July 15, 2024 (the “Convertible Senior Notes”). We also have the ability to borrow up to $75.0 million under our new asset-backed revolving credit facility entered into in

November 2023 (the “2023 ABL Facility”) under which only letters of credit of $1.4 million were outstanding as of December 31, 2023. We intend to apply a portion of the proceeds of the 2023 ABL Facility to repay a portion of the Convertible

Senior Notes at maturity in July 2024. The 2023 ABL Facility bears interest at a floating rate. If we cannot generate sufficient cash flow from operations to service our debt, we may need to further refinance our debt, dispose of assets or issue

equity to obtain necessary funds. We do not know whether we will be able to do any of this on a timely basis or on terms satisfactory to us or at all.

Our substantial amount of indebtedness could limit our ability to:

• make future acquisitions or pursue other business opportunities;

• react in an extended economic downturn;

• pay dividends; and

• repurchase stock.

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The terms of the agreement governing our indebtedness may restrict our current and future operations, which would adversely affect our ability to respond to changes in our

business and to manage our operations.

The indenture governing the Senior Secured Notes and our 2023 ABL Facility each contain, and any future indebtedness of ours would likely contain, a number of restrictive covenants that impose

significant operating and financial restrictions on us, including restrictions on our ability to, among other things:

• incur additional debt, disqualified stock and preferred stock;

• pay dividends and make other restricted payments;

• create liens;

• make investments and acquisitions;

• engage in sales of assets and subsidiary stock;

• enter into sale-leaseback transactions;

• enter into transactions with affiliates; and

Our 2023 ABL Facility also requires us to maintain certain financial ratios under certain limited circumstances. A failure by us to comply with the covenants or financial ratios in our debt

instruments could result in an event of default under the facility, which could adversely affect our ability to respond to changes in our business and manage our operations. In the event of any default under our debt instruments, the lenders

under the facility could elect to declare all amounts outstanding under such instruments to be due and payable and require us to apply all of our available cash to repay these amounts. If the indebtedness under one of our debt instruments were to

be accelerated, it could cause an event of default and/or a cross-acceleration of our obligations under our other debt instruments and there can be no assurance that our assets would be sufficient to repay this indebtedness in full, which could

have a material adverse effect on our business, results of operations, and financial condition. Further, in light of the recent increases in interest rates, it is more expensive for us to borrow under the floating rate in our 2023 ABL Facility

than it was historically for us to borrow under our previous revolving credit facility.

If we fail to establish and maintain proper and effective internal control over financial reporting, our operating results and our ability to operate our business could be

harmed.

Section 404 of the Sarbanes-Oxley Act of 2002 requires that we establish and maintain internal control over financial reporting, and we are also required to establish disclosure controls and

procedures under applicable SEC rules. An effective internal control environment is necessary to enable us to produce reliable financial reports and is an important component of our efforts to prevent and detect financial reporting errors and

fraud. Management is required to provide an annual assessment on the effectiveness of our internal control over financial reporting and our independent registered public accounting firm is required to attest to the effectiveness of our internal

control over financial reporting. Our and our auditor’s testing may reveal deficiencies in our internal control over financial reporting that are deemed to be material weaknesses and render our internal control over financial reporting

ineffective. In 2021 management concluded that we had two material weaknesses in our internal control over financial reporting. As noted below, management concluded, during this year’s assessment, that we had one material weakness in our internal

control over financial reporting, which is a material weakness that remains in existence from 2022 which the Company is continuing to remediate. No assurance can be given that we won’t discover additional material weaknesses in the future. We

have incurred and we expect to continue to incur substantial accounting and auditing expense and expend significant management time in complying with the requirements of Section 404, including the requirement to have such controls tested by our

independent registered public accounting firm. While an effective internal control environment is necessary to enable us to produce reliable financial statements and is an important component of our efforts to prevent and detect financial

reporting errors and fraud, disclosure controls and internal control over financial reporting are generally not capable of preventing or detecting all financial reporting errors and all fraud. A control system, no matter how well-designed and

operated, is designed to reduce rather than eliminate the risk of material misstatements in our financial statements. There are inherent limitations on the effectiveness of internal controls, including collusion, management override and failure

in human judgment. A control system can provide only reasonable, not absolute, assurance of achieving the desired control objectives and the design of a control system must reflect the fact that resource constraints exist.

If we are not able to comply with the requirements of Section 404, or if we or our independent registered public accounting firm identify deficiencies in our internal control over financial

reporting that are deemed to be material weaknesses:

• the market price of our stock could decline;

• we could fail to meet our financial reporting obligations; and

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We identified a material weakness in our internal control over financial reporting which, if not remediated appropriately or in a timely manner, could result in loss of

investor confidence and adversely impact our stock price.

A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our

annual or interim consolidated financial statements will not be prevented or detected on a timely basis.

In connection with the preparation of our consolidated financial statements, management identified a material weakness in internal control related to ineffective information technology general

controls (“ITGCs”) in the areas of user access and program change-management over certain IT systems that support the Company’s financial reporting processes. See Part II, Item 9A of this Annual Report on Form 10-K for additional information.

The material weakness remains unremediated as of December 31, 2023 and as a result, management concluded that our internal control over financial reporting was not effective as of December 31,

2023. Our remediation measures will result in additional technology, new personnel, the creation of training programs and other expenses. If we are unable to remediate the material weakness, or are otherwise unable to maintain effective internal

control over financial reporting or disclosure controls and procedures, our ability to record, process and report financial information accurately, and to prepare financial statements within required time periods, could be adversely affected,

which could subject us to litigation or investigations requiring management resources and payment of legal and other expenses, negatively affect investor confidence in our financial statements and in turn, adversely impact our stock price.

Risks Related to our Common Stock

Our certificate of incorporation and bylaws, as well as Delaware law and certain regulations, could discourage or prohibit acquisition bids or merger proposals, which may

adversely affect the market price of our common stock.

Our certificate of incorporation authorizes our board of directors to issue preferred stock without stockholder approval. If our board of directors elects to issue preferred stock, it could be

more difficult for a third party to acquire us. In addition, some provisions of our certificate of incorporation, bylaws and applicable law could make it more difficult for a third party to acquire control of us, even if the change of control

would be beneficial to our stockholders, including:

• limitations on the removal of directors;

• limitations on the ability of our stockholders to call special meetings;

• limitations on stockholder action by written consent;

Our certificate of incorporation limits the ownership of our common stock by individuals and entities that are Restricted Investors. These restrictions may affect the

liquidity of our common stock and may result in Restricted Investors being required to sell or redeem their shares at a loss or relinquish their voting, dividend and distribution rights.

For so long as we or one of our subsidiaries is party to any of the Distribution Agreements, our certificate of incorporation will limit the ownership of our common stock by any “Restricted

Investor” to 14.9% of our outstanding common stock and shares convertible or exchangeable therefor (including our non-voting common stock) (the “Permitted Percentage”). A “Restricted Investor” is defined as: (i) any entity that directly or

indirectly manufactures, sells, markets, distributes or otherwise promotes cigarette paper booklets, filter tubes, injector machines or filter tips in the U.S., the District of Columbia, the territories, possessions and military bases of the U.S.

and the Dominion of Canada (a “RTI Competitor”), (ii) any entity that owns more than a 20% equity interest in any RTI Competitor, or (iii) any person who serves as a director or officer of, or any entity that has the right to appoint an officer

or director of, any RTI Competitor or of any entity that owns more than a 20% equity interest in any RTI Competitor (each, a “Restricted Investor”). Our certificate of incorporation further provides that any issuance or transfer of shares to a

Restricted Investor in excess of the Permitted Percentage will be ineffective as against us and that neither we nor our transfer agent will register the issuance or transfer of shares or be required to recognize the transferee or owner as a

holder of our common stock for any purpose except to exercise our remedies described below. Any shares in excess of the Permitted Percentage in the hands of a Restricted Investor will not have any voting or dividend rights and are subject to

redemption by us in our discretion. The liquidity or market value of the shares of our common stock may be adversely impacted by such transfer restrictions.

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As a result of the above provisions, a proposed transferee of our common stock that is a Restricted Investor may not receive any return on its investment in shares it purchases or owns, as the

case may be, and it may sustain a loss. We are entitled to redeem all or any portion of such shares acquired by a Restricted Investor in excess of the Permitted Percentage (“Excess Shares”) at a redemption price based on a fair market value

formula that is set forth in our certificate of incorporation, which may be paid in any form, including cash or promissory notes, at our discretion. Excess Shares not yet redeemed will not be accorded any voting, dividend or distribution rights

while they constitute Excess Shares. As a result of these provisions, a stockholder who is a Restricted Investor may be required to sell its shares of our common stock at an undesirable time or price and may not receive any return on its

investment in such shares. However, we may not be able to redeem Excess Shares for cash because our operations may not have generated sufficient excess cash flow to fund the redemption and we may incur additional indebtedness to fund all or a

portion of such redemption, in which case our financial condition may be materially weakened.

Our certificate of incorporation permits us to require that owners of any shares of our common stock provide certification of their status as a Restricted Investor. In the event that a person

does not submit such documentation, our certificate of incorporation provides us with certain remedies, including the suspension of the payment of dividends and distributions with respect to shares held by such person and deposit of any such

dividends and distributions into an escrow account. As a result of non-compliance with these provisions, an owner of the shares of our common stock may lose significant rights associated with those shares.

Although our certificate of incorporation contains the above provisions intended to assure compliance with the restrictions on ownership of our common stock by Restricted Investors, we may not

be successful in monitoring or enforcing the provisions. A failure to enforce or otherwise maintain compliance could lead RTI to exercise its termination rights under the agreements, which would have a material and adverse effect on the Company’s

financial position and its results of operations.

In addition to the risks described above, the foregoing restrictions could delay, defer or prevent a transaction or change in control that might involve a premium price for our common stock or

that might otherwise be in the best interest of our stockholders.

Future sales of our common stock in the public market could reduce our stock price, and any additional capital raised by us through the sale of equity or convertible

securities may dilute our stockholders.

We may sell additional shares of common stock in public or private offerings and may also sell securities convertible to common stock, such as the Convertible Senior Notes. We may also be

required to issue common stock and conversion of our Convertible Senior Notes at the exercise or vesting of certain awards. See Note 13, “Notes Payable and Long-Term Debt,” of our Notes to Consolidated Financial Statements in Part II, Item 8 of

this Annual Report on Form 10-K for further discussion.

We cannot predict the size of future issuances of our common stock or securities convertible into common stock or the effect, if any, that future issuances and sales of shares of our common

stock will have on the market price of our common stock. Sales of substantial amounts of our common stock (including shares issued in connection with an acquisition), or the perception that such sales could occur, may adversely affect prevailing

market prices of our common stock.

We may issue preferred stock whose terms could adversely affect the voting power or value of our common stock.

Our certificate of incorporation authorizes us to issue, without the approval of our stockholders, one or more classes or series of preferred stock having such designations, preferences,

limitations and relative rights, including preferences over our common stock respecting dividends and distributions, as our board of directors may determine. The terms of one or more classes or series of preferred stock could adversely impact the

voting power or value of our common stock. For example, we might grant holders of preferred stock the right to elect some number of our directors in all events or on the happening of specified events or the right to veto specified transactions.

Similarly, the repurchase or redemption rights or liquidation preferences we might assign to holders of preferred stock could affect the residual value of the common stock.

General Risks

Our business may be damaged by events outside of our or our suppliers’ control, such as the impact of epidemics, political upheavals, or natural disasters.

We have manufacturing operations in Tennessee and Kentucky. Additionally, we have critical suppliers of raw materials and finished products in other regions of the U.S. and in other countries.

Events may impact our ability to manufacture products or prevent critical suppliers from performing their obligations to us, through no fault of any party. Examples of such events could include the effect of epidemics; political upheavals

including violent changes in government, regional conflicts, such as the war in Ukraine, and the reaction of the governments throughout the world to those conflicts such as the implementation of sanctions, widespread labor unrest, or breakdowns

in civil order; and natural disasters, such as hurricanes, tornados, earthquakes or floods. In December 2023, a third-party warehouse in Tennessee used to store some of the Company’s leaf tobacco incurred significant tornado damage including

damage to the Company’s leaf tobacco, which resulted in us recording a $15.2 million inventory reserve related to our leaf tobacco inventory. If such events were to occur or reoccur and disrupt our manufacturing capabilities or supply

arrangements, there can be no assurance that we could quickly remedy the impact and there could be a material adverse impact on our business, results of operations, and financial condition.

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Additionally, current macroeconomic conditions including high inflation, high gas prices and rising interest rates have caused and may continue to cause delays to supply chain and commercial

markets, which limit access to, and increase the cost of, raw materials and services. Furthermore, challenging economic conditions can create the risk that our suppliers, distributors, logistics providers or other third-party partners suffer

financial or operational difficulties, which may impact their ability to provide us with or distribute finished product or raw materials and services in a timely manner or at all. Any such delay or distribution challenges could have a material

adverse impact on our business, results of operations and financial conditions.

Climate change may have an adverse impact on our business and results of operations.

Our operations may be impacted by adverse weather patterns or other natural disasters, such as hurricanes, earthquakes, floods, fires, tornadoes, tsunamis, typhoons and volcanic eruptions.

While we seek to mitigate our business risks associated with climate change by seeking business partners, including within our supply chain, that are committed to operating in ways that protect the environment or mitigate environmental impacts,

we recognize that there are inherent climate-related risks wherever business is conducted. Our operations may be vulnerable to the adverse effects of climate change, which are predicted to increase the frequency and severity of weather events and

other natural cycles such as wildfires and droughts. For instance, if a hurricane or tornado were to shut down one of our facilities, our operations could be severely impacted. Such events have the potential to disrupt our operations, cause

manufacturing facility closures, disrupt the business of our third-party suppliers and impact our customers, all of which may cause us to suffer losses and additional costs to maintain or resume operations.

Reliance on information technology means a significant disruption could affect our communications and operations.

We increasingly rely on information technology systems for our internal communications, controls, reporting and relations with customers and suppliers and information technology is becoming a

significantly important tool for our sales staff. Our marketing and distribution strategy are dependent upon our ability to closely monitor consumer and market trends on a highly specified level, for which we are reliant on our highly

sophisticated data tracking systems, which are susceptible to disruption or failure. In addition, our reliance on information technology exposes us to cyber-security risks, which could have a material adverse effect on our ability to compete. We

expect our use of data to increase, including through the use of analytics, and the continued use of AI and machine learning solutions. In engaging in these data-related activities, we rely on our own technology systems and software, and those of

third-party vendors. These data-related activities are vulnerable to potential disruption or failure.

Security and privacy breaches, including increasingly prevalent and sophisticated cyberattacks, may expose us to liability, cause us to lose customers or may disrupt our relationships and

ongoing transactions with other entities with whom we contract throughout our supply chain. The failure of our information systems to function as intended, or the penetration by outside parties’ intent on disrupting business processes, could

result in significant costs, loss of revenue, assets or personal or other sensitive data and reputational harm.

Additionally, in connection with the preparation of our consolidated financial statements, management identified a material weakness in internal control related to ineffective ITGCs in the

areas of user access and program change-management over certain IT systems that support the Company’s financial reporting processes. See Part II, Item 9A of this Annual Report on Form 10-K for additional information. In the event we are unable to

remediate the material weakness, or are otherwise unable to maintain effective internal control over financial reporting or disclosure controls and procedures, our ability to record, process and report financial information accurately, and to

prepare financial statements within required time periods, could be adversely affected, which could subject us to litigation or investigations requiring management resources and payment of legal and other expenses, negatively affect investor

confidence in our financial statements and, in turn, adversely impact our stock price.

Security and privacy breaches may expose us to liability and cause us to lose customers.

Federal and state laws require us to safeguard our wholesalers’, retailers’ and consumers’ financial information, including credit information. Although we have established security procedures

to protect against identity theft and the theft of our customers’ financial information, our security and testing measures may not prevent security breaches. We have been in the past and may again in the future be subject to cyberattacks,

including attacks that have resulted in the theft of customer financial information, such as credit card information; however, no cyberattack we have suffered to date has resulted in material liability to us. Companies have been increasingly

subject to a wide variety of cybersecurity attacks, hacking, phishing, malware, ransomware and other attempts to gain unauthorized access to systems or data. These attacks have become increasingly sophisticated over time and may be conducted or

“sponsored” by nation states with significant resources. The rapid evolution and increased adoption of AI technology and other evolving technology may also increase the prevalence and impact of cyber-attacks and might also intensify our

cybersecurity risk.

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We cannot guarantee that a future breach would not result in material liability or otherwise harm our business. In the event of any such breach, we may be required to notify governmental

authorities or consumers under breach disclosure laws, indemnify consumers or other third parties for losses resulting from the breach, and expend resources investigating and remediating any vulnerabilities that contributed to the occurrence of

the breach. Typically, we rely on encryption and authentication technology licensed from third parties to enhance transmission security of confidential information in relation to financial and other sensitive information that we have on file.

Advances in computer capabilities, new discoveries in the field of cryptography, inadequate facility security or other developments may result in a compromise or breach of the technology used by us to protect customer data. Any compromise of our

security, even a security breach that does not result in a material liability, could harm our reputation and therefore, our business and financial condition. In addition, a party who is able to circumvent our security measures or exploit

inadequacies in our security measures, could, among other effects, misappropriate proprietary information (including trade secrets), cause interruptions in our operations or expose customers and other entities with which we interact to computer

viruses or other disruptions. Actual or perceived vulnerabilities may lead to claims against us. While we maintain cyber errors and omissions insurance that covers certain cyber risks, our insurance coverage may be insufficient to cover all

claims or losses. To the extent the measures we have taken prove to be insufficient or inadequate, we may become subject to litigation or administrative sanctions, which could result in significant fines, penalties or damages and harm to our

reputation.

We may fail to manage our growth.

We have expanded over our history and intend to grow in the future. We acquired the Stoker’s® brand in 2003 and have continued to develop it through the introduction of new products, such as moist snuff. Our acquisition of the Vapor Beast® brand in 2016 accelerated our entry into non-traditional retail channels while the 2018 acquisition of IVG added a top B2C platform which enhanced our marketing and selling of proprietary and third-party vapor products to

adult consumers. The acquisition of certain tobacco assets and distribution rights from Durfort and BluntWrap USA secured long-term control of our Zig-Zag MYO cigar wrap products and provided us access to a portfolio of tobacco products with

significant strategic value, and the acquisition of certain tobacco assets from Unitabac expanded our capabilities in the growing cigar market. However, any future growth will place additional demands on our resources, and we cannot be sure we

will be able to manage our growth effectively. If we are unable to manage our growth while maintaining the quality of our products and profit margins, or if new systems that we implement to assist in managing our growth do not produce the

expected benefits, our business, financial position, results of operations and cash flows could be adversely affected. We may not be able to support, financially or otherwise, future growth, or hire, train, motivate and manage the required

personnel. Our failure to manage growth effectively could also limit our ability to achieve our goals as they relate to streamlined sales, marketing and distribution operations and the ability to achieve certain financial metrics.

We may fail to successfully integrate our acquisitions or otherwise be unable to benefit from pursuing acquisitions.

We believe there are meaningful opportunities to grow through acquisitions and joint ventures across all OTP and adjacent product categories and we expect to continue a strategy of selectively

identifying and acquiring businesses with complementary products. We may be unable to identify, negotiate, and complete suitable acquisition opportunities on reasonable terms. There can be no assurance that any business acquired by us will be

successfully integrated with our operations or prove to be profitable to us. We may incur future liabilities related to acquisitions. Should any of the following problems, or others, occur as a result of our acquisition strategy, the impact could

be material:

• difficulties integrating information systems;

• the potential loss of key employees of acquired companies;

• the diversion of management attention from existing operations

We are subject to fluctuations in our results that make it difficult to track trends and develop strategies in the short-term.

In response to competitor actions and pricing pressures, we have engaged in significant use of promotional and sales incentives. We regularly review the results of our promotional spending

activities and adjust our promotional spending programs in an effort to maintain our competitive position. Accordingly, unit sales volume and sales promotion costs in any period are not necessarily indicative of sales and costs that may be

realized in subsequent periods. Additionally, promotional activity significantly increases net sales in the month in which it is initiated, and net sales are adversely impacted in the month after a promotion. Accordingly, based upon the timing of

our marketing and promotional initiatives, we have and may continue to experience significant variability in our results, which could affect our ability to formulate strategies that allow us to maintain our market presence across volatile

periods. If our fluctuations obscure our ability to track important trends in our key markets, it may have a material adverse effect on our business, results of operations and financial condition.

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We are subject to the risks of exchange rate fluctuations.

Currency movements and suppliers’ price increases relating to premium cigarette papers and cigarette tubes are the primary factors affecting our cost of sales. These products are purchased

under the Distribution Agreements and the License Agreements, and we make payments in euros. Thus, we bear certain foreign exchange rate risk for certain of our inventory purchases. In addition, as part of our strategy, we have begun strategic