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Financial report summary
?Risks
- Sales of tobacco products are generally expected to continue to decline.
- We depend on a small number of key third-party suppliers and producers for our products.
- We may be unable to identify or contract with new suppliers or producers in the event of a disruption to our supply of products.
- Our licenses to use certain brands and trademarks may be terminated or not renewed.
- We may not be successful in maintaining the consumer brand recognition and loyalty of our products.
- Our distribution efforts rely in part on our ability to leverage relationships with large retailers and national chains.
- We face intense competition and may fail to compete effectively.
- 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.
- Contamination of, or damage to, our products could adversely impact sales volume, market share and profitability.
- The market for certain of our products is subject to a great deal of uncertainty and is still evolving.
- Complications with the design or implementation of our new enterprise resource planning system could adversely impact our business and operations.
- We are subject to substantial and increasing regulation.
- Our products are regulated by the FDA, which has broad regulatory powers.
- Many of our products contain nicotine, which is considered to be a highly addictive substance.
- 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.
- Increases in tobacco-related taxes have been proposed or enacted and are likely to continue to be proposed or enacted in numerous jurisdictions.
- Some products we sell are subject to developing and unpredictable regulation.
- 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.
- If our Creative Distribution Solutions products become subject to increased taxes it could adversely affect our business.
- 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.
- We may be subject to increasing international control and regulation.
- Our failure to comply with certain environmental, health and safety regulations could adversely affect our business.
- Imposition of significant tariffs on imports into the U.S., could have a material adverse effect on our business.
- The scientific community has not yet studied extensively the long-term health effects of certain substances contained in some of our products.
- We are subject to significant product liability litigation.
- We have a substantial amount of indebtedness that could affect our financial condition.
- 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.
- 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.
- 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.
- 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 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.
- 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 issue preferred stock whose terms could adversely affect the voting power or value of our common stock.
- 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.
- Climate change may have an adverse impact on our business and results of operations.
- Reliance on information technology means a significant disruption could affect our communications and operations.
- Security and privacy breaches may expose us to liability and cause us to lose customers.
- We may fail to manage our growth.
- We may fail to successfully integrate our acquisitions or otherwise be unable to benefit from pursuing acquisitions.
- We are subject to fluctuations in our results that make it difficult to track trends and develop strategies in the short-term.
- We are subject to the risks of exchange rate fluctuations.
- Adverse U.S. and global economic conditions could negatively impact our business, prospects, results of operations, financial condition or cash flows.
- The departure of key management personnel and the failure to attract and retain talent could adversely affect our operations.
- Our intellectual property rights may be infringed or misappropriated.
- Third parties may claim that we infringe or misappropriate their intellectual property rights.
- We may fail to meet expectations relating to environmental, social and governance factors.
Management Discussion
- Net Sales. For the year ended December 31, 2023, overall net sales decreased to $405.4 million from $415.0 million for the year ended December 31, 2022, a decrease of $9.6 million or 2.3%. The decrease in net sales was primarily driven by decreased sales volume in the Creative Distribution Solutions segment.
- For the year ended December 31, 2023, net sales in the Zig-Zag Products segment decreased to $180.5 million from $190.4 million for the year ended December 31, 2022, a decrease of $9.9 million or 5.2%. The decrease in net sales was driven by anticipated declines in the U.S. rolling papers and wraps businesses which were impacted by a reduction of trade inventory, partially offset by growth in our Clipper products. Additionally, a discontinuation of an unprofitable product line negatively impacted Canadian sales by $4.9 million against the previous year.
- For the year ended December 31, 2023, net sales in the Stoker’s Products segment increased to $144.6 million from $130.8 million for the year ended December 31, 2022, an increase of $13.8 million or 10.5%. For the year ended December 31, 2023, Stoker’s Products volume increased 4.2% and price/mix increased 6.3%. The increase in net sales was driven primarily by double-digit growth of Stoker’s® MST. MST represented 68% of Stoker’s Products revenue in 2023, up from 66% for the same period in 2022.