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Is Turning Point Brands the Best Pure Play Bet on Nicotine Pouches? (With Fabio from Capital Mindset) $TPB
01:00:44
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- [00:00]
Fabio
Foreign.
- [00:05]
Ryan Henderson
Welcome to Chitchat Stocks. On this show, hosts Ryan Henderson and Brett Shafer analyze businesses and riff on the world of investing. As a quick reminder, Chitchat Stocks is a CCM Media Group podcast. Anything discussed on Chitchat Stocks by Ryan, Brett or any other podcast guest is not formal advice or recommendation. Now please enjoy this episode.
- [00:33]
Brett Schaefer
Welcome into Chit Chat Stocks, a podcast to help you find your next great investment. My name is Brett Schaefer and today I am joined by Fabio from Capital Mindset and founding partner of Fraxinus Capital Management. Capital Mindset is a YouTube channel and as the name implies, Fraxiness Capital Management is an investment fund that Fabio and the team has recently started. Fabio has been on the show before. We've discussed undiscovered assets. We've also discussed some stuff off the show that's been done quite well at an interesting 2025. A lot of what I would describe if any listener hasn't listened to Fabio before any of the Capital Mindset team but has listened to Jim Gillies on the show, it's similar in that regard. Looking for small cap, hidden gems, undiscovered, maybe wide moat businesses, some stuff that's off the investors radar. Not going to be talked about on cnbc, not going to talked about on Bloomberg. But when you look at some of these companies, their performance, while it's not going to be as sexy of a name as Nvidia, the performance can be just as good over the long term. So Fabio, this is a long introduction. You're a recurring guest. Today we are talking a specific company in the nicotine and tobacco space called Turning Point Brands. This has been a listener recommendation, but first let me have you introduce yourself. Talk about Capital Mindset or Fraxis Capital Management, wherever you want to introduce yourself.
- [02:02]
Fabio
Yep, as you said. So I'm, I'm, I started Capital Mindset way back when now before COVID and all that and the discussions around there have kind of formulated into a crowdsourcing community for different ideas and then from that over the course of time naturally developed Fraxness, which is an investment fund that myself and a few other partners have started and the name itself actually comes from because I get this question a lot, lot. It's like where does the name come from? It's Latin for ash tree and the term ash tree is important to us because it's a reminder of our greatest mistake action. I think it's very important to ground yourself in that. Not to get too much into that episode, but it wasn't thankfully a Catastrophic mistake, but nonetheless our greatest mistake. And we wanted to take that sort of comedic reminder because one of our members in Capital Mindset, who's obsessed with trees, he calculated the monetary loss of that mistake in a short that was calculated in numerical terms of ash trees. And so we took that and named the fund after that mistake. And we were talking about this off camera. It was a short that ended up working, but it was horrifyingly scary at one point. So the company's bankrupt now, Sonder. I'll say the name because it's not. Can't affect anything, but in terms of like, position sizing and making sure that, you know you have the right risk management, it's a lesson nonetheless, because at any given point in time, when something moves up like that against you. Yeah, times can be a bit weary. But I want to also disclose that the stock in question we're discussing today is a position within the fund. And so we could change that position at any point in time in the future after this episode. But I'm. I can say I'm very bullish, this company.
- [03:58]
Brett Schaefer
All right, that's a great introduction. For anyone that wants any more information specifically on Capital Mindset or Fraxing's Capital Management, you can contact Fabio or I'll have links for that in the show notes. But today we are focused on turning point brands for the listeners. Ticker is tpb, if you want to do any research while you're listening yourself. The name isn't well known. It's kind of just a made up corporate name. But let's talk about the history of the company, the brands they own right now. Because for anyone that follows the nicotine or smoking or cigar chewing tobacco space, these are well known. At least their legacy portfolio is some well known portfolio brands that have stood the test of time.
- [04:40]
Fabio
Yeah. So a lot of people might know them for the Zigzag brand and a few of the other, you know, legacy brands. But the Zigzag brand stands out for a lot of folks. They don't actually own the brand. It's more of like a licensing agreement that they have with Zigzag. And that's what we'll get into the later in this episode is not the exciting part of this business, although it's more like this cash cow now. The chewing tobacco business is still growing at a decent pace and there is potentiality for the Zigzag brand to kind of pivot into these new verticals with a certain product that may or may not, you know, change its schedulization that I will refrain from mentioning my name just in case. However, that's sort of like not where the crux of the thesis really lies, the history of the company. If you actually go back and look at the stock, you know, it seemed to have this, you know, massive trajectory upwards after its ipo, followed by this nice consolidation and sell off, and then followed again by this new rapid ascendancy to where we are today. So what happened back then? Well, back in the olden days, you know, this is a fairly new, fresh company as far as standards of being public. We had the whole craze around vaping and so they had this massive growth category in vaping. And I'm sure we're going to get into the different differences between pouches and the similarities, pouches and vaping and the risk profile that's there. Because I think one of the things we should highlight, and we are going to highlight in this episode is of course, the risks. Because there's all the, you know, we can talk all day and every day about everything amazing about this company, but there are risks involved, things that are not very clear, that are obvious to happen, but could happen and we want to watch out for but the vaping. And, you know, that's kind of foreshadowing to what is to come. There was a massive overreaction, you could say, to what happened with vaping illegal products in particular. And then that had a massive impact on both, you know, this company and every other company involved in vaping. I mean, you remember the name Juul and what Altria paid for Juul, of course, that it looks like, and at the time was argued to be a very poor acquisition. And at this point in time, you know, we're not really, as investors in this business thinking about the vaping segment at all of being anything of note. So that's kind of the short history of this company. You got these legacy brands that, you know, they're. Some of them are growing, some of them are declining a little bit. For the Zigzag brand, there's been a bit of a push and pull with different new sort of wrappers coming on the market with, you know, kind of competing for space in that product that we won't mention the exact name but could be rescheduled, et cetera. And so Zigzag has kind of put itself adjacent to that. Maybe purposefully or unpurposefully, it doesn't matter. And that other partnerships that they're trying to form to recapture some of that market may or may not Pan out. So that's kind of just this extra, you know, source of growth that may happen.
- [07:47]
Brett Schaefer
Okay, that's interesting. And I guess before we dive into the nicotine pouches, what really inspired this was someone, a listener of the show, going through the numbers of what they could do with the near shoring of their manufacturing. We're going to talk about the next first one fall. I guess I didn't even notice anymore that they have vaping as part of their portfolio. Or did they get rid of that? Because on their website we're doing some basic research before this episode. I kind of. And reading through their annual reports, I didn't notice much. Or did they sell the vaping part of the business or do they still own them but just not advertise that to the investment community?
- [08:23]
Fabio
No, they've been in the process of divestitures and in the most recent earnings call, they've actually discussed, and I'm going to paraphrase what the management said, they're continuously looking at their portfolio to look at what they and sort of get rid of it. What they feel like is a distraction. When we heard that, we thought, you know, perhaps they're thinking about, you know, even some of these other, like the zigzag business as a potentiality. That's how, you know, no clear names are mentioned. And I, to be honest, I'd be surprised if they did that. But it shows you that the management is looking at, you know, what is a distraction versus what is the focus which most of the conversation today is going to be on the focus of the business currently. And thankfully the management is focused on, on this very attractive segment which is the pouches.
- [09:10]
Brett Schaefer
Okay, let's just start out with this question for turning point brands today. For anyone for a time, step here. Stock prices right around a hundred dollars a share. What is for you guys, the high level thesis.
- [09:28]
Fabio
So on a high level thesis, what we're looking at is a super cycle for or a super trend, a megatrend for a new consumer product. And this product is both addicting, very cheap to manufacture, very high margin. We have a lot of different tailwinds all acting at once. So we have the smoking cohort that traditional smokers. But what the industry is surprised by is this new cohort that's kind of coming in. People who have never tried nicotine products in the past, but are kind of looking at this as an alternative to some other substances that may help with concentration, focus, et cetera, clarity. I myself am not an avid consumer of these products, but I do Know, folks in my age group that do in fact consume nicotine products on a regular basis, varying degrees of concentrations and varied degrees of. In terms of consistency, I would say that one thing people need to appreciate here is like you, not only do you get the cohort of smokers, right, just to wrap it up, not only you get the cohort of smokers who might switch over to a less harmful form of consumption, but you also have this new cohort coming in and potentially getting introduced to the product and maybe not using other products out there in the market. So it's, it's not just taking or cannibalizing the smoker cohort. It's a growing category in it of its own. And that's why we're seeing in the numbers, why the growth trajectory of pouches is what it is at 30% CAGR at least through 2030.
- [11:10]
Brett Schaefer
And turning point brands. And this is something that some of our listeners have talked to us about as opposed to Philip Morris, Philip Morris International, which, you know, they have the largest brand in the United States in the space Zinn, and that's doing well for them. At least 2025 has been a bit bumpy and they've lost a little bit of market share. However, if you look at that business, Zinn is not that on their whole income statement. Zinn is a tiny part of that as part of the thesis year that Turning Point brands can be the largest. Like if you're going to invest in any of the nicotine players and you want exposure to pouches, Turning Point brands is your best bet for that. Because even today, as they're just kind of seeing an inflection in growth in their nicotine pouch business is still already a larger percentage of the business compared to what Zinn is at Philip Morris International.
- [12:03]
Fabio
Yeah, I actually think the whole basket, we're bullish. The whole basket. But because it, yes, Turning Point brands is the way to play the pouch thesis. All of the, these players are going to actually get a few benefits from this. Well, maybe not all of them. I am a little bit skeptical on Altria for few reasons, but bti, which has Velo plus and I have maybe a rant to get into with the, the marketing team at BTI because my goodness, I have no idea what they're doing over there. But the, the, overall, what we're seeing with the margin profile of these pouches is that they actually can be better than the legacy products. So there is an incentive for Philip Morris. And I know Philip Morris of course has certain goals set in mind of what they, you know, reach in terms of percentage of their sales coming from smokeless products. And so there is a monetary incentive. It's not that they're going to destroy their margins. In fact, they might even improve their margins. And as far as like a social stigma with pouches, there's much, far less a social stigma than there is with smoking. So for example, if you're out with friends and one of your friends may be using and you have no idea that they're using it at that given moment in time unless they tell you or you know, you kind of look into their mouth or something like that. But it's a much more discreet form of consumption. So with, with Philip Morris it is more so, you know, you could think of it as, you know, cannibalization in the longer term, but I don't think of it that way. I do think it's actually improving the whole product mix. And there will always be a group that, you know, continuously uses the smoking products. But to kind of wrap up there turning point brands is by far the best way and a pure play to play pouches.
- [13:56]
Brett Schaefer
Okay, and what are the two brands that they own? And I guess why two different brands? Not consolidating it into one option.
- [14:05]
Fabio
Yeah, so Fre and alp. ALP is a joint venture with Tucker Carlson. So it's a 5050 joint venture. They do not break out the difference in sales of each one. They only put it into one. Management discloses that that's part of the agreement. So they do not disclose, oh, these are ALP sales, these are FRE sales. They say these are the white pouch sales. The reasoning for the separation is two completely different marketing strategies. So ALP was always meant to be, at least in the start, a dtc. So direct to consumer product. Fre was meant to be more, you know, you find it in the store. You see this a lot in the website traffic data. So I'll share, you know, some of like the high level what we see in the website traffic data. So ALP consistent growth, especially picking up through August. So this entire and well there was a little bit of a decline from summer to August. So beginning of summer to the beginning of August, but then from August to the end of the year, consistent strong growth. And then on a one year basis, really solid growth. And you're seeing that, you know, of course Tucker Carlson is promoting it via his network brand, his televised brand. People watch him and he tells them, hey, this is the best product. So ALP serves that more kind of consumer that is following the person, is following the individual and in and of itself as a product is not too different in terms of where it ranks because we can talk about the ranking among consumers. So most of the consumer rankings I've seen for all of these products, Fre and Alps tends to always land in the S category. I will say Velo does land there as well oftentimes. But. But there is that marketing issue that I've kind of hinted at with Velo and Velo plus that a lot of the consumer cohort don't. You know, they haven't shaken their first bad impression with Velo even though Velo plus is the much more improved and the more dominant internationally versus Zen. A lot of people may have tried Velo and they don't particularly, you know, they don't associate Velo with being good even though Velo is different. But Fre and Alps tend to be consistently high ranking there and Fre is, you know, they'll market a different way. I'm sure you've seen maybe some of the funny advertisements with Fre and the founding fathers revolutionary attire, et cetera. So you know, that's sort of the distinct approach between the two. But ALP is now being more directed to the store model as well.
- [16:44]
Brett Schaefer
Interesting, interesting. And one again we'll talk about this near shoring now since it's kind of a one time opportunity. But it does relate especially with the branding being leaning towards, you know, conservative type stuff. They have their manufacturing I believe in India and you correct me if I'm wrong, if it's a different country, they want to switch back to the United States, I believe either for branding or for tariffs or for both. Why is this happening? When is it happening and how do you think it can impact the P and L? Because the numbers one of our listeners were giving. Again shout out to George for giving us a lot of details in our own substack chat. It seems like it could have quite a bit impact on per can profitability.
- [17:28]
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- [18:23]
Fabio
Oh yes. So from the tariff standpoint that's already impacting margins. So there's already a monetary motivation there. There's also the increasing capacity. They need to increase capacity especially as they pursue and I know there was a question on X about this, their international strategy. Very much so. The India production is going to be pushed to servicing international expansion. They've said as much when they're discussing that the increase in productivity or capacity is not to, oh, we're going to remove the India production, they're going to keep that, they want to expand capacity. And you're right. Right. You bring up a good point on the marketing standpoint. So a lot of their customer base that might actually be more resonating with them that it's made here in the United States, as far as the timeline goes, they expect approval for that in this first half of Q. Sorry, first half of 2026, I forgot to apologize to everyone that I am drinking tea and taking some Ricola because I'm still sick but I'm coming off it. So I apologize if I take a sip of tea or take a quick pause to clear my throat. But on, on the margin impact, what we're kind of expecting from this is that, you know, margins, gross margins risen closer to 60%. We think they're going to increase well past 60% after that as in terms of potentiality. So once more India production will more likely service international expansion while also backfilling any necessity for the US market. But the local production in the US market, once production ramps up fully, that's going to be pretty accretive to the, to the margin profile here. I also want to perhaps highlight this point because this wasn't a question but it is very important on this whole, pricing and margins, et cetera, this company has grown what they've grown without the discounting model. That's very important. So for those of you in business school now or you know, curious about this concept in marketing, discounting for growth is a strategy. It's a very valid strategy, but it's a double edged sword and can be very dangerous. If you discount for too long, you risk actually changing the perception. So some people might understand this concept or have experienced it themselves in their own lives where you price a product, maybe Even more expensive and it could be actually be a lower quality product. But the perception of the higher price actually changes the perception of the consumer at times. And then there's the effect of like okay, I'm trying to grow and I'm going to discount the product. And if you do it for too long, you might end up start to be perceived as the discount product even though your product might be superior. So doing it for too long can change or create that perception. And then when you increase your product back to normal, your product is still perceived as the discount product. And then someone looks at your product and says oh well you know, that one's $5 per can and that one's now back to five that they increased the price to $5 per can. The discount's gone. So I'm just going to get the premium product versus the you know, now no longer discounted product. I'm not saying the other players will do that but really who came in swinging here was BTI and Zinn is is reacting accordingly and also trying to discount the product to maintain market share. But in all that to kind of commend turning point is they've grown in that market which is very commendable. It shows that the product for the consumers who are consuming these cans, they, they do like the product and they're becoming more loyal. Which was a question we can get into I guess on loyalty.
- [22:04]
Brett Schaefer
Yes, I do want to hit brand loyalty later. Anyone can go look at their say press releases see that Just absolutely phenomenal growth they're getting out of nicotine pouches at the moment and using our I'll say shout out to Our sponsor Fiscal AI use our discount and link to get a 15% discount on any paid plan. Their gross profit margin is over the last 12 months 61 and this is blended across the entire company. 61% 24% on the operating margin. Once near shoring happens and I guess we get a larger if nicotine pouches keep growing, what could this turn into? Because I've seen estimates that contribution margin, you know, maybe that won't flow through to the bottom line but on pouches could be as high as 50% even 60% from some of the numbers that Zinn has talked about and when they were their own company as Swedish Match a few years ago.
- [23:00]
Fabio
No, exactly that that's the thing that maybe some people are missing on. So back to the margin question. It's these pouches are more profitable, not less than cigarettes for all of these companies. Again the basket we're bullish the basket again, maybe, except for Altria, but Philip Morris, bti, Turning Point brands, etc as a category, Imperial brands as a category. If you have, if you have a growing pouch business, we view it as incrementally positive for margins. And when you're looking at what this looks like at the end of it, it, you're going to have crazy software like margins more than software like margins. You know, we're maybe getting closer to, you know, maybe not as good but comparable within the same realm as like Visa, which is crazy for consumer, consumer product. And you get, you know, a lot of implied pricing power that we've seen with cigarettes over the past like 20 or 30 years. So even with volume declines, you can still have, you know, revenue growth, et cetera. But no, when you're looking at the current revenue mix for Turning Point brands, it's only sitting at about 30% as of the last report of revenue by the end of 2026. What I'm expecting in terms of sales for it to be roughly 250 million is like a middle of the ground case, maybe slightly more on the, on the bullish side. But I think they could actually even surpass that potentially. And that would bring the story, I think out a lot more because right now, again, we're talking about a business that drives only 30% of sales from the pouches. And I'm here sitting talking to you guys about, oh, pouches, Pouches, pouches. It's not a 100% revenue generated from pouches. One day in the near future it's going to be effectively the majority of the revenue mix. I'm pretty confident that as far as what we're seeing now and then with that we will see that margin expansion. So do expect when you're modeling this out, if pouches grows in terms of product mix, you do have to make those adjustments to margins and then you'll see how the valuation starts to look a little attractive, but little, little better.
- [25:23]
Brett Schaefer
Yeah. And the trailing numbers, it might not look, you know, screen that well at the moment, especially if you don't. The legacy businesses aren't growing that quickly.
- [25:33]
Fabio
No.
- [25:34]
Brett Schaefer
And I want to talk about again, brand loyalty. We'll talk about the Zen shortage, how that kind of your insight into what happened with some of the brands in the United States. The first question I have specifically for the pouch brands is why 2025? Why was 2025 the year that nicotine pouch growth took off for Turning Point brands? Because they had, I believe, these products 2024, 2023, maybe, maybe not that long ago. But what was the reason? Was it all the relationship with Carlson? Was it, you know, why, why now are they experiencing just triple digit growth?
- [26:11]
Fabio
Turning point brands in 2024 was the meaningful launch of Alpine. So you see that for example in the website traffic data. The data starts in November of 2024. And then, you know, we obviously have through, through today, but November 2024 is when we see the initial measure of people, you know, visiting and saying, oh, what is this product? That, that's the introduction. So they went from having no sales and so law of small numbers, basically no sales in 2024 to now having what they have now, which I think they guided for finishing the year in the upper end of like 130 million for 2025. So you know, when you're growing, is.
- [26:57]
Brett Schaefer
That both of, is that both of the brands for, for 130 million?
- [27:01]
Fabio
Yes, because they don't break out the difference. Gotcha.
- [27:05]
Brett Schaefer
Sorry. And when did Free, just for the listener, when did Free, or I don't know how to say it, Frey, Free Fre get launched? When, when did that brand begin meaningfully?
- [27:18]
Fabio
Around the same time.
- [27:19]
Brett Schaefer
Okay, okay. So this is a really new business for them.
- [27:22]
Fabio
Yes, it is a very new business. If you were buying this, you knew of the intent, effort, perhaps even depending on how close you were with the company that even the brands that were going to be, you know, introduced or pushed. But when you were buying this at 20 bucks a share in that range, you were rewarded heavily for taking on this risk of a business that did not exist. Buying it now you have this like, okay, there's this track record, there's these products that are real tangible. I can go try them out, I can see what people say about them. But if you, if, you know, go back to where it was trading at 20 bucks a share, you had a bunch of these legacy brands that are, you know, okay, yes, not, not the, the worst margin. Some of it's growing, but you know, not, not at what we're seeing in the pouches segment. And it was trading at a, you know, single digit multiple. So you were heavily rewarded because the business completely transformed and the future with that completely transformed, barring anything that, you know, kind of knocks it down from here. So.
- [28:28]
Brett Schaefer
All right, well, I think that leads into. And it's good perspective because I honestly that was a miss on my part. I thought these brands were around for longer and that they were just reinvigorated in 2025. But one thing that was interesting about the sector in 2025 was the fact that we saw this was kind of a test for their brand loyalty was the Zinn shortage, where they ran out at convenience stores. There were supply shortages out there. People were either forced to quit or go to other brands. What data did you see with that? Did people come back to Zen was their brand loyalty in these nicotine pouches? And how do you think about that in relation to the durability of growth for ALP for turning point brands to nicotine pouch products?
- [29:20]
Fabio
I wanted to clarify. The FRAE brand is older, but, you know, because you weren't wrong. It's. They did reinvigorate. It's. The reinvigoration happened in 2024. So the sales growth, I believe off the top of my head, it's like, I believe it's before 2020, FRE was officially launched, but it was kind of.
- [29:40]
Brett Schaefer
Just stagnant, not doing much.
- [29:41]
Fabio
Okay, correct, correct. And 2024, the tail end of 2024 was that, you know, reinvigoration on marketing, et cetera. And it really picked up and it took a while for like, Zen was the category introducer, the introduction and grew the market. And then that brought a lot of people into the, oh, what other options are there? Right. And FRE started to take some. Some of that market as well. ALP had a huge advantage with, with Tokarlson, but. Yeah, sorry, I wanted to make that a clarification.
- [30:14]
Brett Schaefer
Okay, now let's talk any specifics around brand loyalty, Zen supply shortage, how that affected things and what do you think about. Because, I mean, look, listeners are going to come away and say, well, they've had a year of growth.
- [30:28]
Sponsor/Ad Voice
What.
- [30:29]
Brett Schaefer
What makes this a durable. What makes the nicotine pouches at tpp? Where's the durable growth going to come from? Where do you have the conviction in that?
- [30:38]
Sponsor/Ad Voice
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- [31:43]
Fabio
Yeah, so brand loyalty, depending on the cohort we're looking at. So if you're in the younger side, brand loyalty tends to be a little bit weaker. In the older cohort we tend to see a much more brand loyalty, we see more price sensitivity on the, on the younger cohort. So the younger court, and it's not by like a massive margin, but it's, it's a trend or it's, it's of statistical significance that we see the younger cohort be a little bit more price sensitive. They're just going to get with the cheapest one that gives them what they want. For the people that are, you know, their incomes are a little bit more stable, etc. Now we start to see a lot more brand loyalty. We do see, based off consumer reviews, a lot of different preferences for either moist pouches, some people like dry pouches, some people like the particular flavors. A big point of, of, you know, liking or disliking is how long the it lasts. And so we see again for Fre and out is that they consistently are hitting that S category. For many, you know, reviewers, a lot of reviewers who review all of the nicotine products, they tend to score them very highly. Again, not. And Velo plus also scores highly too. So for BTI shareholders and then Zyn is kind of mixed in terms of the different offerings they have. But Zinn has the majority market share in the US they're still going to be a leader regardless. Where I get the conviction with Fre and ALP is they really only have to capture for this investment to actually play out over the long term. A low single digit market share of that market. If they just capture just a tiny sliver of it, they don't have to be, you know, the clear number three. Right. If they are the clear number three and you know, you have like Zinn at like a 40, 50 and then BTI just under that and then FRE, the clear third, this would definitely be like a multibagger at that point. But not to excite people too much there, but the, when you're kind of looking at, you know, a range of scenarios, you can, you know, kind of map it around some matrix of that kind where you say, okay, what happens if they take 1% market share like they're insignificant. Do the numbers look like there what happens if they take what the management says? Like if you, if you just take management's word for it, they think they are going to be hitting you know into the double digits market share if they do that. This, this is extremely cheap where we're sitting at right now. Even though it's run up a lot, it's, it's still extremely cheap. This would easily, if you kind of just start running the numbers through it could easily go past $200 a share conservatively. If, if they hit you know, 15 or something like that, percent market share and if they somehow achieve higher than that, you know it starts to get ridiculous in terms of projections. But sticking through it, you know the numbers make a lot of sense if they're just hitting single digit percent market share and, and above. Right. If, if they decline into obscurity. Yeah, you're, you know that's with anything though, right?
- [35:03]
Brett Schaefer
Right, exactly, exactly. They don't have to be Coca Cola, they can be Dr. One of those other brand, they can be Dr. Pepper at the grocery store and it'll still do just fine. Let's get you know some rough numbers on this. As I look today, market cap is about as of this reporting around $2 billion. Looking at trailing numbers are about 20 times EBITDA. Although you can talk to me if there's any specifics about how trailing numbers are going to look wildly different because of whatever reason versus forward numbers. And they're at just under $400 million in last 12 months revenue for you. What makes the valuation attractive here specifically with the numbers like all right, could they be earning a billion dollars in revenue and $500 million in operating earnings roughly? Is that something you're looking at or what sort of expectations do you have valuation wise for this to work out at today's price?
- [35:59]
Fabio
So I see them growing well past what even sell side has them for next year. Sell side I think has them growing at under just under 20% for 2026 on aggregate. But I think that's kind of low balling it like I said. I think for the pouches segment I think we're going to see well past 200 million this year. So that would be a double, you know a straight double from their high end of this year's guide or sorry last year's guide was 130. So that would put 260 being a double from there I think they can hit 250 and is possible, I should say actually probable, very probable. And if they surpass that, well, but let's focus on maybe what, what could they maybe do on the conservative point? So I, I'd say conservatively, I think just, just under $200 million a year would be the conservative point. And even there, if we start to see the production start to ramp into Q2 of 2026, which when we get to risks, there is a risk with that and that could affect the stock price, but not necessarily the terminal value. In my view, just sentiment could shift because of some noise with moving the factory. Because it's not, you know, a simple process. Oh yeah, I just build a factory and get started. Delays are common, things happen and all of that could affect the share price. But just if in theory, you know, we start to see that ramp up, we'll start to see incremental margin improvement on the product produced here in the United States. Assuming there are no, you know, hiccups, then, you know, you start to play with those numbers that those, the sales projections and you start to see the bottom line pick up, up quite nicely and you're no longer trading at, you know, an elevated multiple or what is perceived as an elevated multiple. That's why for any investment, I always tell people it's, it's, you know, the PE is not what matters. It's all relative. The PE tells you it's a one dimensional view of a stock. There's okay, I would totally buy a stock trading at 50 times earnings if you told me the growth is, you know, somehow, let's say you knew for certain it was going to grow 30% CAGR for five years.
- [38:20]
Sponsor/Ad Voice
Years.
- [38:20]
Fabio
I'd say 50 is not that unreasonable for that stock. But you know, how do you know it's going to grow 30% CAGR for five years? So all that to be said is, you know, for at least when we get down to the numbers, when we're modeling this out, I think just focusing on one year from now, 250, very possible, I'd be surprised if they honestly hit below 200. And very well, they could surpass my 250 figure on sales for white pouches.
- [38:55]
Brett Schaefer
Yeah. And I will add that for anyone that looks at PE ratios, trailing ratios is the stock price. Well, your returns have nothing to do with what they earned in the past is going to be entirely based on what they earn in the future. And that's what I think Fabio is looking at here. He's trying to estimate what the next few years are going to be. And this is a company that's in a very dynamic spot. There's a lot of moving parts with, you know, the reshoring, what the growth rate's gonna be with the nicotine pouches, all of that, what the, what the end state margins are going to be. And it seems like there is a very nice opportunity here. You mentioned that no stock comes without risks. What are some of the risks you're looking at with TPB risk to nicotine pouches in general? I know that they are safer than vaping and cigarettes, allegedly. You know, I guess we'll let the health people decide that. But what are your thoughts there on just any risks to this business as we look at the stock at about a hundred dollars a share today? Yeah.
- [39:57]
Fabio
And I think this is the most important part of the discussion because there's a lot of reasons to say, yes, the stock is going higher, but where, how do we lose money in the trade? And I think there's a few risks that could drive the share price lower. But don't destroy the thesis. And there's a few that could actually materially harm the thesis. So for one, I, I hinted at, I'll go in order of how I, you know, try to hint at this early in the episode, but flavors, so flavors right now, you know, we're seeing a bunch of flavor releases from these businesses. And what we saw with the vaping businesses is that, hey, there was a crackdown on flavors because of the perception it, you know, markets towards people who are underage. And that in and of itself is definitely a risk for the business, if not perception wise. It. Does it destroy the business? No, it does not. But it could severely harm the perception of the business. And so as an investor, you could experience a sustained drawdown if you buy, you know, at this price or some price close to here, and it happens tomorrow we were having this conversation and a month from now they start cracking down on flavors. That could happen. Or the flavor bans or crackdowns could happen in the future. It's just something to watch out for. But doesn't, doesn't destroy the business. Another risk that could impact this. And I saw this question being brought up and it's absolutely a risk to watch out for. But I put this at a lower risk. And that's of course, the MGO's. So they do have, they have applied, right? So that doesn't mean they've been approved. And so at any point in time in the future, we could see the fda, they start handing out denials. This could put them right back to the drawing board and the way they circumnavigate this but that doesn't mean, you know, you're going to have a fun time with the share price is that they have to maybe look at the formula and start to mimic it or more so closely match some competitors and, and how they've, they've designed it and there's no really, that's more of an execution problem at that point. And you know, it introduces a lot of risk that some investors may not be comfortable with. Does that destroy the business? Well, it could actually have an impact materially. So that's one to keep an eye out for sure. Because if they, you know, with any execution risk now you're introducing, you know, like the potential that the execution is very poor and they can't get the product back out into the market. And if without the, the pouch business, the you, the, the stock itself doesn't make too much sense here. So everything really hinges on the pouch business and then the other risk and you know, with, with anything health related. Nicotine itself as a, as a product is still damaging for cardiovascular health. So it's, it's not, you know, you don't have to worry about the lungs. But most, most users of cigarettes, they, they die of heart attack. They don't die of, you know, lung cancer, but people think of the lungs when they think of smoking. And you know, nicotine itself being administered in this way is, is very, it's very efficient administration of nicotine. And so you are getting a more direct, you know, dosage of it. And so yes, there's obviously the, you know, potential for crackdown if they perceive it to be like a problem with, related to like heart health, et cetera. But you know, will that happen? I don't know. Like I said, there's a less of a stigma with pouches than there is with smoking. You tech, there's a bunch of other not, not just related to heart alongside with cigarette smoking. So they might be perceived for the time being as like, oh well we'll promote this because we just want people to get off of smoking because there's a bunch of other things that smoking can cause that you know, pouches may not, may not cause. But like I said, the heart problem is you can't get around that. So let me.
- [44:10]
Brett Schaefer
No, no, I think, yeah, yeah, we'll let the doctors give the actual recommendations when. Let me try to give a straw man argument because I'm not necessarily sure I agree with this and I don't think I do. But you mentioned earlier the rise and somewhat fall of vaping in the United States is kind of a viral category, especially the juul hype back almost 10 years ago at this point, maybe five to 10 years ago and it's still used today, but it's not used as much anymore. And we've had this proliferation of these illegal devices which might be very specific to that category. I guess my strawman argument would be why doesn't this happen to nicotine pouches? Why is this a secular grower and durable and vaping is not. If you regularly listen to chit chat stocks, then we know you love analyzing individual companies. We do too. That is why I, Brett Schaefer, co host of the show, decided to start writing the Emerging Moats stock research service. Emerging Moats produces regular stock research reports on companies with emerging competitive advantages, regular updates on stocks I own and on my watch list, and has full transparency to my portfolio transactions and returns. I cover under the radar. Emerging moat companies with prior research reports on Oscar Health, Kraken Robotics, the real brokerage and much, much more. Emails will be sent out on a weekly basis. Explore the service today and find your next great stock by going to emerging modes.com the link will be in the show notes.
- [45:45]
Fabio
So on a few fronts. So vaping itself socially can be stigmatized because it's a very visible activity. So I use a vape, everyone can see I'm doing a vape. So there is a social element to it and we have to keep an eye on that. As far as like, like it's not something you ignore in consumption trends. So if it becomes something that is viewed as socially negative by more and more people, then as a trend goes, and that's, you know, if you think about the average consumer for vaping, when you hit mass market, it has to be not a social stigma.
- [46:25]
Brett Schaefer
Right.
- [46:26]
Fabio
Vaping itself also came with the, you could argue, very bad marketing from the illegal vapes. You know, it's not that no one does it. I don't want to imply that by any stretch, but you see it far less than you did before. Anecdotally and statistically we don't see it as much as we did before the growth. No longer is there. Pouches, by contrast, is far more discreet. It's far more personable. Right. If I'm, if I'm doing a pouch right now, you wouldn't know I'm not. But you wouldn't know if you're sitting next to a stranger and they're using a pouch, you wouldn't know otherwise unless they told you or again, you're kind of that weirdo that looks in their mouth. But otherwise it's not so much a thing that you can easily see and sort of feel awkward or ashamed of per se. And then. And vaping additionally with the, with like the bad reputation it got, we saw a lot of the scares with mostly the illegal products, but, you know, the popcorn, lungs, et cetera, that came from these illegal Chinese vapes. And that I believe had a profound impact in especially, you know, people who are thinking about using it and saying, no, no, I don't, I don't want that. Even though for, you know, a reality standpoint, it's like, it's not like the ones that did everything by the book in terms of production from end to end. You were to suffer that same fate. And some, some folks do not like the actual. It's a passing of vapor through their lungs. So pouches, as far as consumption is, is fairly easy to utilize. And it's not the, the same sort of like breathless feelings is not there. You're just putting something in your mouth for, you know, disclosure. I've sampled these products to just see, okay, what is, you know, a user going to feel or sample. And of course, by the way, if you are not a user and you use this for the first time, it does impact you quite a bit. So don't recommend it if you're, you know, trying to do something that day. But as far as, like, simplicity, it's, you know, pretty, pretty simple to distribute and you're not feeling like you're occupying lung space with it. It's as far as, you know, smoking or vaping, it's, it's not as evasive.
- [48:58]
Brett Schaefer
You could also even argue that it could widen the entire category. For example, if people want to think about how. I know vaping has, has a female user base as well, but cigarettes for younger people at least this is maybe a bit anecdotal. There's not much female usage, at least in the United States. Whereas nicotine patches, you see a wider female audience, which could just double the market opportunity overnight.
- [49:24]
Fabio
Yep, yep. And it comes back down to that social stigma thing.
- [49:28]
Brett Schaefer
Exactly.
- [49:29]
Fabio
I think people, I'm, I'm highlighting that a lot and repeating a lot because that's a big reason for. I think the growth in pouches. And like we said, the vaping segment for Turning Point is small, negligible. And like I said, they're exploring divesting a lot of these assets. That's why you don't See it a lot in their market material when, when you listen to the calls, they didn't.
- [49:53]
Brett Schaefer
Want me to know they had it.
- [49:54]
Fabio
Yeah, yeah. So it, it might be something that you see fully exit. It could be something. So here's the. Maybe out of left field. What could happen from a positive view. So the new administration is looking at cracking down more and more on these illegal vapes. And that's a bullish point for British American Tobacco, which is the leader in vaping, but also turning point. So turning points business that could come back online in some meaningful way. And like I said, you know, for turning point any of these businesses, they don't have to be the largest player. They just have to capture a small market and you could see actual meaningful contribution to the bottom line. But yeah, for the, for the female segment, people also are sleeping on that fact as well that unlike other tobacco products, the female population is picking up pouches more meaningfully. Yep.
- [50:49]
Brett Schaefer
Especially, I mean chewing tobacco especially, I think probably is a zero female. I mean an extremely low female audience versus pouches. It's going to be. It's. It's just an entirely different ball game. I think that's all the questions I have for turning point brands. Unless you have anything else you think listeners should know about this company. I want to ask and just open the floor about, you know, your strategy at Frax Capital Management. Maybe an introduction of what you guys are doing over there.
- [51:16]
Fabio
Oh, of course, I'd be happy to. So to wrap up Turning Point, you know it, I view it as the pure play to invest in pouches. Again, how I view the investment is I'm laser focused and I think most of the viewers who are following the stock as well. You're laser focused on the pouches segment. I can share, you know, on a high level. The data suggesting from the website traffic for Alps is very strong. The sort of TAM that we can kind of look for with store distribution count, they have relationships of over 220,000 store outputs. And so we could kind of view the ALP +FRE brands expanding through those. We saw them recently. Alps enter California. We are seeing the expansion of relationship with 711 for both the fre and Alps. That's huge for them. And so as far as like a secular growth trend, this company has it. You do not need a number one market share contender probably. You simply need low single, not low, mid to low, honestly single digits for the current investment to work out and for you to get those very attractive. What Brett hinted at before, you know, like something like An Nvidia like returns. Yeah, if they hit the te market share especially you know, when you look at the category growth till 2030. Yes, you're going to, you're going to be very happy, you know, investing around these levels. But that being said to kind of wrap things up on the risk profiles like these are risks that I think are, you know, something to watch out for in 2026. We have the near shoring. Things can happen, hiccups can happen that could dampen the share price we could see out of at some point in the future. You do, you cannot time this some sort of governmental crackdown flavors, whether it be just nicotine pouches in general, anything like that could be problematic. But that being said, none of that occurs.
- [53:18]
Sponsor/Ad Voice
Right.
- [53:18]
Fabio
We have products that consistently land at the top of mind for the consumer of nicotine pouches. Again, like I said, all the reviews I typically see are S tier consistently. Like I haven't seen any of them hit as consistent S tier and then as far as the others go. So you know, it's more of a mixed bag depending on like personal preference. I have. I'm making it sound like no one dislikes F. Right. No. We did also kind of ask in our own network everyone who uses pouches like oh what do they think about these products? And I have one person who didn't like fre. Just one but if that's worth anything. And it was the only, only it was only anecdotal, negative. Other anecdotals were all positive and then non anecdotal evidence suggests positive, very positive. So there, there's, there's that because it's funny that the only negative one I found was, was an anecdotal one. But yeah, that that's why more or less I'm I would argue turning point brands at what is it now? $102 a share. Which I love that we're doing the episode today by the way, because it's down. I don't like recording an episode or pitching something when something's off. I hate that especially going into a pitch. I'm always hoping it goes down into the pitch, but I kind of view it as this ancillary medium sized position. Some of you out there who are watching might have it as your largest position, highest conviction play. For me, I'm just looking at those risks. At those risks sort of dematerialize. I view it as like something I can consistently buy into. And if I'm right on this, I do view this as a multi bagger opportunity. But on the topic of fraxness, well we run a long short fund. So Andrew, my partner as well as Michael, we typically view stocks in one of two buckets. We either view, you know, something with a misunderstood or secular growth trend and misunderstood is ideal or companies that are sort of these, you know, kind of treading water. Pardon? Well I won't say the naughty word but bad companies that will suspiciously underperform. Suspicious. That's a good word. Suspicious company companies. And my, my partner Andrew has came on and pitched Dave which is one of our major longs. So we do have a, you could say expertise in fintechs. Michael, our, our partner, he is literally an expert in fintechs and we tend to focus a lot on again these like misunderstood names that provide a lot of you know, either strong medium to, to near term upside because of that and kind of. Well, I don't believe Andrew has come on and pitched a firm because that one has been one that's been misunderstood by many investors.
- [56:36]
Brett Schaefer
Maybe we need to. Yeah, I don't think he has. Yeah, that could be a fun one.
- [56:40]
Fabio
That's definitely an episode because that one definitely has a perception of it and then perhaps more the reality. I'll leave off with one thing on just affirm and we'll move on. That super prime, it maintains a 20% credit balance so 20% of super prime, sorry. It maintains a credit balance and when you figure that out the affirm thesis starts to make a lot more sense because a lot of people just perceive it as like you know, these very bad loans. It's the worst kind of loans, et cetera some people say. But yeah, and we, we try not to be, you know, like too involved in anything that's too crowded. There's a lot of you know, following the crowd on, on X et cetera and I see that a lot. Turning Point Brands is a great example where it's less talked about. There, there is a following but it's far less talked about. You know you can kind of think of all the names on, on social media that everyone's discussing and then there's the names that people you know, tend to, to doubt will go higher because they've, they've already done so well and hold and we're happy to hold while you know, people think how much more can can this trend keep going and, and people underestimate the, the size potential. I think structurally mag 7 has, has shown investors that over the last decade or so. I remember the same discussions in 2017 saying these companies, how big can Google get.
- [58:12]
Brett Schaefer
Yeah, yeah, exactly.
- [58:13]
Fabio
Exactly. Yeah. I mean, you yourself, right, were. Well, you're, you're psychologically long. Google.
- [58:20]
Brett Schaefer
Exactly. Exactly. Yeah. The. Let's say it's worked out well, not so much portfolio, unfortunately, didn't own it in 2025, but I was at least on the podcast. I wanted to say it was getting a lot of hate up into the last few months, and I guess investors who've owned it have, you know, it's been a nice year for them.
- [58:43]
Fabio
Wonder what's changed. Was it maybe the price? Yeah. And we, we discussed off camera, of course, the, the short portfolio, the short strategy. We maintain a pretty extensive list of shorts. So our strategy, our approach is we take a pretty large basket of companies that we think are structural underperformers and we don't make any position too large, so that if any movement happens of insanity, it doesn't really affect us in any way. But as a basket, these names are going to probably underperform quite drastically over time. So that's generally how we look at things.
- [59:29]
Brett Schaefer
All right, well, I appreciate you coming on Fabio, especially with you dealing with the cough and the cold. Coming on a podcast to discuss the company for any listener. Again, links to Capital Mindset and any websites and stuff will be in the show notes. You can find Fabio on Twitter and you can ask us if anyone just has our contact. We'll get you in touch with him. But thank you once again for coming on discussing Turning Point Brands. Let me hit. Hit the disclosure and we'll get out of here. We are not financial advisors. Anything we say on the show is not formal advice or recommendation. Ryan I or any podcast guests may hold securities discussed in this podcast, may have held them in the past and may buy, sell, or hold them in the future. Thank you everyone for tuning in. We'll have lots of fun discussions coming up in 2026. We have some stuff maybe coming up on Uber. We have also also the weekly power hours going to keep discussing saying interesting things in the investing world. All right, I think that's going to do it. Thank you, everyone, and we'll see you next time.