$TPB: can Turning Point Brands be the third player in nicotine pouches? | Saberpoint Capital

0:01This episode is brought to you by Google Chrome. You think you know a browser, but Gemini and Chrome, that's new. It can help you with practically anything on the web, like restoring a vintage motorcycle from a 50-page restoration block, or finally break down that long article you've had open for weeks. Gemini and Chrome is here for it. Ready to make anything online make sense? There's no place like Chrome. Check responses set up required, compatibility and availability varies 18+.

0:27You're about to listen to the Yet Another Value Podcast. with your host, me, Andrew Walker. Today, we've got George Baxter from SabrePoint Capital on. We are going to be talking about Turning Point Brands. The ticker there is TPB. It is a stock with a really passionate follower of value investors, investors who are interested in nicotine pouches, all this sort of stuff. Really fascinating growth trajectory. Lots to talk about where we are going to talk about a lot of it. So rather than continue to ramble on, I'll get right to the podcast with George. But actually, I won't get right there because first, a word from our sponsor and our sponsor is Trata, T-R-A-T-A.com.

1:01I've been saying it for basically a year at this point. If you like this podcast, you will like Trata. Trata is two buy-siders who hop on and talk much like this podcast about a stock that, well, in this case, generally that they're both invested in. And they'll talk about the risk, the opportunities, all that sort of stuff that they're seeing when they think about the stock. And what I really like, it's two people who know the stock well. So they're not just saying, hey, I've got this at 10 times this year's number. Do you have this at 11? Do you think it's worth 12? Like, no, they're actually going on.

1:27They're saying, hey, what do you think about margin theory? What do you think about competitor acts doing this? What do you think about all this type of stuff? And look, I find it fascinating. My AI, one of the first things it does whenever I'm looking at a stock company, it goes and it looks at Trata and sees what people are saying about it. If you want to try it, here's a great way to try it. Trata has not one, but not one, not two, but a lot of transcripts on TPB, including two that were done in basically the past month. And they are offering a free trial, a free look at both of them. So you can follow the link in the show notes to see both of those transcripts, check them out.

2:01And when you like the product, and you will, you can go try the whole thing. So trata.com, T-R-A-T-A.com. Thanks for sponsors. And now onto the episode. All right. Hello, and welcome to the Yet Another Value Podcast. I'm your host, Andrew Walker. And with me today, I'm happy to have on for the first time, George Baxter from Saber Point Capital and fellow board game enthusiast, as anyone watching on YouTube can see behind him. George, how's it going? It's going pretty well. How are you doing? I'm doing well. I'm super excited to talk about the company we're going to talk about today. Followed them for a long time.

2:29Really excited to cover them. Before I get there, remind everyone, nothing on this podcast is investing advice. There's a full disclaimer at the end of the podcast and in the show notes if you want to go check that out. So George, the company we're going to talk about today is Turning Point Brands. The ticker there is TPB. I've followed them for 11 years. The story's really evolved. I know it's very popular among, there's a concentric circle of value investors and investors who like tobacco slash nicotine, and it's very popular among both. So I've rambled enough. I'll just turn it over to you.

2:59What is Turning Point Brands and why are you so interested in that? So like you, we've been following Turning Point Brands really since our inception. We just had our 10-year anniversary at Sabre Point. And Turning Point was literally one of the first few companies that we invested in. But Turning Point's really interesting. It has a pretty long history. I won't go into too much detail, but it was a distressed debt private company initially. And there's an investment fund that's kind of a hybrid private equity distressed debt slash hedge fund called Standard General. I'm just laughing because it's a trip down memory lane.

3:43Yes, yes, Yes, yes, yes, exactly. Yeah, you probably played the arbitrage between Standard General and Turning Point as we did way back in the day. But at the time, when we first looked at Turning Point, they had three different products they sold. They sold, or three different lines of products. They had zigzag rolling papers where they have a license, essentially, to distribute zigzag within the United States. they own some brands some related brands uh in the zigzag line that are uh they're they're labeled zigzag but their trade dress is a little bit different um and then they also have uh the stoker's moist snuff but they have older so beyond moist snuff they have older like chew Beach Nut is one of theirs.

4:37They're the market leader in Chew, which is a declining, a small declining market. And Moistuck is declining, but Stoker's has managed to grow despite that decline, given its position within the market. And then they had the vapor business. And the vapor business ran into a lot of trouble after Vapegate in 2019. I believe they were the largest online vapor distributor, DTC and B2B. And so they would distribute to a lot of different vape shops and was somewhat of a roll up. But you had Vapegate in 2019, where there were some high schoolers that actually died vaping because and at the time, if you dug hard enough, you could you You can find this, but most people didn't bother.

5:33They were vaping marijuana pods that were homemade that people put vitamin E in as, you know, as part of their ingredients. And the vitamin E clogged people's lungs because they couldn't breathe. But nonetheless, youth usage of vapor was massive. I want to say it was in the 30 percent plus range for high schoolers. and a series of laws and regulations were passed, which created the PMTA process, which is a pre-marketing authorization process that you have to have for any new nicotine product. And that's important because it plays into nicotine pouches and kind of the dynamics of what's going on today.

6:18But at the end of, I believe it was 2000 and 20, I want to say it was early, maybe it was early 2025. Turning Point deconsolidated their vapor business and put it into a JV that they own 49 % of and took that off of the books. But in early 2024, they really began their national launch of free, which was their first entry into the nicotine pouch market, which is really the exciting part of the story today. and later they entered into a JV, a 50-50 JV with Tucker Carlson to launch the Out brand, which is probably the fastest growing consumer product in the United States today, you know, of any size.

7:18That's a great background. So I guess if I was just fast forwarding to kind of today, so great background. Today, what you have is you've got Turning Points and they've got the legacy businesses which have value. I remember part of the thing at the time was, hey, ZigZag, these rolling papers, everything they've got. I mean, when they were a private company, they were like 7X levered. And you looked at that and then you looked at the stock and you're like, the stock's trading 6X and they throw off huge cash flows like they can handle this. So you've got that legacy business that has value. But the reason investors are here is the nicotine pouch business, right?

7:52And they've got FRE free. And then they've got the JV with Tucker Carlson. And nicotine pouches, you know, I think long time, anyone who's followed the markets has probably heard of at least Zinn, right? Zinn, nicotine pouch, that's the big boy in the room. But nicotine pouches is this massive growth business for tobacco. It's the first time tobacco and nicotine have had a growth business in a long time. And here you've got Turning Point with kind of two brands. And I think you're thinking, hey, Turning Point is a play on that growth? Is that kind of the right way to think about and frame it? Yes.

8:24I think like I got interested in turning point again. So we've been, we've been invested up really through, I want to say 2023. Um, in 20, in 2020, there was a huge bump in all of their businesses because everybody was stuck at home. So they had ordered their vape via the internet. They'd order, you know, more people sat at home and smoked marijuana. So they use more zigzag rolling papers. And, you know, Stoker's managed to do pretty well at that period as well. But there was a hangover that occurred as a result. The rolling paper business has a tendency to go through a stocking and destocking cycle because you can deliver a box of rolling papers to a retailer and that'll be enough inventory for them for half of a year.

9:17So it's a very slow turning, but high margin business. There's a lot of volatility in the infill associated with that. So you'll have, you know, long stretches where it looks like there's no growth. I think we're kind of going through that now. There's also some secular headwinds for that business. But anyway, we're talking about nicotine pouches. Why are nicotine pouches so important? Well, you know, if you think about nicotine and the consumption of nicotine, if you smoke cigarettes in today's society, for one, the health consequences are enormously bad. It's, you know, each year, according to the CDC, smoking related deaths actually exceed the peak that you had in COVID.

10:06It's like 280 ,000 people every year that die with some connection to smoking. So it is a very socially destructive product. But historically, cigarettes were actually the best product probably in history. if you look at stock performance over a 98 year period, there's not that many stocks that have been around that long, but one of them is Philip Morris, which now is broken up into Altria and Philip Morris International. But that, that stock, had you purchased it, you know, 98 years ago, you would have had a 16 and a half percent annual return, which is absolutely phenomenal. And the reason why is because it's addictive.

10:54people are brand loyal and it's very cheap to make uh so uh you know you have competitive barriers there with something that that's a very low low cost to manufacture product well what's interesting about nicotine pouches is they have the same type of characteristics very inexpensive to make uh very high margin uh there i believe with all nicotine products ultimately you do end up with brand loyalty. When they're in their early stages and when people first start using them, they tend to experiment more and certainly more casual users will experiment more. But if you become a habitual user, you tend to mentally associate the nicotine relief that you get with whatever product you're used to using.

11:47And therefore, it becomes very sticky at that point in time. And, you know, it's kind of like if you're a Coke drinker, there's a lot of Coke drinkers out there that won't drink Pepsi on one of them. You know, unlike other products where people switch around, nicotine has a tendency for people to attach to a certain formulation that they mentally associate with that relief of nicotine. And if there's a different formulation, then that becomes unsatisfying. So this market has grown from nothing really prior to COVID to today. It's about a six and a half billion dollar market. Right now, according to latest Nielsen data, the market's growing at about 22 percent.

12:42There are ebbs and flows in that growth. But I want to say on average for the last five years, it's been something like 37, 38 percent average annual growth. So it is an extremely rapidly growing category. And within that, Turning Point has managed within, you know, since they launched their nationally launched free in 2024 between free and out, you know, they've managed to take that from, you know, really nothing in their revenues to 48 % as of the last earnings report. So 48 % of their revenue now comes from nicotine pouch. Perfect. Okay. So I think this frames it nicely. So if I just hit to like broad strokes, there's two core pieces of this thesis.

13:33First, turning point and nicotine pouches are tobacco. And historically, tobacco, you know, you did the Philip Morris and everybody knows if you had invested in Philip Morris in 1970, then you're richer than Warren Buffett right now. Right. Like tobacco is what you're saying has been a great category to invest in for all the reasons you discuss. And you think nicotine pouches will follow those reasons. And then the second thing would be, hey, you know, we got to talk about turning point specifically versus the versus the other plays. And, you know, there have been companies that are in great industries.

14:05You know, I'm trying to I can't think of one off the top of my head, but companies that were in great industries. But are the Warren Buffett joke? Hey, everybody knew automobiles were going to be the future. But if you invested in automobiles, there were what, a thousand listed automobile companies in 1910s. Three of them made it out. Right. So I think you've got those two. those two overarching things. So let's dive into them. First on tobacco being a great category. I definitely hear you there, but I did an episode on hate. I think a lot of, especially small value investors look at hate and they look at Europe.

14:37And a lot of what I've heard from people doing hate, but I haven't used this, so I can't say I've got personal experience, but is that something about nicotine pouches is different and people are willing to switch between them, right? Because there's on one end you have coke or if you had a someone in your life who smoked cigarettes they were so brand loyal right if they smoked winston's and you hand them marlowe absolutely not right it's not the same but there are other things like tea people like to skip around between different tea flavors and stuff i think a lot of people have suggested to me that nicotine pouches are more like tea where hey today i might want to try the orange mango flavor or energy drinks is a great one, right?

15:16A lot of people will have a monster one day, a Red Bull the next day. So I guess my first thing is like, why are you so confident that people are going to kind of get super brand loyal here? Well, I'll say, I think there's a narrative, the one that I shared with you, that makes sense to me. It's consistent with my personal experience and others that I've observed, I think if you talk to someone who is a casual user, that casual user will, you know, they haven't quite, you know, gotten the addiction so deeply into their system. And there's differences in the way that the nicotine is released and things of that nature.

16:01And if you've if you've ever been a nicotine addict, it's kind of like being hungry, right? And I know personally, I try every single nicotine pouch that I find that comes onto the market. And some of them I recognize definitely as being better than others. But I personally almost always come back to using Alpenfree, Wintergreen, and Mint, because that's what I tend to associate with that relief, that satisfaction. And so I think that over time, you may have this experimental phase, but ultimately you tend to gravitate towards a particular brand. Now, I own Hape, and I do think that there is definitely an element of experimentation but it could also be a difference just as to how these things are distributed in Europe versus they in the United States you might it could be that if you go to Europe for instance they'll have shops in Switzerland which are just nicotine pouch shops and literally they'll have It looks like an iPhone store, right?

17:21With all these bins and all of these different displays of different nicotine pouches. We don't really have that in the United States. We have something similar for vape, but we don't have that for nicotine pouches. So I don't think, you know, and usually most of the distribution, the vast majority of the distribution in the United States goes through the convenience store channel. and I think based off of conversations that I've had with buyers like the buyers at Couchard you know 7-Eleven they you know you don't want to walk into a convenience store it's supposed to be convenient you walk in and you want to be able to make a decision make it quickly So they will tend to consolidate these brands down to a more limited number.

18:11Right. So usually you'll get, you know, if you think about cigarette brands, you know, really, there's probably six or seven brands that are really out there that are there that, you know, that that have room within that convenience channel. And that's their main point of distribution. So, you know, part of my reasoning is anecdotal. Perhaps there's cultural differences. Perhaps it's a difference in just distribution. I will say that it's certainly within HAPE's interest to promote the idea that, you know, people want to have a lot of selection because that's one of the things they can provide is a very broad selection that you can't get in a convenience store.

18:57But you could perhaps in Sweden. You know, the other thing in Sweden, I believe about a third of all sales are done online for nicotine patches. Conversely, in the United States, it's about 4%. It's crazy. When I talk to my friends who, as you know, if you do nicotine pouches, I mean, you're doing a lot of them per day. And when I talk to my friends, so many of them, you mentioned convenience stores, and even here in New York City, so many of them just go to the bodega and get the pouches. I'm like, you know, I know the Hape Bowl case. I've really looked at it. And I'm always like, guys, you just do Hape.

19:30And it would be like Amazon Prime. You would save tons of money. It would be on your doorstep every day. You wouldn't have to stop in the bodega and like wait in line. And they're like, no, I just like the C-Stars. And I don't know if that's just because it's early or what, but I'm just shocked it's not more than 4%. One buyer that I talked to about it said that it's part of, for one, we're a car culture here in the United States. So, you know, people, it becomes part of their habit. It's like getting their morning coffee, but it's weird because morning coffee needs to be fresh, right? So I kind of get the method to I go to the Starbucks and get the morning coffee, whereas nicotine vouchers, you buy it, maybe you pop one in your mouth.

20:08But, you know, it's there. If we think about it relative to cigarettes, you know, with cigarettes, everybody's always trying to quit. Right. And interestingly enough, even though you could get a better deal getting cartons, people don't buy cartons because they're like, OK, I'm going to go in. I'll buy a pack or two. This is the last one. I don't want to buy, you know, a whole bunch of them. Right. And if you're buying online, really, you know, usually there's a 70 or 75 dollar or 80 dollar limit. So you're going to have to buy, you know, 15 cans or so just to be able to push up over that limit, you know, to get the free shipping.

20:49Otherwise, you're paying eight dollars and it destroys any sort of, you know, for the shipping and destroys any sort of value that you may be saving, getting it cheaper online. Uh, so I wonder if part of it is just this, uh, carry over that we've had with cigarettes where, you know, people are always having, kind of having in the back of their minds. Like I'm doing this today, but I'm not necessarily committed to it. You know, I may want to get off of this at some point in time. So I don't want to have these things laying around with, you know, uh, multiple, multiple games. I'm not that way. Uh, we, we online all the time.

21:27and there's some other reasons we do that, but I won't go into it that help us get a little bit of information.

21:39But I do think that maybe that's a carryover and it is interesting. There's a lot of people that just won't buy online. I was just laughing because you said, the cigarette habits and they buy it and they're like, this is my last pack, which people who I know who've smoked, that is very much the mindset. Maybe it's because most of my friends who do nicotine pouches are single men who are still young-ish. But my friends who do nicotine pouches, I'm not sensing any, oh, this is my last nicotine pouch. I'm sensing a lot of, this is part of who I am. I do nicotine pouches. I'm curious though, Andrew, I would challenge you when you interact with those people, your friends that use nicotine pouches, how many of them do switch around and try a lot of different products?

22:23And if they do, I mean, for me, I wake up in the morning, I put a nicotine pouch in. I pretty much have a nicotine. I have one in right now. I mean, I'm always using a nicotine pouch unless I'm eating or sleeping. OK, so, you know, I'm just constantly using this. There's one of the reasons why this is such a great product, because the instances for usage like if I was smoking a cigarette, my wife would murder me. Right. Because I'm smoking inside. So I've got to go outside and then I'm a pariah. You know, people see me smoking and like, oh, that person makes bad life decisions. Now I can make bad life decisions and nobody knows it.

22:59But, you know, the health aspects are a huge reason why this is such a good product. But the convenience, I think, can't be understated. If you're on an airplane for four hours, you can't smoke a cigarette. You can't vape, but you can use a nicotine pouch. Right. If you're in an elevator, a movie theater, I mean, go across the working at your desk. And you cannot crack a beer at 11 a.m. if you're working on the choose your big bank desk. But you absolutely can toss in a nicotine pouch. And, you know, you couldn't if you said, hey, I just took a marijuana gummy or I went and hit some marijuana.

23:39People be like, what? You know, you're going to get fired, but you can. So it is very interesting thinking about that. But so I'm with you. Right. It is a growth business. It is a growth business with great characteristics and great tailwinds, obviously much healthier than smoking. So they ride the smoking adoption. Young people won't buy this. They've got a lot of business. I think this starts to bring us nicely into, just because something's a great business does not mean that the company works, right? There's going to be industry structure and everything. Selling a soft drink was a great business.

24:12But if you didn't invest in Coke or Pepsi, those took off. The other one's not so great. You mentioned cigarettes in the C-suite, right? In the convenience stores. And you said, hey, they kind of consolidated down to seven brands and there's limited shelf space. And while I do hear you, like part of the reason they consolidated down was there were these huge legal liabilities. There's a huge fixed cost. And if I look, you know, in my mental mind, if I look at a 7-Eleven and I think about energy drinks and energy drinks just kept coming to mind as I thought about this on both the good and the bad side.

24:40But I think of energy drinks. They've got eight different brands and they've got 15 different flavors of every energy drink, taking up a huge space. But I think about soft drinks. You know, it is Coke and Pepsi, but they've got multiple flavors of Coke and Pepsi. They have Dr. Pepper. They've got a 7-Eleven brand. So they're willing to stock a lot of these things. So I guess my first pushback to you on just the thing would be, because this starts to narrow it down to why TPB would be, hey, is there really going to be room for multiple? You were saying there's going to be limited. I'm worried there could be just kind of unlimited if everything's going through the C-suite side.

25:14According to the conversations I've had with the buyers, based off of their metrics, the velocity is higher when you have fewer brands. And a lot of that is because people come in and usually when you're coming into, you're feeding an addiction when you're buying a nicotine product. A Coke or something like that, you may be thirsty, right? and a lot of things are going to satisfy that need. But to meet that addiction, that's one of the things why you're literally going to the convenience store. That is the purpose. You may pick up a Coke or you may pick up something else, but that's where you're there.

25:54And maybe it's a Chinese menu effect where you have so many different things that people have a harder time finding what it is they want. It's harder for the clerk to find what they want. I've done hundreds of checks on these things and I can't tell you how many times the clerk has no clue what they're looking for. And they have a hard time, you know, going through all the different nicotine pouches to find the right one at these stores that have, you know, really a large selection. so um i i personally believe that over time we will narrow this down to basically one or two uh competitors that are not large big tobacco today and the big tobacco competitors and i think there's a space for those but uh there's not there's not room for for five or six right of the smaller players.

26:54You know, when I look at this, everybody remembers Philip Morris buying Swedish Match, everybody. Philip Morris bought Swedish Match. The big player is in, and then, what is it, Vell that has the other big player. Vell, yeah. Vell is British American Tobacco through Reynolds. And you're buying CPB and free and all, and you're basically saying, hey, you know, those big players are going to be big, and they're probably the dominant players, And there's going to be room for the third player, you know, the Dr. Pepper to the Coke and the Pepsi. I guess my question would be, why would it be TPB? Why be free and help?

27:30And then as I think about this, you know, were they just so well positioned? Because you mentioned regulation. I think we should start talking regulation at some point. These guys kind of had the foresight to get approved before the government really like put a pause on all of these authorizations. And now they've got 6 % market share or so. And I do wonder as the government, you know, they've said and there've been kicks and starts, but the government's going to be more receptive to rolling out these things. I do worry that as Zinn, you know, the legacy Zinn is I think is a very dry product. And I think Alpenfri are very moist.

28:05Zinn's got a new moist product coming out. As everybody starts rolling out moist products and the products improve and you kind of get the optionality in Sweden, like is there a place for Alp to hold on to this 5 % or 6 % market share? because I could see a world where everything goes to Zyn and Vell for a lot of reasons, or I could see a world where you kind of addressed it, where it fractures into 20 different brands. And I'm kind of worried that the world we're in is perfect for CPB, but as the PMTA gets restricted, we go to one of those other two worlds, and CPB isn't quite a winner there.

28:38So let's think about this for a second. So a big part of what big tobacco is, is regulatory capture and distribution. Exactly. Yes, yes, yes. And these changes are being stimulated by big tobacco, right? If it was the case and big tobacco, you would think they're moderate, you know, they're intelligent people, though. you know i think execution we could talk about some dumb things that have happened or at least my perception maybe i'm dumb uh but uh big tobacco has pushed for this liberalization and uh part of it is like you're saying they looked at what happened with vape where uh you had the pmta come in and if you're following the rules then you couldn't compete because you couldn't innovate, right?

29:35Any new product had to go through the PMTA process and it took years and you couldn't have flavors. Well, 70 to 80 % of all vape now is disposable Chinese flavored vapes that are completely illegal. They're black market products. I think, you know, they have to protect this market because this is the future for their businesses and they have to be able to have innovation with respect. So one of the reasons I really got excited about TPB when I first got involved, I tried all of the different nicotine pouches and I wasn't addicted by that at that time, but I tried all the different nicotine pouches and free was the best among all of them at the time.

30:21Later, Velo Plus came out and Velo, by the way, the first one was just, it was just sawdust in a little sachet uh horrible uh and and you could it almost tasted fake but velo plus came out and that's a very good product there's no question and they are uh in terms of dollar market share growth they're dominant they've gone from you know essentially like a two or three share under the old velo to a 20 share today um so they've just been stealing a tremendous amount of market share from Zen. It is a better product. There's no question about that in my mind than Zen was. And it is a moist product.

31:07Well, Velo launched at exactly the same time that Alp did. And Alp is the fastest growing on a percentage basis nicotine pouch among the ones that are of any size, of any real size. So, you know, they've managed to grow right alongside them. I've tried all of them. I've tried the new On, which is a moist pouch. And it's supposed to, you know, it's supposed to, their cell is kind of the feel. Most people feel like it's really weird, like they've got slime in their mouth or something. There are some that like it. There is the Zen Ultra that's been launched. And that's right now just getting into distribution.

31:53but if you look at that if you take Zen and Zen Ultra and add them together they're growing two percent year over year so most of what is happening with Zen Ultra to the extent that it's taking share it's taking share from Zen from the original Zen which is bad for Philip Morris because Zen is a premium product it's the most premium product it sells for substantially more than any of the others. And it's interesting. It is made, I think one of the reasons the market, you know, last year, I want to say the market grew something like 37%. I think one of the reasons why the market has slowed is because Zen has slowed.

32:33So last year, I think at the beginning of the year, I want to say Zen was something like 78 % share. Today, that's down to about 54%. And the reason why is because they, even though the market, you know, they're growing a little bit, the market is growing much faster. It's funny because that in many ways that supports your thesis, because if you just do the math, what's happening is the people who are like Zinn, even though it is an inferior product, the people like Zinn are probably sticking with Zinn and the newcomers are going with a superior product that very much supports your stickiness.

33:06And even if you bought into my straw man that, hey, there's competition coming, all this sort stuff well there's a big brand of people who are already pretty sticky on uh free and up and everything so well and i think another thing to recognize here to the extent that the pmta is opening up that's going to benefit the larger incumbents more than it's going to benefit the smaller players so we you know we talked a little about pmta the way it used to work If you had a tobacco-derived nicotine product, your PMTA had to have been filed prior to some date in 2020. If it was synthetic-derived, then it had to be before 2022.

33:53And then you were grandfathered with respect to enforcement. it. The FDA came out with new enforcement regulation in May of this year that said, if you file your PMTA and it has been accepted, meaning that it has enough scientific breadth that they feel like they could make a marketing order determination, then you can start marketing and selling your product into the market. and already you've seen British American tobacco start to sell flavored vape pods. Zen is going to sell a 1.5 milligram product and they've issued new flavors that have not received a marketing order and they did not have filings prior to those prior deadlines.

34:44the smaller players like sesh lucy joey juicehead um those players had an advantage in that they had filed prior to the deadline and they're almost all private equity backed the game plan for them the exit for the private equity or venture was that you go and you get into the large C stores, which only represent, you know, call it, it's roughly, it's roughly 30, like 32 % of all of the C stores that are out there are owned by operators that own 300 or more stores. You go and you pay your slotting fees, you get into the large C stores, you show consumer acceptance because the larger players couldn't innovate because they had to go through the PMTA process.

35:40If you had something that was resonating and taking share, they would buy your company, right? And integrate it into their suite. Well, now there's no reason for them to buy your company, right? Because they can go and file a new PMTA and do their own innovation and adopt whatever it is that you have that's resonating.

36:07So I think the door has been shut for a lot of these smaller players, and it's just a matter of time before they run out of money. So I think the way you're framing this is, hey, the industry with PMTA, with regulation opened up, the big boys are going to dominate. But we're in a TPB is in a nice position where there's always room for a third or fourth, right? the seven pluses are all too small and they're kind of dead right they're competing against now unleashed big people we kind of are in the nice place where yes we're never going to be able to outcompete zinn we're not going to be the largest brand but you know we're at five to six percent there's no reason we can't stay there or people who don't want to be zinn you know i'm a dr pepper drinker if you want to be a dr pepper drinker instead of a coke there's 10 of the market who does that and we're well positioned to take that five to ten percent and by the way the market as you said is growing strong double digits so you're just like kind of riding multiple waves there is that kind of the right way to frame it so there's a couple of things one those smaller players i don't i don't really view turning point as competing very much with the big players all if you talk to the buyers at the c stores they need to have something other than velo zen and on.

37:22They need to have some other products that they're selling because of the discounting cadence, right? So one of the things, there's going to be a certain customers, a certain percentage of customers that will always buy the cheapest product. And they always want to buy something on sale. The problem with the big tobacco is the cadence for those discounts. the cadence is set by Big Tobacco. They give you a calendar and they say, this is when we're going to go and we're going to sell on, you know, at a discount. Turning Point has had the flexibility. And I think some of the other smaller players can do this as well.

38:05They're like, you can determine the cadence of promotion, right? We'll give that to you. So it provides them and it relieves some of the competitive, You know, you really don't want an oligopoly that is going to be able to dictate terms to you. And with the cigarettes, they already have a lot of power because they'll go and they'll say, like, for instance, your rebates that you get for volume, that they're all tied together between cigarettes and the nicotine pouches vape, which the smaller players obviously can't do that. But these C-stores still want to have a portion of that back bar allocated to another player to give them flexibility and to give them a little bit more leverage with respect to the larger players.

38:54Turning Point fits that very well because one of the questions you're asking as a C-store buyer is, is this company going to be around? If you look at these venture back, they've got a cash burn and then they're done, right? They can try to raise another round, but that's less favorable today in the current regulatory environment than it was in the past because of the lack of an exit. And Turning Point has a sales force. You know, you want to be able to have and if you look at Altria, all of the big players have large sales forces. They'll have people that will come into the convenience store.

39:30They'll see out of stocks. They'll help with the merchandising, how things should be positioned, which helps improve sales. Well, Turning Point can offer that because they have their own sales force, which they've been growing. In 2024, they have 100 regional salespeople to support ZigZag and Stokers. Now, they're at about 260 on their way to about 320. And they think that will be enough for them to be able to support their national presence. Let me go to, let's start talking financials a little bit. So they reported Q2 earnings. Things are growing nicely here. I'm just eyeballing it. Revenue for Q2 up$116 million last year to$140 million this year.

40:16So they're growing very quickly, but earnings are actually going down, right? EBITDA is going to go from$120 million in 2025 to the midpoint of their guide right now is$75 million. So EBITDA is going down. Now there's a reason, right? They're investing into these hyper growth brands, free and all. So they would tell you we're making investments. They did a big TKO partnership. They're paying in Q2. I know there were a lot of slotting fees and stuff in Q2. So they're paying for growth. But I think a lot of people look at them investing this much into growth and are worried that they're kind of buying market share and investing, especially the TKO partnerships, I know there was a trotter call with a bull and a bear and the bear kept saying, hey, I wanted to like this, but that TKO partnership, I think it's 20 million a year.

41:02That is a big, big fixed cost for this company. So I think there's a lot of people who are worried they're buying the growth and kind of hoping that the economics justify it later. And it could be, you know, when you've got a legacy company, a company that's a legacy cash cow, a lot of people are used to looking at it through cash cow lens. And then when it becomes a growth company, there is a little bit of a turnover, you know, just look no further than Google. It used to be the best cashflow in business on the planet. Now they're getting to hyperscale or CapEx. Is that good or bad? Who knows?

41:31But there were a lot of people who were there for the cashflow who were looking and saying, wait, we're spending what on CapEx? So there might be a little bit of that here. I threw a lot out there. I'd love to hear your thoughts on that. So it's good. You know, we're getting into this year. I think TurningPoint's biggest flaw has been their lack of communication. They went into this year as an investment year. I was surprised. There's two things that there's a couple of things that happen. One, this year, they thought that they would have domestic manufacturing, which is huge. I thought that they would have it by Q1.

42:07It is yet to come to fruition. And that's largely tied to regulatory reasons. I can tell you that they have the equipment that's there in Louisville. And they have one line that's running and it's running to spec. But they have not started manufacturing domestically because they have been waiting to get a pre-MTA a marketing order and they're within this pilot program where both Philip Morris International and Altria have received marketing orders for their products in the pilot program. So Philip Morris and Altria are producing domestically U.S. And I think the gross margin is like 15 % better if you're domestic.

43:01Yes. Well, and it's actually so right now to produce a can for Turning Point, I estimate it costs about a dollar forty. Right. So they've got to pay about a dollar to they produce them all in India. They pay about a dollar to the to the domestic or to the to the co-packer in India per can. And then they've got to pay for air freight because it's all air freight. What? Because the pouches are moist, if you stick it on a ship for six weeks, there's a good chance they could dry out. Oh, interesting. Okay. Yeah. So it's all air freight. That adds somewhere in the neighborhood of 20 cents a can, 20 to 25 cents a can.

43:49It's elevated right now because of the war in Iran and what that has done to fuel prices. And then you have a 16 % tariff that's on top of that, right, because there's a tariff on Indian imported goods. So if they produced it domestically, that$1.40 would likely go down to about$0.65 and possibly lower. because they're contemplating using other machines that are more efficient. So in my mind, my question was going to be, hey, everyone gets the same benefit domestically. But I think what you're saying is these guys are actually operating with one hand tied behind their back because their competitors are already producing domestically.

44:34They're not. So you're just evening the cost structure out there. Okay, that's correct. And for them to be able, under the PMTA, you have to designate your manufacturing. and if you want to designate new manufacturing it has to be substantially equivalent to your old manufacturing which typically means like the same suppliers the same you know chemical consistency of every ingredient it becomes very difficult particularly when it's done in a foreign country but it's and if you go and amend your pmta prior to approval then it can be deemed to be a new PMTA, which puts you at the back of the line for review.

45:15So if they get their marketing order, then they can supplement, right? And once they supplement, then they can designate new manufacturing and that's a much easier process. So that was the holdup before, but what's exciting is under the new, and I think this is happening, you had a large increase in PMTA expense in the second quarter. It went from like a couple of hundred grand to over$3 million last quarter. I think they'd filed the new PMTA or they're in the process of filing a new PMTA. And once that PMTA has been accepted, they can start demanding manufacturing at that time. So I don't think it's a question of if, I think it's a question of when, and it could be, you know, it could be any day now, right?

46:08I mean, it could take a while. I mean, you still have to go through the process of the FDA getting back to you once you file. Since we don't know if necessarily they have filed yet, but I suspect that it's in process because they have to have studies that go and support the new filing. And of course, in that new filing, they would designate U.S. manufacturing. I think that that will happen probably at the latest in the second half of next year. But I think it's on the way. And I think that they were anticipating that they would have gotten a marketing order earlier, and they'd have that domestic manufacturing.

46:50And that would make up for a lot of the slotting fees. Now, the interesting thing about the slotting fees is when they're all bespoke, right? Every contract is different with every major C store owner. When you have slotting fees, typically you'll pay like a break, a break-in fee to get on the shelf just to be there. Yep. And that has been highly competitive because you had all of these VC backed players whose only strategy is to be in the large C stores. They don't have a regional sales force. If you look on LinkedIn, none of them have more than 50 employees and their sales force is maybe 10 people versus Turning Point that's got 260, right?

47:34And Turning Point is able to go into those independent single owner stores that are on the route for a guy who literally has product in the back of his car, right? And he comes in, checks on them, sells them free and out, where for the other smaller competitors, they've got to rely on Cormark and McLean. And when the salespeople for Cormark and McLean show up at the independent retailer, there's a whole array of products. Who knows if they even talk about your product when they're selling in there? So you don't have that interaction. But once we, and I'm getting to the slotting fees, once we get past a year, usually you get into a rebate situation.

48:28where there's a history of how the product is sold, assuming it has sold relatively well, then instead of paying on average, maybe$1 ,000,$1 ,200 per store, which is high, you're going to pay 50 cents a can. And if you look at the volumes for free, that probably costs you about$260 a year per store. For Alp, since Alp has about an 11 share in the stores where it's present, that's probably about$500 a year. But that's a significant difference from$1 ,000 to$1 ,200. So all, and we start annualizing those. Third quarter, we'll have some. And then fourth quarter, you'll have many more. And then when we get to the first and the second quarter next year, we will have annualized all of those big fees.

49:22And so I expect those to come down significantly, improving margin. Plus those break fees are coming down because the C stores are expanding their allocation to nicotine pouch. You can go and, you know, I used AI. I just said, read every major C store commentary about nicotine pouch. And they talked about adding shelf space because it's a higher margin product for them. They only get like a 10 % margin or 11 % margin for cigarettes where they're getting 25 30 per nicotine pouch plus they were getting these really high slotting fees from the smaller players uh but those i think when the smaller players now since they're weak and they really can't afford to keep doing this indefinitely they can't afford to pay as much the space has been increased and in some cases they're physically adding more fixtures to be able to sell more pouches in the back panel.

50:26Those fees, and the company will tell you this, those fees have started to come down. They came down this year versus 2025. And the new contracts are less than the contracts they were selling. They were they were using before. Plus, you know, we're we're probably halfway done with free as far as it's the stores where going to have to pay those contra revenues because they don't pay them in the, you know, the single owner stores and the independence. There's no, you know, there are no slotting fees and turning point has an advantage from a cost perspective relative to these smaller players because they have that regional sales force that's selling into those.

51:08And there's another advantage here as well, which should improve margins is that once you're ubiquitous and you're in 70 to 80 % of the major players, all the regional and independent C stores pretty much have to carry your product, right? Because customers expect it, right? Once you get into the point where it's a ubiquitous product and it's on every shelf, you're going to have customers coming in looking for it with these smaller competitors. You can imagine a salesperson going into a single owner shop and saying, you don't have free on your shelf. Well, 7-Eleven does. Circle K does. Across the street, you're going to have consumers coming in here expecting to see this product, and it's not going to be there.

51:57Let me hard switch. We've been going on with Sauer, and I feel silly asking it at this point, but I've still got a lot of questions, actually. But let's just talk valuation real quick, right? As you were talking, the stock is trading about$60 per share. The market cap is about$1.2 billion. I think net debt here is about$300 billion. So I don't think anybody would call us crazy if we said the EB here is about$1.5 billion. You can tell me if I was off on anything. No, no, no. Oh, actually, no, net debt, I'm not subtracting cash. So they're pretty much net debt neutral because they raised the stuff.

52:30About$1.25 billion EB. How do you think about stock at$60? We can just start there. How do you think about fair value here? So I think the legacy business is probably worth somewhere in the neighborhood of, call it$35 to$45 a share. Okay, so that's ZigZag and Stokers for the most part. So you think that covers 75 % of the market cap here, giving you free and out for$300 million-ish,$15 per share. And clearly, I think they're worth more than that. Yeah, and just to kind of give you to frame. So ALP is the big story. Like free is great. Free has done well. They've grown well, but they've they've really.

53:13And I will I will say there's efficacy to the short thesis that they're not getting great returns for their marketing spend. Marketing spends always difficult. And part of the problem they've had with free has just been recognition. A lot of people didn't even know what it was. Right. They've never seen it before. so they've been making a real effort to uh get visibility UFC was a big part of that um they have signed up a ton of different influencers to talk about free um and I think from brand from a brand recognition just knowing what that it's out there I think that's probably helpful but as far as getting a great roi on that that really remains to be seen and i think there's reason for skepticism with respect to free al has not just pause you on free real quick because i've got a lot of free is interesting you mentioned the ufc thing just you know the the one now you're painting a different market charge than this but the the bull case for this i keep coming back to is energy drinks, right?

54:24Where Coke and Pepsi failed in their efforts for energy drinks. And Monster and Celsius, now they're partnered and they use the Coke and Pepsi distribution, but Monster and Celsius and Red Bull had great success there. And when I think about that, those are younger male adjacent products. I guess Celsius, not quite, but a lot of the success came from alternative sports. Like, you know, energy drinks were a huge advertiser on UFC. And when I think about like, Like they're kind of, there's just a lot of similarities there where I say, hey, free takes a UFC advertising spot. It's got a different vibe.

54:59It's, they're going after the influencers and they're competing against tobacco, which I mean, Coke and Pepsi are marketing machines, but they're through traditional marketing. Tobacco hasn't had to market in the US in decades, right? So they're going after, free is going with very aggressive, very creative advertisements, and they're competing against guys who basically didn't need an advertising. but i just i find that framing fascinating that parallel story fascinating so i'll pause there and i really want to dive into alp uh because i think that's a fascinating piece of it as well so for yes there i mean you've had this moratorium essentially on advertising related to tobacco products and big tobacco is largely like i said they've become distribution and regulatory capture engines, right?

55:45They have better international relations to the State Department, right? I mean, they're powerful in terms of their ability to maneuver in the legal system. Turning Point has a bit of that. They've obviously been operating in this environment for many years. They have a very adept legal department. But Turning Point has been an innovative scrapper. They're not going to win on discounting. They're not going to win on scale, right? So they have had to rely on building brand. And I would argue ALP has been more successful in that endeavor than free. it had the natural advantage of the of tucker carlson which is huge he's probably the most widely watched conservative commentator uh and sales through conservative commentators oddly i mean they they're it's extremely lucrative like the tends tends to generate a lot of sales that they tell their viewers they should buy something that there's a good chance they're going to um but for free you know they so they they have been much more aggressive than traditional uh uh uh big tobacco uh but again they they don't really have the experience doing that in the past stokers i mean like you mentioned before this was a distressed company they spent no money right none i went and visited them in 2017 in their headquarters and it hadn't been renovated i think since the 1960s and if you wanted a coke you had to buy it in the vending machine right um you know and you know they're in their manufacturing they had a guy in the back who would take parts of old machines and put them together and fix new machines with these scraps.

57:50They were just very, very good at running with no money. That's a difficult transition to running into a situation where you're building a brand and you're having to spend a lot of money, right? Which is what I think there's growing pains that they're suffering right now. If you look at a lot of the free advertising, to me, and I'm trying to schedule a conversation with their head of marketing, I think it's good from the standpoint of getting people to recognize that it exists and also by the way getting more penetration into stores obviously satisfies that to some degree but what it what it struggles with is creating an identity I think free is kind of like what does it represent if you look at their advertising it's kind of all over the place a lot of it's kind of funny silly um which for me is not consistent with the intensity associated with the the uh tko partnership um i think it would be better if they had something similar to what you saw from under armor because it's supposed to be an intense brand like the logo is own your edge you know power feel flavor because they sold these higher nicotine strengths that was one of their distinguishing characteristics is that they had 12 and 15 nicotine strengths.

59:20So I think that their marketing message is somewhat muddled. They've spent a lot of money. And I think if you have something like the TKO partnership, which is not just Ultimate Fighting Championship, it's Formula Drift, which is really cool. um the national bowl writers association zoofo boxing and world's strongest man all of those things are about intensity right and i don't think that they've done a great job at communicating intensity uh and so you know personally the brand building the fact that like if i pick up an alp can people will look at me and they'll go oh that guy uses alp i know a little bit about this person because I know that Tucker Carlson, you know, he is a, uh, uh, an advocate of that brand.

1:00:13Can I, can I pause you there? Let me ask, cause we're going way over an hour and I have two, I'm sorry. We haven't even talked about the management. So I have a question on management and a question on Alp, and then I've got like a lot of other questions that we might have to save for another day, but let me start with the question on Alp. Cause you mentioned it, you pulled up, So, you know, ALP is a JV with Tucker Carlson. It is phenomenally successful, you know, so they don't disclose much of it. But if you look at their financials, I don't think I'm breaking news. They have a net income contributing to non-controlling interest.

1:00:44They have a JV with Tucker Carlson. If you, you know, half the earnings, that's the NCI there. Half the earnings are going to Tucker Carlson. Half the earnings are the same with them. It's responsible for, you know, in Q2, all of their net, more than all of their net income is the ALP business if the NCI split that I just told you is to be believed, right? So ALP is growing quickly. It's related with Tucker Carlson. Politics aside, you know, the history of celebrity endorsed brands like startup brands is not great for the company that partners with them for a lot of reasons. You know, the brand equity travels with Tucker.

1:01:17And even if you've got them really under contract, you know, every time that contract is up, he goes to you and he says, hey, I get more equity or else I go over to Philip Morris and you guys have this product and I start advertising. So it's like, just like all the economics tend to suck out to the celebrity over time. So they've got this partnership and, you know, they hit the ATM and I want to talk management and capital allocation in a little bit of the time we have left. They hit the ATM in Q2 pretty aggressively. And I think people were saying, Hey, this is them building up a war chest to go buy the Alba stakeout or to buy, you know, go from 50 % to 80 % or something, you know?

1:01:53And I worry about having their big growth brand, the big brand that's driving all the economics, driving a lot. I worry about it being partnered with a celebrity, basically, because I think the long term that puts you in a tough spot. So how do you think about the Alp and the Tucker Carlson relationship there? So I think initially Tucker Carlson was that there's like a core set of users of Alp that are very intense and very tied to Tucker Carlson. and that probably explained the first 12 months of success. I mean, he talked about it constantly on his podcast. But over time, I think they have managed to capture the spirit of Tucker Carlson in that he's a rebel.

1:02:38He has his own thoughts, that he is independent, irreverent, somewhat conservative, right, or conservative. And then they did the deal with Conor McGregor, who is also very controversial, very independent, very much a rebel. They've and I forget the name. There's a new there's a blogger that that writes about intensity and discipline. He's like a a known for bow hunting and for high intensity workouts. um they continue to focus on this archetype that is kind of the rebel archetype and that is the brand and they're moving not not necessarily moving away from tucker but diversifying beyond tucker with the brand with the type of people that they're associating with one of the brilliant things about alp and i think freeze marketing team could learn a lot from this is that alp focuses on personality and association, like the association of a person's personality and their traits with the traits of the brand.

1:03:57So I think, you know, Alp, there's no question Alp is a superstar. Free is quite good if you look at the growth. Yes, right now, given the headwinds that they have with slotting fees and marketing, which by the way, one of the things that is clear, management is not unaware of the spending. And that's a lever that they can pull relatively easily to reduce the marketing spend. And I think we'll see, or not necessarily reduce, but at least eliminate that marketing spend, which has been less efficient and focus more on the marketing spend that has been efficient, which I think we will see in the coming quarters.

1:04:43One of the nice things with Alp is if you're a clothing brand, if you're Under Armour and you've got Steph Curry and Steph Curry leaves, all the Steph Curry fans kind of leave, right? It doesn't have the attachment. If you're out and you've got Tucker Carlson or whoever and Tucker Carlson goes, well, as you argued earlier, the product is pretty addictive and I think the product might win out over the - Well, and here's something that anybody who uses the product knows. Alp and Free are the same product. there's no difference right the only difference is free looks like this and alp looks like this you know literally i think they take the free uh like you know they're making alp in the machine and they have the free cans running through them or at the alp cans running through the machine and then they don't switch out the product you know they you know they're making winter They just changed the label on it.

1:05:42HPNs, right? Let's end talking management here. Okay. And again, I can't believe we're going to go an hour and have an address. But so I think it's interesting here. Lots of stuff we can talk about with management, but we are recording this. Is it September 30th today? It is September 29th. September 21st. They announced that the CEO is leaving. The longtime CEO is leaving. Not a long time, but he's been there since I think 2022. two? Maybe I'm showing my age. I thought that was a long time. So the CEO is leaving. It says personal circumstances. Andy's quoted in the press release, which gives you some faith, but he's leaving pretty suddenly.

1:06:19And the executive chairman is taking over. And the executive chairman is a finance type. His background is working at Standard General, as you said. And then I would layer on to that overarching question, which is basically, what do you think about the management team as the right group? If you look historically, I was a little surprised their insider ownership isn't very high here pays pretty good uh the exec chair sold three million of stock at over 100 they hit the atm pretty hard in q2 you know just i guess i would just marry that into hey you now have a finance type who doesn't have a ton of stock here who's running the thing insider ownership isn't that great you know they have a history of repurchases when the stock's a lot lower and they have a history of insider selling and hitting the atm when, to be fair, the stock was in the triple digits, not the 60s.

1:07:07But I kind of look at all that and say, hey, you know, am I fully aligned? Are they kind of signaling, hey, we don't think the stock's that cheap? So I threw a lot out there. I'd love to just get you back. Yeah, so let's start with the ATM really quickly since it's related to ALP. They don't have enough money to buy ALP. Okay. ALP last quarter probably did, based off of our analysis, we think they did enough where if you just annualized last quarter, it's about$208 million worth of revenue. Okay. Growing 300 % year over year. Okay. So with something that's growing that fast, you would probably rationally pay 10 times sales for that.

1:07:49Well, that's$2 billion, right? And so Tucker's stake would be a billion dollars. They don't have the balance sheet to buy it. Okay. Okay. So I don't, I believe they're hitting the ATM. They will buy more of ALP. They will consolidate it because ALP is essentially just a marketing arm with a couple of salespeople. All of the growth in ALP, there's not really been any slotting fees paid. It's all been, you know, just literally this year, they started having those regional salespeople take ALP with them when they went and sold free. Uh, and then there's been a few, you know, relatively decent size, uh, C stores that have started to pick them up because of, you know, relate, you know, them contacting the small team that Alp has.

1:08:45so they and and with the relationship with conor mcgregor and some of the other ufc fighters i would argue that alp is probably more associated with ufc than than free is despite the fact that free has paid all this money so there's there's some conflict in terms of uh the marketing strategy between the two and they need to resolve that and join them together and really probably adopt more of the ALP methodology for the marketing for free. My suspicion the way that will be done is not through a purchase of the entire business, but it'll probably be for some fraction of it. My guess would be, you know, they go from a 50 % ownership to a 70, but then though Tucker is still an owner, he probably is not going to have the same type of management influence that he has today.

1:09:43Let's go to Turning Point's overall management. So I mentioned the executive chairman stepping in CEO, finance background. Obviously, the stock's done quite well since he joined and they took over, but you still worry finance background taking over. How do you think about just like the overall Turning Point management? So David Glacik, he was the PM who was in charge of Turning Point, which was the most successful investment that Standard General had made. Standard General has had some duds There's no question But Glasic I think they bought their stake For half of Turning Point essentially It was originally I believe All debt which was converted into equity For$11 million Back in I believe it was 2010

1:10:29Glasic has been Engaged I think this is I think this is a difficult situation. It's been more of a co-CEO type situation where Glacik has had interaction with, on a regular basis, all of the major business heads within the business. And, you know, at the end of the day, I think Glacik was more of Graham's boss. And I think that's not a great situation. But I think Glasek is a very smart guy. He was in a great position as executive chairman because if the business doesn't do well, then he doesn't necessarily take the bullet. It would be the CEO that would take the bullet. But here, him stepping up and becoming CEO, then he won't be able to avoid any missteps.

1:11:32He's going to own them all from here on out. I don't think he would take that position, given that I think he was getting paid about$3 million a year as executive chairman. He wouldn't have taken that position unless he knew he had a very strong hand. This year was an investment year. I think there have been some relatively aggressive and undisciplined, maybe undisciplined, maybe harsh, but there's been some unsuccessful marketing efforts. You do have the brunt of having paying those slotting fees and not getting the benefit from them because you're not getting maturity of the product on the shelf.

1:12:16And then you do have the effect of the annualization. So he's stepping in at a very opportune time. And like you said, the board doesn't own much stock. Collectively, I think they own 5%. The largest holders, I believe, are, I believe the largest holder is Larry Wexler, the former CEO. The former CEO. That's right. Yep. And I think his stake is like 2.5%. I think that Glasek owns about half of 1 % of the business. Turning Point has 11 different activist shareholders that currently own the stock. And they own over 10 % of the stock today. okay if this doesn't you know they we don't see results that come through in the near term given glasic's operational history on his resume now i do think he has been engaged and has been involved with turning point running it for some time uh i don't think he's going to be there for very long.

1:13:19So, and I think he's smart. I think he knows that. I think he knows he's under the gun and he has a massive incentive because he's jeopardized the$3 million that he was getting with relatively less, a lot less risk by stepping up and taking this position. He also captures a lot more of the upside, right? We have yet to see his employment contract, but my suspicion is that he will be able to have a lot more of economic benefit upon the success of Turning Point. We will see. I think that's a very important thing to watch. But it was the first thing I did when they filed the chain. I looked at the 8K because I was like, oh, a finance guy who was exec chairman going to CEO.

1:14:05Like sometimes you can get really interesting signals in that 8K. But I don't believe he starts October 1 and they didn't provide the new contract yet. But I haven't provided. Very interested. I think I will be watching for that very carefully. Look, I think Glacek is smart. I've spoken with him several times. I do think that he has a thoughtful approach. What I liked about Graham is Graham was a salesperson, and he had a tremendous amount of humility. And I felt like Graham had the ability to recognize places where he was weak and then have someone fulfill that and he was a good enough judge of character that he would be able to do that.

1:14:52We will see with David if he can execute. I think he believes he can. It's an open question, but my view on this stock, we talk about valuation. The way I think of it is, I think this market grows anywhere from 10 % to 30 % CAGR from now until 2030. Right now, you know, if you look at like online share, they have over 50 % of all online sales, include third-party online sales between Alp and Freed. Most of that is Alp. You know, I think it's very rational to think that they could have a 10 share. If you take the share that they have in the stores that they're in today, and you assume 70 % penetration of the universe of stores, then you get to, right now, ALP in the stores where it's selling, they have about 11 share.

1:15:51In the stores where free is selling, they have about a sixth share. So I think a 10 share at the end of that picture is very doable. But if you just assume they maintain that share and they get the penetration, the door penetration, and the market grows at 20%, you're talking about$1 ,000 stock at about 36 times earnings, right, in 2030, okay, for a$60 stock today. So I would like to talk about this more. I am so sorry that we are running an hour and 20. So we're just running so long. I have to go. This has been super fascinating. I really enjoy this. I just noticed that on top of Azul, you have Lost Cities, and I'm a pretty mean Lost Cities player.

1:16:35So we're over in the same city. We're going to have that. It's been fascinating. I've learned a lot about the economics of the business, all that sort of stuff. Appreciate you coming on. Looking forward to having you on again. I do want to give one disclaimer to all of this, and I try to be better about it, but I am very biased. I've publicly said that this is the best idea I've had

1:16:58in my career because I can see the path. I suffer from a lot of confirmation bias. I suffer from, you know, consistency bias. I did write a book. And by the way, I'm going to plug my book now, Understanding Behavioral Bias, a guide to financial decision making that I wrote with a neuroscientist, David Krawczyk. So I do have - I wish I'd known that before, but I will say too, at least you admit to the, you understand the behavior by Smith. But look, also there's, there's false conviction. There's people who haven't done the work and have conviction. That's a very dangerous place to be. And then there's people who've done the work and like, yes, ultimately you can be right or wrong, but the way you make alpha is you find, it's really hard to find great ideas.

1:17:46And I think I do too many ideas. It's really hard to find great. When you've done the work and you have a great idea, like you're kind of in the seat to swing hard. Right. So you've done the work. What else are you gonna do you know index fine yeah play video games i don't know well i will tell you this um some things have unfolded in ways that i did not foresee and ways that i didn't anticipate like the domestic manufacturing which by the way i can't under under i mean we're talking about an incremental 90 to 100 million evita based off my projection run rate by the end of the year um in terms of you know, increment that you'll get from just, if you could have the entire production produced domestically.

1:18:29So all of that is boredom. I think Glace exceeds that. I mean, I think, like I look at the incentives and it's a show me story with his execution. I do think that he's been very deeply involved up to this point. But I, you know, I, I'm, I think it looks as favorable setup now as I've seen since I've been following it. Perfect. All right, let's end it there. This is great, George. We'll talk soon. Thank you. Have a good one.

1:19:21George Baxter: upgrading the bedroom, or finally tackling that home project you've been putting off, now's the time to save big. Shop Wayfair's Wayday Sale and get up to 80 % off now till October 26. These deals won't last. Go to Wayfair.com today.