Morning, and welcome to the Turning Point Brands Third Quarter 2018 Earnings Conference Call. All participants will be in listen only mode. Please note this event is being recorded. I would now like to turn the conference over to Bobby Lavin, Chief Financial Officer. Please go ahead.
Thank you, operator. Good morning, everyone. I am Bobby Lavin, CFO of Turning Point Brands. Joining me today are Turning Point Brands' President and CEO, Larry Wexler and Jim Murray, Senior Vice President of Business Planning. This morning, we issued a news release covering our Q3 2018 results.
This release is located in the Investor Relations section of our website, www.turningpointbrands.com, where a replay of today's conference call will be available. In this call, we will discuss our consolidated and segment operating results and provide our perspective on our progress. As is customary, I direct your attention to the discussion of forward looking and cautionary statements in today's press release and the risk factors in our filings with the Securities and Exchange Commission. The disclosure outlines various factors that could cause actual results to differ materially from projections or forward looking statements that may be cited in today's discussion. These forward looking statements and projections are not guarantees of future performance, and you should not place undue reliance upon them except as provided by federal securities laws, and we undertake no obligation to publicly update or revise any forward looking statements.
In the call today, we will reference certain non GAAP financial measures. These measures and reconciliations to GAAP can be found in today's earnings release, along with reasons why management believes they provide useful information. I will now turn the call over to Larry Wechsler, our CEO.
Thank you, Bobby, and good morning, everyone. Thank you for joining the call. I am pleased to have this opportunity to share with you this quarter's progress against our long term plan. The Q3 had a number of important milestones as we continue to see the tangible benefits of our programs. We advanced our company in each of the three legs of our plan.
First, driving the growth of our focused brands. In the 3rd quarter, Stoker's moist snuff set another share record in the quarter digit volume gains and it continues to expand retail availability with a notable addition of Murphy Oil's 1400 stores. Zig Zag remains U. S. Market share leader in both premium rolling papers and MYO cigar wraps with excellent net sales advances in the quarter on a successful hemp paper introduction and market specific line extensions in cigar wraps.
And VaporBeast delivered record to quarterly net sales. This acceleration in sales reflects the benefits of our China purchasing operation getting in front of trends and improved analytical tools that have identified a number of market opportunities. We also continue to execute against our acquisition strategy. On September 1, TPB acquired International Vapor Group for $24,000,000 in consideration, plus $4,500,000 in contingent earnouts. Prior to the acquisition, IVG had revenue of approximately $47,700,000 and EBITDA of 4,900,000 dollars With the acquisition of IVG, we now have a leading B2C web platform and a strong management team, particularly in online marketing.
We believe that this was the missing piece in our new gen infrastructure as we now can reach consumers wherever they shop. 3rd party vape shops through our various wholesale platforms, through our company stores and now online through IVG capabilities. This is all additive to our abilities in traditional retail. We also continue to build upon our corporate infrastructure strengths. The scale provided by the combination of IBG and TPB family of vapor businesses will provide significant synergies in logistics, marketing and sourcing.
We have made great progress in this quarter. This infrastructure became even more important as we roll out proprietary products into the space. I'm especially pleased with our recent strategically important new hire, Sarah Evans Doctor. Sarah Evans, as Director of FDA Science. Doctor.
Evans has over 20 years of experience working in the field of nicotine and tobacco. She spent 7 years working for the U. S. Food and Drug Administration Center for Tobacco Products as a behavioral pharmacologist. In her new role at TPB, Doctor.
Evans will apply her expertise in regulatory compliance in the field of nicotine and tobacco research to strengthen the cross functional team working on TPB's FDA filings. 3rd quarter results reflect the strength of our strategy, where sales increased across each of our 3 product segments and collectively delivered record net sales and gross profit for the company. Before I go into more detail on our solid segment achievements, let me summarize a recent development with regards to our V2 ecigarette business. On Tuesday, October 2, VMR, the supplier of V2 ecigarettes to TPB under a long term exclusive arrangement for retail bricks and mortar distribution sales was purchased by Juul Labs for a reported $75,000,000 Our contract anticipated such an event and affords an acquirer of VMR the right to terminate our exclusive rights subject to certain terms and conditions including product buyback requirements and payment obligations. On Friday, November 2, we observed the communication on the V2 website that they were shutting down the company and ceasing sales to all customers effective immediately.
Yesterday, November 6, we received a letter from Juul Labs affirming the website statement and letting us know that they would no longer accept orders and they were permitted to continue to sell through our V2 products inventory. In the meantime, we will continue to sell our V2 inventory, which is projected to last through the Q1 of 2019. TPB sales of V2 products over the last 12 months were $7,800,000 and we are prepared to offset these sales with scheduled new initiatives in 2019. Now turning back to our Q3. In Smokeless, Stoker's robust volume and revenue and share advances in the quarter delivered $21,700,000 of segment net sales, up from $21,300,000 a year ago.
Stoker's MST strong performance in the quarter was somewhat offset by net sales declines in CHU. This was driven by an acceleration of the long term mix shift to lower priced products and the timing impact of their promotion. Nevertheless, Stoker's Chew increased its year over year retail share in the quarter. We are very pleased with the performance of MST. Stoker's was able to retain its 3.3 record share position that last quarter was aided by the pipeline to support the Dollar General rollout in 15,000 stores.
Additionally, in the Q3, we completed a chain wide rollout to Murphy Oil Stores. Both of these chains are delivering strong share gains on a weekly basis. Stoker's MST is now the 6th largest brand in the industry and commands a 7 percent share in stores where we have achieved retail distribution. We intend to continue to deliver revenue gains to additional chain store placements and greater sales force coverage against higher volume opportunity outlets, where their merchandising abilities provide a competitive advantage. Historically, our brand share increases as we direct additional frequency to these highly competitive outlets.
Due to sustained growing consumer demand for Stoker's MST, we are in the process of upgrading the can manufacturing line for higher throughput and capacity. Expect the new line to be fully operational by year end. And as we continue to grow volumes, we anticipate improved margin contribution. As a management team, we've set ambitious internal goals for Stoker's MST and remain committed to making a leading brand with widespread retail availability. It will take time to realize the full potential of the Stoker brand, but marketplace and consumer feedback suggest we are on the right path.
In the smoking segment, Zig Zag continues to produce encouraging results. Zig Zag's iconic equities provide the footing for continued growth in both the U. S. And the promising and evolving Canadian marketplace, where recreational cannabis use became legal in October. Zig Zag brand delivered strong net sales advances in U.
S. Papers, Canadian papers and MOIO cigar wraps, driving segment sales up by 4.5 percent in the quarter to $28,100,000 These strong gains were more than sufficient to offset $700,000 cigar category decline as a result of our strategic decision to deemphasize the low margin category. In Canada, Zig Zag is well positioned with an expanding portfolio to meet varying consumer preferences as the legal use of recreational cannabis commenced in late October. Our Canadian portfolio now includes a number of novel new products, including organic hemp papers and Zig Zag paper cones, which first shipped in October. Importantly, our Canadian progress will be temporarily disrupted due to proposed new packaging guidelines that would require changes across the full product line.
As a result, we reduced shipments of the product with the current packaging in the 4th quarter and anticipate this slowdown continuing through the Q1 of 2019 as we adjust our packaging to the new regulations and our partner works through inventories prior to the yet to be determined effective date of the expected new regulations. This should correct in the middle of next year. In the U. S, our late Q1 2018 launch of 2 new hemp rolling paper SKUs was met with strong trade support. Through the Q3, the hemp rolling paper market continues to demonstrate strong gains with Zig Zag already capturing approximately 20% share of the segment with distribution in 20,000 stores.
And in cigar wraps, Zig Zag remains a strong leadership position share position with greater than 75% of the market as measured by MSAI and a suite of new extensions being introduced to meet specific local market opportunities. In NewGen, we set another company record with net sales advancing 33.1% from a year ago. In the quarter, NewGen now represents 40% of total company sales as poised for continued growth. With the purchase of IBG on September 1, we had 1 month of sales in the quarter. This acquisition greatly expanded our marketing capacity and consumer reach.
We anticipate that the long that the team we acquired will have an impact across our full NewGen platform, bringing new techniques and skills to the company. IBG's brands will also benefit from our extensive product portfolio and purchasing efficiencies. VaporBeast delivered its highest quarterly sales ever as the process improvements and efficiencies we put in place are more fully realized. Larger order sizes and more frequent orders continue to increase our share requirements in the stores we presently service. At Vapor Shark, our focus is on strengthening franchise and corporate store execution.
We're also returning the brand to B2C prominence over the next three quarters by leveraging the IVG best practices and processes. We are now consolidating the Vapor Shark office into IVG in Miami Lakes, Florida and expect to realize improved execution and operating efficiencies in the Q1 of 2019. At Vapor Supply, we are working to reenergize their B2B wholesale platform and capture and share the corporate stores' best practices across our complete portfolio of stores. To our knowledge, the Vapor Supply stores in Oklahoma are among the highest revenue producing stores in the industry and we expect to transfer effective practices across our 51 franchise and 23 corporate store base. As previously announced, we are consolidating and discontinuing low performing assets in NewGen.
To date, we have shut down the cash and carry operations at Vapor Supply, closed one low performing store and began the wind out of Vapor Beat Shark's B2B wholesale sales as we focus resources on higher performing and higher potential operations. From a broader NewGen perspective, we continue our synergy initiatives and are on track for full logistical integration in the Q2 of 2019. This integration, coupled with the scale we have assembled and our capabilities in China, is expected to produce incremental sales growth and profitability across our portfolio of NewGen assets as we move through 2019. Company results in the Q3 were encouraging and consistent with our long term growth aspirations. Record company net sales and gross profits with revenue advances across all three segments.
Additionally, we continue to pursue accretive acquisitions that can accelerate our already positive momentum. However, in the short term, we are focused on working aggressively against our synergy and integration initiatives. Before I turn the call over to Bobby, I wanted to speak briefly about the latest commentary coming out of the FDA. With regard to youth access issue that has been all over the news of late, let me be clear. We support Commissioner Gottlieb and the FDA's strength and actions to limit access of vapor and tobacco products to minors.
We take the issue very seriously and maintain robust third party authentication systems on each of our B2C sites, while also training and enforcing proper ID checks in each of our retail outlets. No tobacco or vapor products should be accessible to minors. We support the commissioner in the area of inappropriate packaging and marketing of vapor products. There's simply no need for products in the market that resemble a child's juice box. It is not acceptable and we have adopted industry marketing standards and implemented processes to restrict those products from entering our distribution channels.
We continue to work with our 3rd party suppliers who stay within appropriate marketing guidelines. This situation is important and we look forward to FDA's efforts to further define the regulations in this area. It's our understanding that the FDA will issue a new action plan in the coming weeks designed to address youth access and appeal issue. This is an important step and we remain engaged with the FDA as we believe it is especially important to offer a variety of appropriately marketed flavored e liquids to allow adult consumers options as they seek a pathway away from cigarettes. The commissioner recently reiterated his desire to preserve the availability of vapor products for adults.
And Director Zeller has initiation, but remain focused on preserving the right to sell appropriately marketed products for adult use as an off ramp from smoking cigarettes. We believe the science demonstrates this is the right approach. With that, I will turn it over to Bobby for more color on our segment performance and key financial metrics.
Thank you, Larry. First, let me recap our performance in Smokeless. On the continuing strength of Stoker's, net sales increased to $21,700,000 in the Q3 of 2018. Double digit volume and revenue gains on Stoker's moist were partially offset by sales declines from our non focused chewing tobacco products by the previously mentioned late Q2 trade show and the promotion that pulled volume out of what would have been naturally been Q3 volume. Smokeless volume decreased 2.2% with price mix increasing 4.3%.
We will begin providing incremental disclosure on chew versus moist as the two businesses begin to cross in percentage of smokeless. In the quarter, chew was 52 percent of sales, while moist was 48 percent of sales. Industry volumes of chewing tobacco declined by approximately 3% in the quarter, while industry moist volumes were soft by about 1% to a year ago. In both moist and chewing tobacco, Stoker's continue to grow retail market share as measured by MSAI. Based on LIFO accounting, reported smokeless segment gross profit decreased 4% to $11,000,000 while gross margins contracted 320 basis points to 50.7 percent due to LIFO variances in both years.
Absent the LIFO expense in both periods, gross profit increased 2.8% or $300,000 and gross margin expanded 30 basis points to 51.6%. Turning to our smoking product segment. Smoking products net sales increased 4.5 percent to $28,100,000 Zig Zag Premium Cigarette Papers and MYO Cigar Refs continued to perform exceptionally well with revenue advances in U. S. Papers, Canadian Papers and MYO Cigar Refs.
Smoking volume increased 3% with price mix increasing 1.5%. Despite the previously announced late second quarter promotional activity that pulled estimated $700,000 of what would have naturally been 3rd quarter volume in the Q2, Zig Zag Rolling Papers and cigar wraps were up a combined $2,000,000 on strong performance. Zig Zag's performance in the quarter more than offset our deliberate move away from lower margin cigar products, which declined year over year by 700,000. Industry volumes of U. S.
Cigarette papers decreased by mid single digits, while MYO Cigar Reps were flat to a year ago. Zig Zag continued to maintain its shared leadership position in both Premium Papers and MYO Cigar Reps as measured by MSAI. Gross profit for the quarter of $14,800,000 in the segment was up 4.3% or $600,000 higher than the prior year. The euro exchange rate had no material impact on the quarter. Reported gross margin was 52.8%, down from 52.9%, primarily due to favorable LIFO expense in the year ago period.
Absent LIFO expense, gross margin increased 20 basis points. Taking all of this into account, net sales in our core tobacco portfolio, which is our smokeless and smoking product segments combined increased 3.5 percent to $49,800,000 and reported gross profit grew by 0.6 percent to $25,800,000 Absent the previously mentioned LIFO expenses, gross profit increased 4.0 percent or $1,000,000 to $26,000,000 and gross margin expanded 30 basis points to 52.3%. I'll now turn over to our growing NewGen segment, which continues to gather momentum from the thoughtful initiatives and accretive acquisitions we have been delivering. For the quarter, segment sales grew $8,300,000 or 33.1 percent to a record 33,500,000 dollars driving NewGen to 40 percent of company revenues. Similarly, gross profit increased by $3,100,000 or 43.1 percent to a record 10,400,000 dollars Gross margin expanded by 220 basis points to 31.0 percent.
The September 1 acquisition of IVG contributed 1 month of sales quarter. IVG operates a powerful B2C website under the Vaporify and DirectVapor name, selling proprietary and third party products to adult consumers. South Beach Smoke B2C website selling proprietary additional e cigarettes and 33 franchise and corporate stores primarily located in the Florida market. IVG sales for the immediately preceding 12 months were 47,700,000 dollars Sales in the quarter were lower than would have been expected by approximately $300,000 as we incurred the one time impact of complying with SEC revenue recognition requirements. With IVG, we acquired a talented management team and a well disciplined online marketing process and procedures.
We are in the midst of integrating the Vapor Shark operations into the Miami Lakes IVG facility, which will reduce costs and improve operating efficiencies in mid to late Q1. Due to our market scale, we expect improved margin contribution to materialize in late Q1, We intend to invest a meaningful portion of those synergies and increase marketing activities to further accelerate the NewGen business unit. VaporBeast delivered its highest quarterly sales ever on more frequent and larger order sizes through improved marketing tactics. Our efforts to reenergize the vapor supply B2B website are starting to produce positive results and we apply the same process improvements while leveraging the IBG online marketing capacities and skills to relaunch the VaporShark B2C website over the next three quarters. Certain Vapor Supply and Vapor Shark businesses are being shut down or deemphasized to concentrate resources against the highest opportunity.
Our NewGen logistical operation plans are proceeding with good momentum and we expect to complete the project by mid Q2 2019. With such integration, we will be on one ERP platform, utilize shared inventories and common pick and pack resources at our Louisville facility close to the UPS hub improved delivery speed, customer satisfaction and reduced costs. Consolidated SG and A expense in the quarter was $23,300,000 or 27.9 percent of net sales compared to $18,600,000 a year ago, driven mainly by the inclusion of Vapor Supply and IVG's SG and A expenses, transaction costs and variable vapor SG and A expenses tied to higher sales. 3rd quarter SG and A included $1,500,000 of non recurring charges, including strategic expenses of $1,100,000 and other non recurring expenses of $400,000 dollars Absent these expenses, SG and A in the quarter would have been 26.1 percent of net sales. In the 2nd quarter, we announced a $6,500,000 loan to a supplier.
The loan was repaid in August 2018, including a $1,000,000 prepayment penalty. In October of 2018, the supplier was sold and TPB received $1,500,000 of payments related to certain ownership stakes in the supplier acquired as a condition of the loan. We ended the quarter with $30,000,000 drawn on our revolving facility. The revolver draw reflects the following activities in the quarter: $14,400,000 for the cash portion of the IVG acquisition, dollars 2,000,000 of amortization on the credit facility, dollars 1,810,000 for related transaction expenses, dollars 18,800,000 for leaf purchases and $6,900,000 of incremental inventories in advance of the tariff increases. Adjusted EBITDA for the quarter was 16,500,000 dollars as compared to $15,900,000 in the prior year.
Net debt to adjusted EBITDA was 3.6x, slightly above our targeted range of 2.5x to 3.5x, principally as a result of the highly accretive IBG acquisition. We expect to end the year within the 2.5 times to 3.5 times range. Pro form a for the IVG acquisition, net debt to adjusted EBITDA is 3.4 times. In this morning's earnings release, we also updated the following on a year to go expectations. Year over year impact of discontinued items on sales was $900,000 in the quarter and expected to be $1,000,000 in the 4th quarter.
As previously mentioned, the company will have approximately $1,000,000 gain in the 4th quarter related to a certain ownership stake in the supplier that was loaned $6,500,000 in the 2nd quarter. In Canada, are anticipating passage of new packaging regulations that could require artwork changes across the product line. Given the potential limitations on sell through of old packaging, are moving swiftly to decrease wholesale inventories to limit any potential write off requirements. As such, we voluntarily canceled $2,200,000 of sales and expect 4th quarter sales to be lower by those $2,200,000 We expect some temporary disruption to continue into the Q1 and will provide additional guidance in the Q4 of this. After all these adjustments, we project 2018 net sales to be in the range of $327,000,000 dollars to $333,000,000 While we are still in active dialogue with potential acquisition candidates, we expect to slow the activity pace to accelerate our synergy and integration activities.
That does not mean we are stopping, just slowing with the goal of strengthening efficiency and margin realization. It was an impressive quarter on our long march towards realizing the full potential of our brand assets. Our confidence in the TPB team and our progress against the strategic growth plan reinforced the Board's decision yesterday to increase our dividend by 12.5%. With that, I'll turn the call back to Larry for closing comments.
Thank you, Bobby. Enthusiasm here at Turning Point Brands is exceptionally high and the tremendous growth opportunities we see before us leave us even more excited. We continue to execute our carefully measured strategic plan by driving focused brand growth, expanding through acquisitions, solidifying our corporate infrastructure and strengthening our capital structure. Our Focus brands remain strong and prosperous and we'll continue investing to drive sustained gains. Stok has delivered a record share in MST and strengthened year over year share in chewing tobacco.
Smoking, we continue to be highly encouraged by Zig Zag's strong share in both papers and MYO cigar wraps. The growth prospects from the dynamic Canadian market and the innovative line of products we have in queue for both the U. S. And Canada.
And of
course, our NewGen segment, which has grown to a record 40% of company revenues, offers meaningful growth in synergy opportunities. In the year to go period, we are focused on integration, synergy and maximizing customer satisfaction through best in class platform. So it's a good quarter, but it's never enough. We remain committed to our long term strategic plan to increase value for our shareholders. Thank you for participating in the call today.
With that, I'd like to open up the call
The first question comes from Susan Anderson of B. Riley FBR. Please go ahead.
Hi, good morning. Thanks for taking my question.
I guess I was kind
of curious on the VMR cancellation. Was there a cancellation fee at all? And then also maybe if you could just talk about kind of what you have in the pipeline rolling out your own e cig products and liquids? And then I guess any timeline you could provide on that, that would be great. Thank you.
Okay. So the contract with VMR actually anticipated that they would be bought at some point. And in the contract, there is a sharing of the sale price as well as protection on inventories. And so we're looking forward to meeting with Juul and getting resolution on those items. As for new products, as you know, we don't inform the market well in advance.
I think you'll see interesting activity from us in the first half of next year, but I won't go into specifics on what those products are.
Okay, great. And then maybe a couple of follow ups. On the SKU rationalization, maybe if you could talk about the areas of business that you'll be focusing on with that?
The SKU rationalization that's in the Q4 is a wraparound from some V2 open system products and some low margin cigar products that we discontinued.
Got it. Okay. And then last one on the regulation in Canada around Zig Zag. Maybe if you could just give a little bit more color on any impact to your costs there or any sales impact we should expect?
We don't see any difference in costs other than we have to change the packaging that conform to the new regulations, which just means artwork changes for the most part. So there will be some new cylinders and things like that, but it's relatively minor. Yes.
And we expect kind of we expect that there will be with any sort of packaging change, there's going to be a sell through period and a sell in period. So there'll be the numbers will kind of you should expect and kind of dip in the first half of twenty nineteen and increase in the back half of twenty nineteen. So we're not giving 2019 guidance, but that's your standard sell in sell through period.
Got it. Okay. That's really helpful. I guess that's it for now. Thanks so much.
Thanks, Susan. Thanks, Susan.
The next question comes from Vivien Azer of Cowen and Company. Please go ahead.
Hi, good morning.
Good morning. Good morning, Vivian.
So,
Larry, I hate to be a broken record, but you and I have kind of debated very publicly from time to time around kind of poly use and cross category impacts. And what was interesting in this earning season was that one of your large competitors did finally publicly acknowledge that there is a negative impact on cigarettes from e vapor. And so I was just hoping that you could kind of retouch on how you're thinking about cross category impacts as it relates specifically to you guys and smokeless because it is historically pretty surprising to see that smokeless I appreciate you guys had tough comps, but as a broader category comment, that smokeless continues to be weak in the face of weaker cigarette volumes? Thanks.
Okay, Vivien. I was looking forward to this question. And I think in your question, you're talking about the elasticity between e vapor and smokeless because you said cigarettes and I think everyone acknowledges that e vapor certainly impacts cigarettes. As we started looking at the data and I think where you're seeing the impact is that there may be a lower inflow into MST where some of the young adults are choosing e vapor as their choice for nicotine consumption relative to MST. So I think there is on the margin, I don't think I personally don't think that you're seeing a lot of switching out of MST into e vapor among the older more established customers.
So when you're looking at total segment volumes, it's probably showing up in lower inflow.
Okay, that makes sense, displacing an emerging consumer. As we think about the FDA and thank you for your commentary around that and kind of your message broadly of being supportive of incremental regulation. I was wondering if you could offer a little bit more specificity around how you guys are thinking about flavors as well as form factors? Thanks.
Okay. So, there's a couple of things there. First of all, as I said in my comments, we're very supportive of limitations on youth access and appeal. We don't believe minors should be using nicotine products. So we stand with the commissioner on that.
In terms of flavors, this is something that I believe that if the right size are done, the science will show. I do not think that people come to vapor for a flavor. In other words, the fact that there is a, let's call it raspberry, pick any particular flavor that people say, oh, there's a raspberry now in the liquids, I'm going to start vaping. I think people choose to come vaping and then search around for the flavors. So I do think that flavors are important because I don't know that people particularly enjoy the flavors of combustible cigarettes and certainly flavors has an appeal for people who choose to come to vaping.
They're looking for a flavor that best suits them. And so I believe that the FDA will keep in place some flavor variety. I also believe that the way those flavors are marketed, there'll be some restrictions, limitations, and I think that's appropriate.
Terrific. Thank you. Sticking with the FDA, how are you guys thinking about, Altria's support of raising the minimum purchase age for all tobacco products to 21? Thanks.
We believe that the market would be the market. We think that age restrictions as they put in place as appropriate as the government sees it is fine. We'll compete no matter what the we also see that as a very minor impact on our business.
Terrific. Thank you very much. And then just lastly, focusing on your core fundamentals in your core business. With Stoker's, can we just revisit how you guys are looking at like the ultimate runway in terms of store count and where you think like the next catalyst could come? Thanks.
We believe there's still lots of opportunity in chains. As you know, the selling process in chains takes a long time and each chain opens up a window only a couple of times a year to have that get done. We're making great progress. We've hired a number of new people in our key account selling organization. We think that there's been a significant upgrade there and we are getting many more appointments and we're getting higher up into the buying organizations.
And so we think we'll see continued progress in chain stores. We're probably touching somewhere around 70,000 to 80,000 stores. There's about 160,000 stores that are really in the business. There's more that sell, but there's about 160,000 stores at appropriate targets. We'll make continued progress against that at the rate that we have been in
the past. 2019 should be an interesting year for us, particularly on the national level. Stoker's moist has showed up on everybody's radar screen. And so it is pretty exciting. So I think 2019 has opportunities for more distribution.
And something that we've been open about is that at some point, we don't know what that point is, but there is an opportunity to close the gap between the 25% to 40% discount that we're trading, our product trading relative to the big guys.
Thank you for that incremental color, Bobby. I appreciate it. Sticking with that theme and I apologize for the long list of questions. Thanks for indulging me. One of the themes that we're seeing kind of in cigarettes where obviously you guys don't play is pretty sustained trade down.
So I was wondering if you could offer any color around category composition in moist smokeless tobacco in terms of price point segmentation, so kind of premium mainstream discount, deep discount, because it seems to me that you guys continue to be a beneficiary of down trading and that price gap, which is ultimately an opportunity to close it over time. But in the near term, how much down trading do you guys think is happening in the MST category? Thanks.
Okay. So there's definitely a shift away from premium to discount and I guess you're calling it deep discount. When you look at even Copenhagen's products, all the new products they've introduced were at the Grizzly price. And I don't think I have to remind you that there's basically you have Copenhagen and a few other brands at the premium and then you have Grizzly with and the bulk of Copenhagen's new products at the next price point and then there's LongHorn and us at the low end. You're definitely seeing down trading and that's due to Copenhagen's focus on introducing at lower prices and our growth.
We are clearly a benefit of that. I believe we have a high quality product and over time, I think that it could be priced appropriately. But right now, as long as we're growing, we need to get consumer induced sampling. And so we'll continue to have a lower list price at retail. But we think the potential for that pricing should grow in the future.
Thank you.
This concludes our question and answer session. I would like to turn the conference back over to Larry Wexler, Chief Executive Officer, for any closing remarks.
Well, thank you everybody. I appreciate you coming on the call and look forward to talking to you next quarter. Thank you.
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.