Good day and welcome to the Turning Point Brands' Second Quarter 2019 Call. Today’s call is being recorded. [Operator Instructions] I would now like to turn the conference over to Bobby Lavan. Please go ahead..

Thank you, operator. Good morning, everyone. I'm Bobby Lavan, CFO of Turning Point Brands. Joining me today are Turning Point Brands' President and CEO, Larry Wexler; Graham Purdy, who heads the Nu-X subsidiary, and Jim Murray, Senior Vice President of Business Planning. This morning we issued a news release covering our second quarter 2019 results.

This release is located in the Investor Relations section of our website, 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 perspective on our progress.

As is customary, I direct your attention to the discussion of forward-looking and cautionary statement in today's press release and the Risk Factors in our filings with the Securities and Exchange Commission.

This 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 the reasons why management believes that they provide useful information. I will now turn the call over to Larry Wexler, our CEO..

Thank you, Bobby, and good morning, everyone. Thank you for participating in the call. This morning, I'll update you on several recent announcements and give you a perspective on the progress we've made in the second quarter to position the Company for enduring long-term growth.

Second quarter performance of our core tobacco business was in line with our expectations, and Nu-X outperformed. We further strengthened the foundation upon which we intend to build in the coming quarters and years. Our achievements continue to reveal not only the strength of our brands, but the integrity of our plan.

First, let's touch on some recent announcements that are generally transforming our Company, while also better positioning us for accelerated growth.

You recall that Nu-X was formed to leverage our existing capabilities in traditional retail distribution, e-commerce marketing and regulatory affairs to capitalize on the burgeoning trends in the alternative product space. CBDs are demonstrating exclusive sales advances and represent a sweet spot of opportunity for TPB.

Our proficiency in regulatory affairs and familiarity with cannabis related products makes us well suited to aggressively pursue growth through not only proprietary products, but also acquisitions. Nu-X related sales in the first quarter totaled $800,000 and gained speedy momentum with second quarter sales growing to $4.3 million.

As an integral part of our CBD and alternative products plan, on June 26 we announced that we had been granted conditional approval for Kentucky hemp processing. Of course, hemp is the plant material that is most commonly used to harvest CBDs for use in wellness related products.

Direct access to this agricultural stock coupled with our highly efficient processing capabilities at Canadian American Standard Hemp, positions us favorably in the blossoming CBD industry. Given the almost linear growth of our internal CBD sales in the quarter, we remain highly enthused about the opportunity for robust sales advances.

Done properly and compliantly, these are the kinds of gains that can truly propel the Company forward in 2020 and beyond. The concepts and opportunities are boundless.

On July 19th we announced the acquisition of Solace Technologies for $15.25 million, $8.25 million in cash and $7 million in performance-based restricted stock units of TPB, which vest over three years based on specific total Nu-X sales achievements.

Solace is headquartered in Southern California and report to Graham Purdy, President of Nu-X Ventures. Now, let me tell you why we pursued the Solace Company. Yes, they have built a powerful and highly innovative global e-liquid brand. However, the real upside is the alternative products pipeline they bring and their creative product development team.

Solace management team generally impressed us and with the performance based-stock lockups we have in place that pipeline and creativity will further accelerate our Nu-X gameplan. Welcome to our new partners at Solace. On July 24th, we announced an equally exciting investment in ReCreation Marketing in Canada.

Our $3 million investment provides us with 30% stake in the company, and the organization and leadership teams on the ground in Canada to accelerate not only our RipTide introduction, but also other alternative products. We also have an option to increase our ownership stake to 50%.

ReCreation was founded by industry experts and professionals with the contacts and capabilities to deliver widespread distribution, not only traditional channels, but also in the alternative channels, including alternative shops and dispensaries. Welcome team ReCreation.

And our final piece of recent news was the July 25th successful completion of the convertible senior notes deal for $172.5 million in new capital. I will leave the details to Bobby to explain in a bit, but the deal gives us a war chest of capital to make investments and acquisitions to drive long-term shareholder value.

Now, I will turn and share some high level specifics on how our focus brands performed in the quarter. As I said before, we view our brands as living organisms. They grow and thrive when successfully positioned and backed by solid marketing efforts. The brands are one of our most important assets.

Consumers choose to adopt brands for the long-term that not only provide differentiated product benefits, but also resonate with them. Let's start with a fresh look at the Nu-X portfolio of products. Proprietary RipTide pod-based vaping system is positioned to meet former smoker preferences at value price point.

With a leading brand doing 60 million pods per month, there is meaningful opportunity in the market. RipTide is different and unique, starting with the e-liquid flavors we selected. All RipTide pods feature our proprietary NicTech liquid. NicTech provides a clean, crisp flavor profile and yields uncompromising satisfaction.

The 1.4 milliliter pods provide a meaningful value advantage versus the competition. And with the unique pod design, we have overcome the challenges many face in delivering clean, crisp flavors on larger tanks.

The RipStick device is sleek and comfortable in the hand, with five flavors and two nicotine strengths, RipTide is uniquely well positioned to capitalize on the growing body of adult consumers choosing the convenience of pre-filled pods. In the quarter, RipTide distribution was expand to over 8,000 retail stores. As of today, we are in 12,650 stores.

Moving to CBDs. In the quarter, we tested a series of third-party products, brands and formats under the e-commerce platforms at both IVG and VaporBeast. We also commercialize a number of these in our own retail outlets.

The Proprietary Nu-X premium CBDs were also launched online in tinctures, e-liquids and concentrate formats flavored with natural terpenes. Consistent month-over-month online sales gains are delivering the results we anticipated.

As we move through the third quarter, we're taking a novel suite of Nu-X CBD products positioned specifically for traditional retail where we anticipate robust trade acceptance. Our first entry will be a CBD disposable that'll begin distribution in the third quarter.

Moving to smokeless, in the second quarter Stoker's moist snuffs set another record share on double-digit volume gains powered by continued consumer enthusiasm in our existing stores and expanded retail distribution.

Our sustained share moment clearly demonstrates the consumer appeal of our exclusive production process and the allegiance of the customers we have engaged. We have been especially focused on higher volume chain distribution, with 80,000-plus retailers choosing the stock and sell Stoker's moist.

We are now in stores that represent over 50% of the weighted distribution. These aren't just any stores. As we've discussed before, we leverage the MSA database to target the highest volume opportunities, thereby maximizing the selling and merchandising capabilities of the field sales organization.

In the quarter, Stoker's MST growth was propelled by consumer trial initiatives and continued growth in 3,000 Speedway branded convenience stores. While still early on, the velocities and trajectory at Speedway are highly encouraging. The Iconic Zig-Zag brand remains the US market share leader in both premium rolling papers and MYO cigar wraps.

In the second quarter, we continued our retail expansion in merchandising of the 2018 launch of Zig-Zag Organic Hemp Papers. While the hemp segment is only 6% of the category, it is growing in popularity and the segment is critically important to maintaining brand relevance with today's consumer.

In just over one year, we have emerged as the Number 1 hemp SKU in terms of sales volume. This achievement and a 30 share demonstrates how Zig-Zag delivers value to the category and our loyal brand of consumers. While we are pleased with our progress, there is much additional opportunity to realize and many more consumers to engage.

In the quarter, we also expanded the new Zig-Zag cones to over 10,000 stores and unbleached papers to just under 7,000 locations with encouraging consumer and trade enthusiasm. Each of these segments are growing as a result of shifting consumer preferences and Zig-Zag intends to meet those once in needs.

The current short stock position has slowed our progress, but we are confident that we will get supplemental supplies in the third and fourth quarters. In NewGen, VaporFi's net sales grew double-digits as compared to a year ago on larger and more frequent orders from its vape shop customers.

Since the acquisitions in September 2018, IVG's sales of direct-to-the-consumer products continued to increase in each of the last two quarters. Let me quickly address the regulatory arena. Our science and legal teams continue to make good progress as we move down the FDA pathway.

We have adjusted our plans and expect to make acceptable initial filings under the new accelerated timing. So to recap, second quarter results and achievements are highly encouraging. In smokeless, Stoker's continued its strong growth trajectory, recorded another record share and delivered record segment sales and gross profits.

In smoking, Zig-Zag remains an iconic opportunity brand, while retaining its share leadership position in the U.S. in both premium rolling papers and MYO cigar wraps, and Nu-X sales increased from $800,000 in Q1 to $4.3 million in the second quarter.

And with the third quarter acquisition of Solace, investment in ReCreation Marketing and the successful convertible debt deal, we are in better position for accelerated growth and additional acquisitions. To add some color on year-to-date and upcoming Nu-X activities, let me turn the call over to Graham Purdy, President of Nu-X..

Thank you, Larry. Second quarter Nu-X sales of $4.3 million were up from $800,000 in Q1, a nice step onward in our journey toward accelerated growth. Having said that, I seldom look back as the future is made with a keen focus forward. Adult consumer’s wants and needs are dynamically changing.

The exodus of smokers from combustion to vaping continues unabated. There is also a swelling demand for alternative products, most notably hemp derived CBD products. These two categories, pod-based vaping and CBDs are the tip of the Nu-X spears we work toward accelerating growth over the coming years.

But rest assured, there are myriad of other opportunities in the product development pipeline. RipTide and our NicTech technology delivered compelling results in the quarter. Store counts are increasing week-over-week and reorder rates are proving encouraging.

Looking forward, our integrated sales efforts have already unlocked some additional blockbuster chains for third quarter implementation that is likely to yield significant gains quarter-over-quarter. Equally exciting, we are already well on our way to opening the Canadian market to RipTide with our partners at ReCreation Marketing.

We are collaboratively working toward a fourth quarter introduction plan to key national accounts, high volume independent stores and alternative channels. In terms of our entry into the CBD market, I'm especially pleased with progress to-date.

You'll recall that we invested in the Canadian American Standard Hemp, or CASH, in the fourth quarter of 2018. Our working relationship is strong and their proprietary and highly efficient processing will enable us to compete with great effectiveness as the landscape shifts in many anticipated ways.

In June, we advanced our CBD effectiveness again with the conditional approval for Kentucky hemp processing. Now, with direct access to the agricultural stock and the highly efficient processing at CASH, we have further enhanced our positioning in the burgeoning market.

Second quarter e-commerce CBD sales grew in an almost linear fashion month-over-month since inception. Nu-X proprietary CBD has almost doubled from May to June. With CBDs and like all other highly regulated products, there are clearly defined rules that define the proper boundaries and marketing communications.

Our regulatory affairs group is highly respected in the industry and engage across the entire spectrum of activity. Given their familiarity with the rules, regulations and bright lines we understand how to properly market and communicate with the alternative market space.

Our view – I view our regulatory affairs group as unique and compelling asset as we move forward in this dynamic space. Proper communication and positioning are hallmark of our execution. Over the last several months, we have learned a great deal about consumers' wants and needs in terms of the product format and milligram content.

We harvest our consumer lessons from not only our robust sales data, but also directly from consumers in our controlled store environments. With this learning in hand, we are now readying a late third quarter expansion of Nu-X proprietary CBD products across our entire sales funnel, including traditional retail.

These novel new products have been tested with consumers and exposed to select trade partners where we have received a resounding yes.

I'm not going to go into any details on the novel new product introductions, suffice to say we are especially excited with not only our progress to-date, but more so with the building momentum in enthusiasm of our trade partners. And finally, a few thoughts on the July Solace Technologies acquisition.

First, the highly talented Solace management team will be a great resource and asset to the team Nu-X, where our goal is to provide high quality innovative new products to meet the ever-changing needs of adult consumers, to go where the wants are and to meet them head on with superior products.

We have deliberately and fully aligned the incentives to ensure that the entire team is swiftly and professionally satisfying consumer desires, while maximizing total Nu-X sales Second, the Nu-X pipeline of highly innovative product concepts just got much richer and faster. Solace's innovation and product development team are first class.

At Nu-X, we are seeking to become a leader in the alternative product space and team Solace will greatly accelerate these ambitions. Working together as a cohesive team, we will leverage the rich capabilities of TPB and regulatory affairs while unleashing the creativity at Solace and Nu-X to accelerate the new product pipeline.

And finally, Solace successfully built a powerful global and highly differentiated first class e-liquid brand. We will integrate the Solace e-liquid manufacturing and distribution into our existing infrastructure to realize improved efficiency and margin attainment. Nu-X Ventures is a shining light here at TPB.

Results to-date are encouraging, but only a shadow of what's to come. And with that, I'll turn it over to Bobby for a review of our second quarter financial performance.

Bobby?.

Thank you, Graham. Total company net sales and gross profits were each up 15.1%, with gross margins expanding in each of our three reportable segments, something we're really focused on. Before I dive into the segment and consolidated performance in the quarter, I've gotten plenty of questions on the July 25 convertible senior notes.

Let me address that here. Market acceptance and interest levels were deep, broad and the deal was multiple times oversubscribed. So much so that we elected to upsize the offering from $125 million to $150 million and the underwriters exercised the green shoe early on Monday, bringing total gross proceeds to $172.5 million.

The notes will accrue interest at 2.5%, significantly down from our current levels. In connection with the pricing the notes, the Company entered into capped call transactions with certain financial institutions to offset dilution.

The capped call transactions will be initially priced at $82.86 per share, which represents a 100% premium to the closing price on July 25th. Economically, therefore, the company will incur no dilution as a result of this transaction until the stock price exceeds $82.86 and then only at very low levels.

We used some of the proceeds to pay down our LIBOR plus 700 second lien notes. The elimination of the second lien greatly simplifies our financial structure and enhances our acquisition flexibility.

In our filings, you will find modified total leverage covenants with our first lien credit facility that gives us significant room to accommodate the convertible debt. The notes mature in 2024, giving us ample runway to be more aggressively pursue our growth plan.

Total net proceeds to our balance sheet after expenses, capped call and the second lien pay down was a $110 million, and we are really looking forward to investing those dollars. Moving to the segments, in smokeless, the Stoker's brand continues to fuel solid results. Smokeless net sales increased 7.2% to a record $26.2 million in the quarter.

Double-digit volume and revenue gains on Stoker's moist were partially offset by sales declines in chewing tobacco attributable to long-term category in decline and the continuing shift to lower-priced products. Net sales for the moist portfolio represented 53% of smokeless revenues in the quarter, up from 45% a year earlier.

This is a story we've been telling you, and this is a story we're very excited about. Smokeless volume increased 3.1%, with price mix advancing 4.1%. Stoker's moist count exceeded 80,000 with weighted distribution now over 50%, reflecting our successful expansion into higher volume large chains, including Speedway.

I'm excited for the trajectory here and we believe that there are another 50,000 stores that we can add to close the gap. Smokeless gross profit increased $1.5 million, or 12.2%, to a record $14.1 million.

Stoker's moist double-digit gains are now overtaking the scale of our chewing tobacco business and we're beginning to see the favorable impact of expanding margins. Smokeless margins in the quarter were 53.7%, up 240 basis points from a year earlier. Turning to our smoking products segment.

Smoking sales decreased $4 million on a year-over-year basis to $25.4 million. The Canadian packaging and labeling disruption continued with a year-over-year revenue headwind of $2.5 million in the quarter. Additionally, cigars, which we've told you we are de-emphasizing, declined approximately $1 million, while trade inventories for U.S.

papers depleted about 4,000. Smoking volumes declined 13.9%, mostly on the Canadian delays and cigar erosion and price mix increased 0.4%. As we've said in the press release, the Canadian issue bottomed in May and we will recapture weakness in the entire segment in the second half of the year.

Zig-Zag's US paper share increased sequentially on new product momentum and remains the Number 1 premium rolling paper brand. Zig-Zag also retained its leadership in make your own cigar wraps. Rolling consumers continue to migrate to super convenient products like paper cones.

While the Zig-Zag cone's introduction has been met with great enthusiasm, our supplies remained constrained throughout the second quarter and slowed our progress. We now expect supplemental supplies in late third quarter and plan to further accelerate momentum at that time.

Zig Zag's hemp papers continue to be a big success, with the brand capturing 30% of the growing hemp business. These new product introductions on Zig-Zag, including unbleached papers, continue to generate greater consumer engagement and brand satisfaction. Smoking margins in the quarter increased by 240 basis points to 54.2%.

Moving to our growing NewGen segment, were the primary focus is on the Nu-X growth. For the quarter, total NewGen segments grew 52.8% to $41.8 million. Nu-X is trending better than our original forecast.

With the addition of Solace and ReCreation teams and the proprietary products in the queue for the third quarter, wholesales funnel expansion, we remain particularly enthusiastic. The Nu-X pipeline of innovation is especially rich and will only be enhanced through the alternative products at Solace.

VaporBeast and IVG continued to demonstrate positive year-over-year momentum, while also accelerating their Nu-X e-commerce support initiatives. The V2 products, which is included in the NewGen segment, shutdown is now largely complete. V2 sales in the quarter were off a year ago by $700,000.

Third and fourth quarter 2018 V2 sales were $1.8 million and $2.2 million, respectively. We anticipate that sales of the RipTide portfolio will more than offset these year ago V2 revenues. Second quarter NewGen gross profit increased $5.3 million, or 65.6%, to $13.4 million.

Gross margin expanded by 250 basis points to 32% of net sales, reflecting the higher B2C margins at IVG and proprietary Nu-X CBDs. In the quarter, there was about $2 million of tariff expense.

Moving to the consolidated business, absent the vendor settlement gain received from the V2 shut down, SG&A was $26.8 million, which includes the full quarter of IVG expenses as well as Nu-X specific expenses of $1.3 million. This compares to $22.1 million in the previous year.

Adjusted EBITDA for the quarter was $18.3 million as compared to $17.2 million in the prior year. Net debt to adjusted EBITDA was 2.9 times. In this morning's release, we also increased our 2019 guidance. Projected 2019 TPB base business, net sales of $370 million to $385 million.

We now anticipate that the Nu-X launch that is now under way in both vapor and CBD products will contribute another $18 million to $28 million in revenues, up from our previous guidance of $10 million to $20 million.

Of that $4 million increase comes from Solace and $4 million increase comes from better performance at the Nu-X business, bringing total TPB net sales in 2019 to $388 million to $413 million. Importantly, we intend to fully invest Nu-X gross profits to maximize sales and market achievements.

This year the company now expects certain SG&A expenses in 2019, including $2 million in transaction expenses resulting from the Solace acquisition and IVG earn-out payments. The earn-outs that we've given to both IVG and Solace sellers need to be expensed because they are employees of the Company.

We have now increased the dollars we will spend in Nu-X infrastructure growth to $3 million from $1.6 million. And as Larry discussed, we are preparing for the PMTA deadline, and due to accelerated deadlines, we will pull forward some 2020 FDA PMTA expenses into 2019.

We now expect to spend up to $5 million in preparation for the FDA's PMTA pathway during 2019, up from the previous guidance of $1.5 million. Stock compensation and non-cash incentive expense in 2019 is projected to be $4 million, which is no change from the previous guidance.

Excluding these SG&A expenses just described and Nu-X operating performance. We project 2019 adjusted EBITDA of $72 million to $76 million, up from our previous guidance of $70 million to $75 million. This excludes the net $5.5 million gain from the distribution agreement termination, which we disclosed last quarter.

We expect the 2019 effective income tax rate to be 21% to 23%, and we are slightly increasing our CapEx guidance from $3 million to $4 million to $4 million as we invest more in the business.

Net sales for the third quarter of 2019 is expected to be $99 million to $103 million, crossing the $100 million mark is a great accomplishment for this Company. M&A discussions continue as we evaluate potential partners and targets. There is a lot more to come.

We see significant volatility in the market and I've seen more investment and acquisition opportunities in the past few months than I've seen in my two years here. That is why we raised the capital and we're very excited to deploy it. The second quarter demonstrated that our transformation is materializing in very tangible ways.

More work to be done, but we are headed in the right direction. With that, I'll turn the call back to Larry for closing comments..

Thank you, Bobby. Second quarter 2019 was a good quarter for the Company. We continue to grow focus Stoker's MST with excellent success realizing improved margins across the board and sharply increased Nu-X sales. These are exciting times here at TPB and the integrity of our plan remains intact and reinforced.

Looking forward, we will continue to execute our strategic plan by driving focus brand growth, expanding through acquisitions and innovation, and strengthening our corporate infrastructure. Our Company remains solid and resilient and our people remain committed to the journey. Thank you for participating in the call today.

And with that, I'd like to open up the call for questions..

Operator?.

We will now begin the question-and-answer session. [Operator Instructions] We will take our first question from Susan Anderson from B. Riley FBR. Please go ahead..

Good morning. This is Luke Hatton on for Susan.

So I know you said you wouldn't provide details about the new CBD products for retail, but can you give us a sense of the scale and timing of that retail launch? And then are there certain regions you'll be focusing on or how are you approaching that roll out?.

Good morning. Luke. I did mention in the script that our first product will be a CBD disposable that will be starting going through our sales funnel, as we call our sales funnel, on the e-commerce side late in August and we will be getting to retail in September and that'll be a launch across – national launch.

I might add, though, we're very careful about jurisdictions where you cannot sell CBDs. We have update website continuously to make sure we stay on top of that and will be out in the market in September..

And Luke, we’re pretty excited about it. Right now, we're selling $100 tincture bottles. That is where the market is right now, but we're seeing a lot of demand from our chain customers who want CBD on their shelves. But as we all know and as we've been telling the market, a chain can't carry $100 tincture model.

They're really looking for a product that's sub-$20. So you'll see our CBD disposal in the market at prices that really can bring a new wave of consumers into the CBD space..

Understood. Thank you.

And then just switching over to the smokeless, can you just remind us on the details of how that margin profile will change as the MST scales and continues to increase penetration in that segment?.

Yes. If you go to 2017, margin in moist was kind of in the 30%s, now it's stepped up significantly, it's still below the segment margin. And every quarter we're just seeing continued margin expansion.

We have about $3.5 million of unabsorbed overhead that doesn't change whether we sell 1,000 cans or 10,000 cans and so you're going to continue seeing that kind of margin improving..

Great. Thank you. Good luck next quarter..

Thank you..

Thank you..

[Operator Instructions] We will take our next question from Vivien Azer from Cowen & Company. Please go ahead..

Thank you. Good morning..

Good Morning..

Good Morning, Vivien..

So sticking with CBD, can we just dive a little bit deeper into your aspirations around launching product in the Canadian marketplace? The regulatory landscape is a bit more nuanced relative to the U.S.

So could you speak to the relationships that you're establishing with the provinces themselves in terms of product approval and how you're thinking about navigating that regulatory landscape relative to the U.S.? Thanks..

So, Vivien, as you know, sort of Canada is a little backwards on the CBD and cannabis and marijuana. So at the end of the day, Turning Point did not have an infrastructure in Canada. We sell Zig-Zag through a partner up there. So that was why we invested in the ReCreation guys. We put $3 million in there.

We've hired a team of regulatory partners up in Canada, and ultimately the ReCreation guys do have a partnership with ROSE Life, which is a Tilray investment. And ultimately, they're going to navigate those waters for us. We are developing the recipes, the products.

As we talked about, we're very focused on the lower dollar price target products, and ultimately, our partners up there are going to deal with those nuances and we're still kind of waiting for the CBD market to open up a little bit more. Ultimately, we have processing technology, but to do the processing, it's going to have to be in Canada.

So we're going to find either a processing partner or going to have to invest a few million dollars to build the processing facility in Canada. Finding hemp in Canada is actually fairly easy, I mean, it's dramatically cheaper than it is in the U.S.

But really, when it comes to the province nuances, we're going to have to rely on our partners to navigate those waters, which they're doing today..

Sure. That's helpful. Thank you. Question on the PMTA process, there was a lot of discussion on that yesterday on Altria's earnings call and I think the message from them was that this accelerated deadline is quite onerous. Obviously, you're pulling forward, your spending or the expenses associated with the PMTA process.

But can you just offer your take on how onerous this process is going to be under this accelerated deadlines and how that impacts how you're thinking about M&A? Thanks..

Okay. So, the process is still fairly opaque. They have pulled the timing on it. We have anticipated what the FDA is going to do. We have plans in place to meet what we see is the obligations. If you look at the obligations, they are statutory as well as guidance driven and we have everything lined up to want to march against that.

We believe we’ll have filings that will meet the hurdle to getting past the first gate of the FDA by the deadline..

And I look at the FDA PMTA process as two parts. There is a significant economic part, which is, you have to effectively just spend money with a lab to have your products tested for certain contaminants. And that is the process that we're pulling forward because we just need to make – you just have to make sure that's done.

There is a second part, which is effectively documenting two parts. One is proving that our products are a positive health benefit relative to cigarettes. And then, second, which we believe is a more loose part, but really going to be a focus is, the age issue with vaping products.

And this is one of the reasons that we bought IVG in September of 2018, because IVG sells to 1.5 million consumers. We have all of the demographic data from that portfolio versus – getting demographic data in the field and in brick and mortar retail not so easy. We have database of 1.5 million consumers.

We know what they're buying, we know their age, trend. We do a lot of age gating. And so, ultimately, we can take the SKUs that we're running through the PMTA process and show that they are used by adult consumers, and we can show that very statistically. And it's just going to – effectively we were hoping we could do that over 18 months.

Now, we just have to do it over 10 months in a worst case scenario. It's just a timing issue, it's not really – we have the information. And so while I understand why Altria says it's onerous, but they've also – from their perspective, the bar is almost a little bit higher just because of the issues they've had.

And so as long as we can prove that our products are being used by adults, which they are, and I've seen the data and the IVG data shows that, we feel like the process is not – I wouldn't use the word onerous, it's just tight..

Perfect. That's very helpful. And the last one from me also referencing some Altria commentary yesterday. Their estimate for the MST category was that it declined 1.5%.

You guys have a 3% volume decline estimate; do you have any sense of what's driving the delta there?.

Each have different databases and the issue on MST and you're seeing some our new technologies coming to the marketplace, that are somewhat interesting. And we've actually looked at some of the product and Altria did talk about this a little bit.

We looked at some of those white pouch products and it was sort of interesting, it was pretty early in the evolution of these products. We sent some people in and what we found was that the sales in the stores – these MST sales in the stores were only marginally impacted.

What we saw with new people coming into the category – interestingly enough, what we found was that there was a significant number enough that at least the trade started mentioning it, of women coming into the category with the white pouch. So we see those – long-term this evolution and we found it very interesting..

And we expect the moist market to be flat to declining, but that's not our focus right now. Our focus is the 80,000 stores we're in, represents 50% of the market opportunity.

There are another 50,000 stores that represent that other 50% and this company never really like was very focused on pushing into chains as much as we have over the past year, and so while the market declines, that's fine, there is just share for us to get..

Terrific, thank you very much..

[Operator Instructions] There are no further questions. And this concludes our question-and-answer session. I would like to turn the conference back over to Larry Wexler for any closing remarks..

I'd like to thank everybody for joining the call and we look forward to talking to you at the end of the third quarter. Thank you very much..