Note 9 - Other Assets

3 Months Ended

Mar. 31, 2025

Investments and Other Noncurrent Assets [Text Block]

Note 9. Other Assets

Other assets consist of:

	*March 31,*		*December 31,*
	*2025*		*2024*
Non-marketable equity investments	$	14,659	$	1,231
Debt security investments		6,276		6,276
Capitalized software		8,331		7,409
Captive investments - available-for-sale marketable securities		5,724		5,487
Other		404		259
Total	$	35,394	$	20,662

Debt and Non-Marketable Equity Investments

The Company records its non-marketable equity investments without a readily determinable fair value, that are not accounted for under the equity method, at cost, with adjustments for impairment and observable price changes. Should assumptions underlying the determination of the fair values of the Company’s non-marketable equity and debt security investments change, it could result in material future impairment charges.

In December 2018, the Company acquired a minority interest in General Wireless Operations, Inc. ("GWO") from SG Gaming LLC for $0.4 million. GWO is a joint venture between the Company and Standard General, LP. On January 2, 2025, the Company contributed 100% of its interest in SBB, the subsidiary that owned and operated the Company’s former CDS reportable segment, to GWO in exchange for a 49% equity interest. In connection with the transaction, the Company has the right to redeem the contribution of SBB from GWO at fair market value under certain circumstances. The Company also received a purchase option with a 15-year term to acquire the remaining 51% equity interest in GWO. The purchase option includes an initial exercise price of $22.0 million, which may decrease over time based on certain tax sharing payments to Standard General, LP. As a result of this transaction, the Company determined that it no longer has a controlling financial interest in SBB and, as a result, deconsolidated SBB on January 2, 2025, and accounts for its interest in GWO under the equity method of accounting. On January 2, 2025, the Company contributed net assets valued at $13.3 million to GWO as part of the transaction. Fair value of the Company's interest in GWO was determined utilizing the market approach and the income approach in the form of the discount cash flow method.

In July 2021, the Company invested $8.0 million in Old Pal Holding Company, LLC (“Old Pal”), with an additional $1.0 million invested in July 2022. The Company invested in the form of a convertible note which includes additional follow-on investment rights. Interest on the convertible note is payable annually in arrears in July of each year. Accrued interest of $0.2 million, $0.3 million and $0.3 million was rolled into the convertible note in July 2022, 2023 and 2024, respectively, resulting in a total investment of $9.8 million. Old Pal is a leading brand in the cannabis lifestyle space that operates a non-plant touching licensing model. The convertible note bears an interest rate of 3.0% per year and matures July 31, 2027. Interest and principal not paid to date are receivable at maturity, and Old Pal has the option to extend the maturity date of the convertible note in one-year increments. The interest rate is subject to change based on Old Pal reaching certain sales thresholds. The weighted average interest rate on the convertible note was 3.0% for the three months ended March 31, 2025 and 2024. Old Pal has the option to convert the note into shares once sales reach a certain threshold. The conditions required to allow Old Pal to convert the note were not met as of March 31, 2025. Additionally, the Company has the right to convert the note into shares at any time. The Company has classified the debt security with Old Pal as available for sale. The Company reports interest income on available for sale debt securities in interest income in its Consolidated Statements of Income. The Company performs a qualitative assessment on a quarterly basis to determine if the fair value of the Old Pal investment could be less than the amortized cost basis. In addition, the Company utilizes a third-party to perform a quantitative assessment to determine fair value using a Monte Carlo simulation (Level 3) when indicated, and at least bi-annually. Based upon its fair value assessments, the Company determined the fair value of Old Pal to be $6.5 million and $6.4 million as of March 31, 2025 and December 31, 2024, respectively. The Company has recorded an accrued interest receivable of $0.2 million and $0.1 million at March 31, 2025 and December 31, 2024, respectively, in Other current assets on its Consolidated Balance Sheets.

Available-for-Sale Marketable Securities

In December 2023, the Company formed a captive insurance company, Interchange, IC, incorporated in the District of Columbia, to write a portion of its insurance coverage, including with respect to general product, and officer and director liability coverages under deductible reinsurance policies. Interchange, IC is a fully licensed captive insurance company holding a certificate of authority from the District of Columbia Department of Insurance, Securities and Banking. Interchange, IC is a wholly-owned subsidiary of Turning Point Brands and is consolidated in the Company’s financial statements.

The investments held within the captive are not available for operating activities and are carried at fair value on the consolidated balance sheet. They consist of money market, stocks, corporate bonds, government securities and real estate investment trusts. The Company believes any investments held with gross unrealized losses to be temporary and not the result of credit risk.

The Company’s captive investments are summarized in the following table (excludes money market funds):

	As of March 31, 2025							As of December 31, 2024
			Gross			Estimated				Gross			Estimated
	*Amortized*		*Unrealized*			*Fair*		*Amortized*		*Unrealized*			*Fair*
	*Cost*		*Gains (Losses)*			*Value*		*Cost*		*Gains (Losses)*			*Value*
Stocks	$	1,658	$	35		$	1,693	$	1,517	$	9		$	1,526
Exchange traded funds		1,754		(26	)		1,728		1,189		(5	)		1,184
Corporate bonds		1,918		28			1,946		2,383		50			2,433
Real estate investment trusts		351		6			357		343		1			344
Total	$	5,681	$	43		$	5,724	$	5,432	$	55		$	5,487

The following table summarizes the fair value of the Company’s captive investments by contractual maturity.

	*As of*
	*March 31, 2025*
Due within one year	$	1,765
Due in one to five years		181
Stocks, real estate investment trusts and exchange traded funds		3,778
Total investments at fair value	$	5,724

Turning Point Brands, Inc. 10-Q