Greenlane Reports Q1 2022 Revenue of $46.5 Million, Up 37% Year-over-Year

Greenlane Holdings, Inc. (“Greenlane” or “the Company”) (NASDAQ:GNLN), one of the largest global sellers of premium cannabis accessories, child-resistant packaging, and specialty vaporization products, today reported financial results for the first quarter ended March 31, 2022 (“Q1 2022”).

Recent Highlights

• Total revenue for Q1 2022 increased 37% to $46.5 million, compared to $34.0 million for Q1 2021.
• Strengthened leadership diversity and industry expertise with the appointments of Darsh Dahya as Chief Accounting Officer and Renah Persofsky as Board Director
• Entered agreement with Universal Distribution to distribute Greenlane Brands in Latin America
• Completed a reduction in force in March 2022, which is expected to result in approximately $8.0 million in annualized cash compensation cost savings

Management Commentary

“Building on a record and transformational 2021, we made meaningful progress executing on our strategic 2022 plan in Q1 2022, from reducing our corporate headcount to focusing more on our higher-margin Greenlane Brands,” said Nick Kovacevich, CEO of Greenlane. “Total revenue increased 37% to $46.5 million, driven primarily by the KushCo merger. If you exclude KushCo’s post-merger sales, revenue declined 47% year-over-year to $18.1 million, driven in large part by our strategic shift away from non-core third-party brands, sales of which decreased 49% from the same period in 2021. As part of our strategy to focus more on our higher-margin, proprietary Greenlane Brands, we expect a decline in total revenue from discontinuing some of these third-party brand relationships, but we believe the overall quality and margins of the revenue that we will generate going forward will be far more favorable and sustainable.

“Sales of our Greenlane Brands was down 34% year-over-year to $6.0 million, largely due to our ERP system implementation, which caused interruptions in our ability to accept and fulfill customer orders. Although we expect to fully transition to this new ERP by the end of 2022, these interruptions materially impacted revenue for the first quarter, with some orders slipping into the second quarter. Growing our proprietary brands remains a key focus of ours, as it helps expand our strategic moat, margins, revenue, and profitability. In fact, we’re excited to have recently announced our partnership with Universal Distribution to distribute our Greenlane Brands in the promising Latin America market. Given that we are not subject to the same global trade restrictions as our plant-touching peers, we can ship our products worldwide in an asset-light manner, enabling us to scale faster and wider, and ultimately build our brands ahead of legalization in these markets.

“During Q1 2022, we also completed a significant reduction in force, which we expect to result in at least $8 million of annualized cost compensation savings. In addition, in April we began marketing efforts for the sale of our headquarters building and securing an asset-based loan, which should significantly improve our liquidity and help support our working capital needs as we inch closer toward profitability. With these steps to enhance the topline and further reduce our cost structure, we believe we are on track to achieve our previously communicated goal of positive adjusted EBITDA by the third quarter of 2022.”

Financial Summary

Net sales were $46.5 million in Q1 2022, compared to $34.0 million in Q1 2021, an increase of 37%. The year-over-year increase in net sales was primarily driven by the KushCo merger. Excluding KushCo’s post-merger sales, revenue declined 47% to $18.1 million, compared to $34.0 million for same period in 2021. Third-party brand sales decreased 49% due to our strategy to focus on our proprietary, higher-margin Greenlane Brands.

Greenlane Brand sales decreased 34% to $6.0 million, or 12.8% of total revenue, in Q1 2022 compared to $9.0 million, or 26.6% of total revenue for Q1 2021. The decrease was mainly due to interruptions related to our ERP implementation.

Cost of sales in Q1 2022 increased by $15.1 million, or 59%, as compared to the same period in 2021. The increase was primarily due to the impact of the KushCo merger of $26.2 million, offset by a decrease in revenue of 47% excluding the impact of the KushCo merger.

Gross profit was $6.0 million, or 12.8% of net sales in Q1 2022, compared to $8.6 million, or 25.2% of net sales in Q1 2021. Excluding inventory write-offs of damaged and obsolete inventory for Q1 2022 and Q1 2021 of $5.8 million and $1.0 million, respectively, which were associated with post-merger and ongoing product rationalization initiatives, adjusted gross margins (see notes below regarding “Use of Non-GAAP Financial Measures” and “Adjusted Gross Margin” for further discussion of this and other non-GAAP measures included in this earnings release) decreased to 25.3% for Q1 2022, compared to 28.1% for the same period in 2021. The decrease in gross margin is related to an increase in lower margin KushCo-related sales and a decrease in Greenlane Brands sales, which carry a higher margin profile than third-party brand sales with a lower margin profile.

Salaries, benefits and payroll taxes expenses increased by 58% to $10.1 million for Q1 2022, compared to $6.4 million for the same period in 2021, primarily due to an increase related to the KushCo merger, an increase in severance of $0.6 million and an increase in stock compensation expense of $0.4 million. The increase was offset by a salaries and payroll taxes decrease related to a reduction in force we completed in March 2022, which we expect to result in approximately $8.0 million in annualized cash compensation cost savings. This reduction in force is a part of our 2022 Plan to reduce our cost structure, increase liquidity and accelerate our path to profitability.

As of March 31, 2022, cash totaled $5.9 million, and working capital was $41.7 million in comparison to working capital of $53.8 million as of December 31, 2021.

Net sales for our Consumer Goods reporting segment were approximately $17.1 million in Q1 2022, compared to approximately $30.5 million in the same period in 2021. The year-over-year decrease was primarily due to a $11.8 decrease in third-party brand sales, as part of the Company’s strategy to focus on its higher-margin proprietary Greenlane Brands, as well as order and fulfillment interruptions from the ERP implementation.

Net sales for our Industrial Goods reporting segment were approximately $29.4 million in Q1 2022, compared to approximately $3.5 million in the same period in 2021. The year-over-year increase was due to the merger with KushCo, which was completed on August 31, 2021.

Conference Call Information

Greenlane management will host a scheduled conference call and webcast later today, Tuesday, May 17 at 8:30 a.m. Eastern time to discuss the results for its first quarter ended March 31, 2022, followed by a question-and-answer session. The call will be webcast with an accompanying slide deck, which will be accessible by visiting the Financial Results page of Greenlane’s investor relations website.

All interested parties are invited to listen to the live conference call and presentation by dialing the number below or by clicking the webcast link available on the Financial Results page of the Company’s investor relations website.

If you have any difficulty connecting with the conference call or webcast, please contact Greenlane’s investor relations at ir@greenlane.com or 714-539-7653.