Greenlane Holdings, Inc.

Good morning, all. Welcome to today's conference call to discuss GreenLane Holdings' first quarter 2021 financial results. A press release detailing the financial results for the quarter was distributed this morning and is available on the investor relations section of the GreenLane website. As a reminder, today's conference is being recorded. On the call today are Aaron Lacascio, Chief Executive Officer, and Bill Mote, Chief Financial Officer. Before we begin, GreenLane would like to remind listeners that today's prepared remarks may contain forward-looking statements and management may make additional forward-looking statements in response to the questions received. These statements do not guarantee future performance and therefore, undue reliance should not be placed upon them. These statements are based on current expectations of the company's management and involve inherent risks and uncertainties and other factors discussed in today's press release. This call also contains time-sensitive information that speak only as of the date of this live broadcast, May 18th, 2021. Factors that could cause Green Lane's results to differ materially are set forth in today's press release and in Green Lane's annual report on Form 10-K, and quarterly reports on Form 10-Q filed with the SEC. Any forward-looking statements made today on this call are based on assumptions as of today, and Green Lane assumes no obligation to update these statements as a result of new information or future events. During today's call, Green Lane management may discuss non-GAAP financial measures, including adjusted net loss, and adjusted EBITDA, GreenLane has included a reconciliation of these non-GAAP measures in today's press release, which is available in the investor relations section of our website at gnln.com. I would like to now turn the conference over to Mr. Ern Lacascio, Chief Executive Officer of GreenLane. Please go ahead, Mr. Lacascio.

Good morning, and thank you everyone for joining us today. This morning, I will review key highlights from the quarter and the significant recent progress on our growth strategies before turning the call over to our Chief Financial Officer, Bill Mote, for a review of our financial results. We started 2021 on strong footing following our successes in 2020, and we have made tremendous progress. We continue to gain momentum on the growth of our core revenue and Green Lane Brands. Core revenue was up 11.6% to $32.3 million for Q1 2021, compared with $28.9 million in Q1 2020, and accounted for 95% of our total revenue for the first quarter of 2021. We are also seeing continued growth from our higher margin GreenLane-owned brands, with revenue up 18.4% to a record $8.5 million in Q1 2021, from $7.2 million in Q1 2020. which I am extremely proud to share is our second consecutive quarter of record revenue for our owned brands. These owned brands continue to perform exceptionally well in the market, and Vibes in particular hit a quarterly revenue record of $2.7 million in Q1 2021, up 72.7% from Q1 2020, and our Marley Natural line grew a significant 222.4% in Q1 2021, compared to Q1 2020. I would also like to note our GreenLane Brands revenue accounted for 25% of total revenue for the first quarter of 2021. These financial metrics demonstrate continued positive results from the work we completed throughout 2020 to increase our revenue mix to one more heavily weighted to our higher margin GreenLane-owned brands. I'm also excited to share the advancements we have made on the execution of our strategic vision, which continues to focus on launching exciting new consumer products into the market, expanding our platform through carefully selected M&A opportunities, and growing GreenLane's position as the leading provider of cannabis consumption products globally. The first development being the acquisition of ICE in early March. ICE has long been a GreenLane partner, and is the world's leading manufacturer of specialty silicone smoking products. Their premium products have been a standout in the marketplace, and we were thrilled to be able to bring them in-house. We are excited to work with their highly experienced and extremely talented team and continue the successful growth trajectory the brand has delivered to date, up 52.6% in Q1 2021 compared to Q1 2020. As we continue growing our Green Lane Brands revenue, we benefit from the deep and long-standing relationships we have built over the past 15 years with a large percentage of the industry's leading brands. We have developed significant insights into the market thanks to the work we do with brands over their entire life cycle, which gives us a strong sense of when is the opportune time to acquire. Our criteria to add brands is very selective, and we focus on products, that will not only enhance our margin profile, but ones that will elevate our customers' experiences. Curating products that continue to position us as the industry-leading provider of premium cannabis accessories. We have a robust pipeline and expect to continue executing on similar opportunities as we anticipate industry consolidation will continue to happen over the next few years. In addition to being a benefit to potential M&A, the industry experience and expertise we have developed over the years has positioned us well to adapt to industry changes, including the increased regulation on the mailing of vaping products. As we learned of a recent shift in the industry as a result of the PACT Act, our scale and expertise has allowed us to capitalize on this opportunity. We designed and are executing a solution leveraging our robust compliance infrastructure and our logistics experience to continue shipping vaping products in the United States. This solution also enables us to bring in revenue, providing fulfillment and other services to new and existing customers who lack the resources and expertise to comply with the new and constantly evolving regulatory requirements. We just recently attended the TPE convention, which was our first trade show in a year. The reception was very positive. The show was very well attended, and we feel shows the trend of retail reopening in a meaningful way. Top performers were Vibes Rolling Papers, Ice, and Student Glass, contributing to over $4 million in revenue. We were able to introduce our Vibes Rolling Papers to an expanded customer base, in the traditional convenience class of trade. This class has also begun to show interest in a greater product set because of expanded legalization throughout the country. We look forward to attending future events such as this and ramping up our presence at in-person events as we grow our critical mass. Before turning the call over to Bill, I'd like to end by discussing the transformative merger with Cushco that we announced at the end of March. We were thrilled to announce this combination as it brings together two of the largest ancillary cannabis products and services companies in the world. We expect this transaction will considerably enhance the scale of our business while also resulting in significant synergies at an important point in the industry. We believe that through this combination we will be strongly positioned to grow our role as the leading player in the ancillary cannabis sector. with anticipated benefits not only to our respective shareholders and employees, but also our valued customer bases and third-party brand partners through enhanced product offerings, even more competitive pricing, and expanded ancillary services. As both Greenlane and Cushco are leaders in the ancillary space, we are combining two robust, differentiated, and innovative offerings to create a best-in-class product portfolio. In addition to a differentiated and complementary product offering, we will also be merging two distinct customer bases. The combined company will serve a premier group of customers, which includes many of the leading multi-state operators, single-state operators, and Canadian LPs, the majority of the top smoke shops in the U.S., and millions of direct consumers, allowing for tremendous cross-selling opportunities. With a combined 25 years of experience, over 200 articles of intellectual property, 9,000 brick-and-mortar customers, and millions of direct customers, along with strong relationships with key vendors, we believe we will be best positioned to continue delivering innovative product solutions to our global customer base. We estimate that the pro forma combined company is tracking to achieve approximately between $310 million and $330 million of revenue and that we will deliver incremental revenue growth beyond what either company can achieve on a standalone basis. In addition to the revenue growth opportunities, there are significant potential cost synergies that will enable us to improve margins and enhance profitability. we're expecting the improved operating leverage and enhanced scale of the combined company to drive approximately $15 to $20 million in cost-saving synergies within 24 months of closing, resulting from economies of scale, an optimized distribution network, and reduced operating expenses. Following completion of this transaction, we believe the combined company will have a strong platform for accelerated organic growth and should be well positioned to capitalize on attractive market opportunities to grow profitably and drive value for all shareholders. We've made substantial progress on our strategic initiatives during the first quarter and will continue to accelerate this growth strategy moving through 2021. With that, I will now turn it over to Bill to run through our financial results in further detail.

Thanks, Aaron, and hello, everyone. As a reminder, the results I will be reviewing for you this morning can be found in our earnings release that is available on EDGAR and the investor relations section of our website at gnln.com. As a reminder before I begin, our core revenue is defined as all non-nicotine revenue and Green Lane brand revenue is inclusive of ICE figures. Net sales of Green Lane-owned brands grew 18.4%. to 8.5 million for the year, our best quarter ever for our Green Lane-owned brands, which represented 25.1 percent of total net sales for Q1 2021, up 380 basis points from 21.3 percent for Q1 2020. Core revenue grew 11.6 percent to 32.3 million in Q1 2021, from 28.9 million in Q1 2020. Total net sales increased $34 million in Q1 from $33.9 million in Q1 2020, with core revenue now accounting for over 95% of revenue for the quarter, compared with 85% in Q1 2020. Our United States segment net sales increased 5.7% to $28.7 million for Q1 from $27.1 million in Q1 2020. We are very pleased with our growth in the United States, which occurred despite the lingering impacts of the COVID-19 pandemic. Net sales in the United States increased due to a $1.4 million increase in B2B sales, a $900,000 increase in e-commerce sales, and a $600,000 increase in channel and dropship sales, offsetting declines in supply and packaging and retail sales. Our Canadian segment decreased $1.8 million for Q1, primarily due to a decrease of $1.6 million in our non-core revenue sales, resulting from our strategic shift away from low margin sales. Looking at our European segment, we saw meaningful growth of 18.5% as net sales increased to $2.8 million for Q1, compared to $2.3 million in the same period of 2020. primarily due to the establishment of third-party website sales, resulting from 400,000 of additional net sales and 200,000 of growth in B2B sales, which offset a $200,000 decrease in retail store sales due to pandemic-related closures. Europe is an exciting growth avenue for us, and we are very pleased the segment has performed significantly better than last year, despite continued impacts from the COVID-19 pandemic. As populations around the world see increasing vaccination levels and the economies begin to reopen from pandemic closures, we have seen and expect to continue to see sporadic shortages in availability and transportation resources and materials like shipping containers and semiconductors. which could impact our ability to receive complete shipments of products, potentially impacting our ability to maximize revenue until conditions normalize. Gross profit was 7.3 million, or 21.5% of net sales in Q1, compared to 7.3 million, or 21.6% of net sales in Q1 2020. While merchandise margin increased by 4.9%, and resulted in a $1.7 million or 18.3% increase in merchandise gross profit, the improvements were offset by a $900,000 increase in damaged and obsolete inventory write-offs and a $500,000 increase in third-party profit-sharing contract fees. Excluding for the impacts of the damaged and obsolete inventory, gross margin would improve to 24.1%. We expect our overall gross margin to continue to improve as we execute on our strategic vision with Green Lane brands at the core. G&A costs for Q1 decreased to $8.3 million compared to $8.7 million in Q1 2020, primarily due to a reduction of accounting fees of approximately $800,000, the recognition of a reversal of the allowance on our indemnification receivable of approximately $600,000, and a reduction in trade show expenses of approximately $400,000 due to continued focus on expenditure management as well as travel and other restrictions implemented in response to the COVID-19 pandemic. These reductions were partially offset by an increase in logistics costs and an increase in legal expenses of approximately $400,000 in connection with the due diligence and acquisition-related services during Q1. We expect our third-party logistics costs will decrease going forward as we continue to optimize our distribution platform. Net loss for Q1 was $7.7 million compared to $16.7 million in Q1 2020. Adjusted net loss was $5.5 million in Q1 compared to $6.1 million in Q1 2020. Adjusted EBITDA loss was $5.2 million in Q1, an improvement of $1.1 million compared to adjusted EBITDA loss of $6.3 million in Q1 2020. Cash was $12.3 million as of March 31st, 2021, a decrease of $18.1 million from approximately $30.4 million as of December 31st, 2020, due in large part to payments to vendors decreasing our accounts payable by 10.2 million over the period, as we paid for elevated purchases in preparation for Chinese New Year, payments to Europe's tax authorities totaling 2.7 million, and 2.4 million in cash paid for the acquisition of ICE. As an important note, we also received a refund of 4.1 million from the government of the Netherlands in Q2 2021 related to the tax payments. Since the closure of our Q1 of Q1, our cash balance has grown as anticipated, and future cash usage will primarily be driven by M&A activities. We have developed a robust pipeline of potential M&A and are currently in discussion with several attractive acquisition opportunities. We believe we can execute on these opportunities throughout the remainder of 2021. With the improvements in our financial performance and strong growth in both core and Green Lane-owned brands' revenue, as well as our recent acquisition of ICE and future merger with CUSCO, we believe this will be a pivotal year for us, and we are more excited than ever about the future for GreenLane. With that, I will turn the call back over to the operator and open it up for Q&A.