Greenlane Holdings, Inc.

Good morning, and welcome to today's conference call to discuss Green Lane Holdings' fourth quarter and full year 2021 financial results. A press release detailing the financial results for the quarter and full year ended December 31, 2021, was distributed yesterday afternoon and is available on the Investor Relations section of the Green Lane website at investor.gnln.com. As a reminder, today's conference is being recorded. A replay of this call, as well as a copy of the supplemental earnings slides, will be archived on the company's IR website at investor.gnln.com. On the call today are Nick Kovacevic, 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 speaks only as of the date of this live broadcast, March 31st, 2022. Factors that could cause Green Lane's results to differ materially are set forth in yesterday's press release and in Green Lane's annual report, on Form 10-K 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 SG&A and adjusted EBITDA. Green Lane has included a reconciliation of these non-GAAP measures in yesterday's press release, which is available in the Investor Relations section of the company's website at investor.gnln.com. I would now like to turn the call over to Mr. Nick Kovacevic, Chief Executive Officer of Green Lane. Please go ahead, Nick.

Thank you, operator, and good morning, everyone. I'd like to thank you all for joining us here today to hear the latest about GreenLane. It's been an eventful last few months as we've been making meaningful improvements to the business, and we're excited to share some of these updates today on our operations and strategy going forward. I'll start first by providing a high-level overview of our results for the fourth quarter and full year of 2022. Then I'll turn to some of our more recent developments and how we believe these will translate into a leaner, more profitable, and more sustainable Green Lane. After that, I'll turn the call over to our Chief Financial Officer, Bill Mote, for a more comprehensive review of our financial results before then opening it up for Q&A. So with that, let's jump right into slide three of the supplemental earnings slides. which you can find on our IR website if you haven't downloaded them yet already. 2021 was one of the most pivotal years in GreenLane's 17-year history. Not only did we complete our transformational merger with Cushco, creating the industry's leading ancillary cannabis company and house of brands, but we also strengthened our GreenLane brand's portfolio with the acquisitions of ICE and DaVinci, which give us a strong platform heading into the year. 2022 has been off to a strong start, building on the progress we made last year, most notably through the introduction and implementation of our 2020 plan to streamline the organization, reduce our cost structure and capitalize the business in a non-dilutive manner. I'll be going over this plan in more detail shortly. While the overall cannabis industry is facing headwinds in the form of inflation, supply chain disruptions and stock price declines, We are doing all that we can to weather this storm, to accelerate our path to profitability, and to ensure we have a stable and scalable business that can drive meaningful, profitable growth in the long run. To that end, Q4 represented another step in the right direction. Net sales for the quarter grew 54% year over year to $56 million, which included a full quarter of Cushco sales for the first time. It's important to note that sales would have declined year over year if Cushco's sales contribution was removed due to a decline in lower margin third party sales. However, we are pleased that we have successfully shifted away from these lower quality sales as they are no longer a part of our core strategy and we are instead focused more on our proprietary and higher margin Green Lane brands. Sales of our Green Lane brands was up 17% year over year to $7.4 million for the quarter. which was due to higher sales of Vibes, as well as the inclusion of DaVinci and Ice, compared to the same period last year. It goes without saying that growing our brands remains a key focus of ours, as it helps expand our strategic moat, our margins, our revenue, and our profitability, as we look to become the leading house of brands in the ancillary cannabis industry. Gross margins for the quarter were 22%. up from 17% in Q4 last year, with the increase being driven by a reduced reliance on lower-margin nicotine and third-party brands. As we continue to shift away from these lower-margin brands and focus more on our higher-margin Green Lane brands, we believe this should help offset some of the inflationary pressures we are seeing in the market and ultimately pave the way for higher gross margins going forward. Not to mention, we are slowly passing on increased freight costs to our customers while container rates in general are gradually starting to come down. With that brief overview of the quarter and year, let's now turn to slide four, where I'll be spending a lot of my time today talking about our recently announced plan to capitalize the business, focus on our Green Lane brands, and accelerate our path to profitability. As we shared via press release earlier this month, our plan is essentially twofold. One, to reduce our quarterly costs to become profitable much more quickly, and two, to capitalize the business in a non-dilutive manner. Now, I'll spend time going over each of those. Starting with the first objective, we are targeting to achieve positive adjusted EBITDA by Q3 2022, driven in part by our reduced cost structure. Specifically, we will be working to lower our adjusted SG&A, which is SG&A excluding depreciation and amortization, to between $14 million and $16 million by Q3 of this year. This is a roughly 40% reduction in quarterly costs from the $26.6 million we reported last quarter, and a level that we believe is sufficient to successfully operate the business and become profitable. Supporting this lower cost structure, is the reduction in force we announced earlier this month, which we expect to result in approximately $8 million in annualized cash compensation savings. We'll also be focused on reducing our facility footprints worldwide and adjusting our go-to-market strategy to further reduce costs and operating liquidity. For those of you who have followed or are familiar with Cushco's story, This is a similar playbook to the one Cushco employed back in 2020 at the start of the COVID-19 pandemic, helping Cushco become adjusted EBITDA profitable within three quarters of announcing their cost savings plan. Of course, until we reach profitability and are able to generate positive cash flow, it's important to conserve and build on our current cash levels, which brings me to the second part of our plan. We understand that raising equity capital at these current depressed stock levels is not the right primary strategy. We also understand that issuing equity to acquire businesses trading at higher valuations than Greenline is also not the right strategy. Therefore, we are putting a pause on acquisitions at this time and focusing on generating liquidity in non-dilutive ways to support the business. Like 2020 and parts of 2021, we expect 2022 to continue being a challenging year for the cannabis industry. As capital has dried up, inflation continues to ramp, and companies like GreenLane focus on getting their businesses profitable and cash flow positive as soon as possible. In fact, at recent investor conferences we've been attending, the main message from investors has been to batten down the hatches. We need to continue optimizing the business to thrive, and we will look to execute this plan quickly and effectively. We plan to sell some non-core assets, too, including our headquarters. We have been and will continue to raise prices on some products that we believe have price elasticity and that we know our consumers can absorb. Not to mention, we are discontinuing sales of our non-strategic, lower-margin, third-party brands and we are selling the existing inventory of those that we still have, which will further increase our liquidity and improve our working capital. Naturally, we expect a minor 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. Given that we are employing all these cost reductions, we will have a considerably lower break-even point than before, requiring a lower overall sales level than if we continued to keep some of these brands in the portfolio. In short, if we continued down the path we were on, we may not have been in a position to achieve profitability until next year. With a significantly reduced cost structure, healthier margins, and modest sales expectations, we are in a position to become profitable on an EBITDA basis by Q3 of this year. As I discussed on the last call, GreenLane has done a great job, even before the Cushco merger, of shifting the business away from selling purely third-party products. to developing and growing its own portfolio of proprietary owned brands, which command margins much higher, often between 40% and 65%. Since we closed the merger, we have been accelerating this strategy. And now it's time to kick it into another gear as we reinvest the proceeds of these sales back into growing our brands and growing our higher margin products. With the introduction of this new plan, we are retracting our previously communicated 2022 and 2023 sales targets for our Green Lane brands, given the challenges of forecasting growth rates in this current climate. However, we will be shifting our focus to getting some of these brands and products into traditional consumer retail channels, such as Amazon, Walmart, and Google. Since we are an ancillary business that doesn't touch the plant, we have an opportunity to get an early foothold in these large marketplaces, and leveraging the expertise of our new Chief Commercial Officer, Craig Snyder, who has successfully penetrated these channels before in the ancillary cannabis space, we believe this gives us a significant competitive advantage in expanding the customer reach of our own brands. And finally, we are currently looking to secure an asset-based loan or similar non-dilutive instrument that will support our working capital needs even further. This process is currently underway, and we hope to provide additional details in the near future. Altogether, we expect these strategic measures, if successful, to generate liquidity in excess of $30 million, which we believe is sufficient to bridge the gap into profitability. It's imperative that we act quickly and decisively, and we are wasting no time to get this business profitable and in a position to scale meaningfully once market conditions begin to improve. With that, I'll now turn it over to Bill to run through the financial results in further detail.

Thanks, Nick, and hello, everyone. Thank you for joining us on the call today. 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 in the investor relations section of our website at investor.gnln.com. Turning now to slide five. Net sales grew 54% to $56 million in Q4 2021 from $36.3 million in Q4 2020. The increase in net sales, as Nick mentioned, was largely due to the inclusion of CushCo sales as a result of the merger that was completed on August 31, 2021. Looking at our two new segments, sales in our consumer goods segment totaled $24.9 million for Q4 2021, compared to $32.7 million in Q4 2020. The decrease was due to a reduction in sales of lower-margin third-party brands, as part of the company's shift in strategy to focus on its higher margin proprietary Green Lane brands. Sales in our industrial goods segment totaled $31.1 million for Q4 2021, compared to $3.6 million in Q4 2020. The increase was due to the merger with Cushco that was completed on August 31st, 2021. Net sales for our Green Lane brands increased 17% to $7.4 million for the quarter. As we mentioned on the last call, we and many other importers of goods continue to experience supply chain issues for both Green Lane brands and other top-selling brands due to record shipment backlogs and container shortages. These challenges have resulted in higher freight costs that we traditionally absorbed, but we have recently begun passing through to our customers a freight surcharge. Fortunately, we are starting to see a dip in container prices, as Nick mentioned, but we will continue to monitor our supply chain activities and make regular adjustments to our purchasing to meet any anticipated changes in demand and product availability. Turning now to gross profit, which was 12.5 million or 22.3% of net sales in Q4 2021, compared to 6.2 million or 17% of net sales in Q4 2020. The increase was due in large part to a reduced reliance on lower-margin nicotine and third-party brands. As we continue to prioritize scaling our Green Lane brands, we expect our overall gross margin to continue to improve. SG&A costs for Q4 2021 increased to $24 million compared to $17.3 million in Q4 2020, primarily due to an increase in M&A expenses incurred with respect to the CushCo merger and other acquisitions. On an adjusted basis, which excludes depreciation and amortization, SG&A for Q4 2021 totaled $21.7 million compared to $16.7 million in Q4 2020. Net loss for Q4 2021 was $11.2 million compared to $10.9 million in Q4 2020. And adjusted EBITDA was negative $6.6 million in Q4 2021 compared to negative $7.2 million in Q4 2020. We ended the quarter with $12.9 million in cash and working capital of $53.8 million, compared to $54.2 million as of December 31, 2020. We're continuing to be judicious with our cash position and have the ability to opportunistically raise capital under our ATM program. We are being very thoughtful about how we use our balance sheet to fund our growth initiatives, and we believe the recent plan we have begun implementing will help us generate sufficient liquidity to support the business as we transition to profitability. With the introduction of this plan, we believe we are on track to achieve positive adjusted EBITDA in the third quarter of this year, giving us strong and sustainable platform for profitable growth heading into 2023. With that, I will turn the call over to the operator and open it up for Q&A.