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spk00: Good morning and welcome to today's conference call to discuss Green Lane Holdings first quarter 2022 financial results. A press release detailing the financial results for the quarter ended March 31, 2022 and was distributed earlier this morning 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, Bill Mote, Outgoing Chief Financial Officer, and Darsh Dhaiya, Chief Accounting Officer. Before we begin, Greenlow 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 on 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, May 17, 2022. 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 for the year ended December 31, 2021, and quarterly report on Form 10-Q for the three months ended March 31, 2022, previously filed with the SEC. Any forward-looking statements made today on this call are based on assumptions as of today and Greenlane assumes no obligation to update these statements as a result of new information or future events. During today's call, Greenlane management may discuss non-GAAP financial measures, including adjusted gross margin, adjusted SG&A, 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 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 GreenLane. Please go ahead, Nick.
spk04: Thank you, Operator, and good morning, everyone. I'd like to thank you all for joining us today to hear the latest about GreenLane. Over the past couple of months, a lot has been going on in the broader capital markets and geopolitical landscape, and even more so here at our company, as we continue to execute on our 2022 plan to reduce our cost structure, increase liquidity, and accelerate our path to profitability. I'll start today's call by first providing a high-level overview of our results for the first quarter. Then I'll turn to some of our more recent developments and how we believe these will help us achieve our stated goal of positive adjusted EBITDA by Q3 of this year. And after that, I'll do a more comprehensive review of our financial results before we then open it up for Q&A. But before we get started, I wanted to spend a quick moment thanking Bill Mote for all of his contributions to GreenLane over the last couple of years, especially as we successfully integrated our merger with CushCo. As we announced in our 10Q yesterday, Bill will be stepping down from his role as Chief Financial Officer to pursue other opportunities. And we all wish him nothing but the best in the next chapter of his career. Our new Chief Accounting Officer Dash Daya will be filling in and will lead many of GreenLane's principal financial activities, including accounting and controllership, financial reporting, financial planning and analysis, tax, and treasury. Dash has a compelling blend of accounting and finance expertise and brings valuable and unique experience in the highly nuanced cannabis industry, having transformed the financial reporting process and infrastructure at MedMen over the past four years. We're really excited by what Dosh brings to the table and are thrilled to see him already hitting the ground running, rolling up his sleeves these past couple of weeks to help with preparing our Q1 financial reporting. Dosh will join me in the Q&A to help answer any questions, but before I jump into the rest of my prepared remarks, I wanted to quickly pass the call over to Bill for some brief final comments.
spk07: Thanks, Nick, and hello, everyone. It's been an absolute pleasure to serve as GreenLane CFO these past couple of years, and I am extremely proud of what the team has been able to accomplish in such a short time frame. I'm optimistic about the company's future, especially as it moves closer towards profitability and generating incremental value for shareholders. I wish the company nothing but the best. and remain a big supporter on the sidelines as the company grows in its next stage of evolution.
spk04: Thank you, Bill. We wish you all the best in your future endeavors. 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 already. 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 in the investor relations section of our website at investor.gnln.com. Net sales for the quarter grew 37% year over year to $46.5 million. The increase was primarily driven by the Cushco merger, but if you exclude Cushco's post-merger sales, revenue actually declined 47% to $18.1 million compared to $34 million for the same period in 2021. A big part of this decrease is explained by our strategic shift away from non-core third-party brands in favor of our higher margin Green Lane brands. In fact, third-party brand sales for the quarter decreased 49% as we continue to shift away from these lower quality sales that are no longer part of our core strategies. As I mentioned on our last call, we expect a decline in total revenue from discontinuing some of these third-party brand relationships. But we believe the overall quality and margin profile of the revenue that we will be generating going forward will be far more favorable and sustainable. Scales of our Green Lane brands were down 34% to $6 million compared to $9 million for Q1 2021. The decrease was mainly due to our ERP system implementation. which caused interruptions in our consumer business and 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. I've said it many times before that growing our brands remains a key focus of ours as it helps expand our strategic moat expand our gross margins, increase our revenue, and increase our profitability. To that end, we're excited that we have announced last week a partnership with Universal Distribution to distribute our products in Latin America. Latin America represents a promising new emerging market for us, and given that we are not subject to the same global trade restrictions as our plant-touching peers, we can actually ship our products worldwide in an asset-light manner. enabling us to scale faster and wider and ultimately build our brand ahead of legalization in these markets. Gross margins for the quarter were 12.8%, down from 25.2% in Q1 last year, with the decrease being driven by write-offs of obsolete inventory related to our post-merger and ongoing product rationalization initiatives. If you exclude these write-offs, adjusted gross margins were 25.3% in the quarter compared to 28.1% for the same period in 2021. The decrease there is related to an increase in lower margin Cushco-related sales and a decrease in Green Lane brand sales, which of course carry a higher margin profile than third-party brand sales. As we continue to shift away from lower margin brands and focus on our higher margin Green Lane brands, We believe this should help us preserve and actually increase our gross margins over time. With that brief overview of the quarter, let's now turn to slide four, which outlines our 2022 strategic plan. I shared a great amount of detail on this slide in our last earnings call, but suffice to say, we remain on track to achieve positive adjusted EBITDA by Q3 of this year. we are making meaningful progress in generating liquidity in excess of $30 million to help bridge this gap into profitability. Starting with the first part, we completed our reduction in force back in March, which we expect will help us generate approximately $8 million in annualized cash compensation savings. We did see some severance expenses show up during the quarter, but now we are largely past that, and this should pave the way for for a lower operating cost structure going forward. We're also in the process of further reducing our facility footprint and making additional changes to the business to bring our adjusted SG&A, which excludes depreciation and amortization, down to between roughly $14 to $16 million by Q3 of this year. And that's compared to $26.6 million that we reported in Q3 of last year. With a 25% gross margin target, we expect this operating cost range to be sufficient to achieve positive adjusted EBITDA, and we look forward to providing more updates on this front as they materialize. Until we get to this goal, conserving and building on our current cash levels is of the utmost highest importance. To that effect, we are making great headway in generating liquidity from non-dilutive sources. starting with selling our headquarters building. We've already received offers and what is currently a very hot Florida commercial real estate market. And we look forward to hopefully finalizing a deal here in the near term. We also have begun discontinuing many of our other non-core assets and discontinuing some of our non-core strategic lower margin, third party branded products that are no longer core to our business. Finally, we expect to complete in Q2 our process of finding an adequate asset-based loan that can support our working capital needs. We're confident that if all of these measures are successful, that we can generate in excess of $30 million of non-dilutive capital, which we estimate will be enough to get us to positive adjusted EBITDA and hopefully beyond as the equity capital markets continue to languish amid rising interest rates and inflation, the devastating geopolitical and humanitarian situation in Ukraine, and additional supply disruptions caused by China's recent COVID lockdowns. Turning now to slide five, sales in our consumer goods segment totaled $17.1 million for Q1 2022, compared to $30.5 million in Q1 2021. The decrease was primarily due to a decrease in third-party brand sales, as well as the aforementioned order and fulfillment interruptions from the ERP migration. Sales in our industrial goods segment totaled $29.4 million for Q1 2022, compared to $3.5 million in Q1 2021. The increase was due to the merger with Cushco. Net sales of the Green Lane brand decreased 34% to $6 million for the quarter. SG&A for Q1 2022 increased to $24.2 million compared to $16.5 million in Q1 2021, primarily due to the Cushco merger and due to an increase in stock compensation expense, severance costs, and fees for our ERP implementation. On an adjusted basis, which excludes depreciation and amortization, SG&A for Q1 2022 totaled 21.8 million dollars compared to 16 million dollars in q1 2021 net loss for q1 2022 was 18.7 million dollars compared to 7.7 million dollars in q1 2021 adjusted evita was negative 5.3 million dollars in q1 2022 compared to negative 5.2 million dollars in q1 2021 We ended the quarter with $5.9 million in cash and working capital of $41.7 million, compared to $53.8 million as of December 31, 2021. We're continuing to be judicious with our cash position and have the ability to opportunistically raise capital under our ATM program. However, we're being very thoughtful about how we use our balance sheet to fund our growth initiatives And we believe our 2022 plan will not only help us achieve positive adjusted EBITDA in Q3 of this year, but also help us generate sufficient liquidity to support the business as we transition into profitability. And with that, I will now turn the call over to the operator and open it up for Q&A.
spk00: Thank you very much. Ladies and gentlemen, the floor is now open for questions. If you have any questions or comments, please press star one on your phone at this time. We ask that while posing your question, you please pick up your handset if listening on a speakerphone to provide optimum sound quality. Please hold while we poll for questions. Thank you. Your first question is coming from Vivian Azir of Cowen. Vivian, please ask your question.
spk08: Great. Thanks so much for taking the question. This is Harrison Vivas on for Vivian. Just first on the ERP implementation, can you quantify the specific impact that it had on your Greenland branded sales? And did it affect any specific brand more than others? And then I guess how much of those sales do you expect to recover in the second quarter? So if you could just kind of talk more about the impact of that implementation.
spk04: Yeah. So the, uh, and thanks for the question. Uh, the implementation, uh, was, was disruptive. Um, unfortunately we did have to move, uh, ERP systems, uh, completely and we had to complete it within a, within a deadline. Uh, that was not, um, was not our decision to do so, but we were forced to. And, uh, so we had to do it quickly. And, uh, unfortunately that meant that the system was down for longer than expected. Um, so it took, um, quite a big chunk out of our January sales to start the year. But the good news is we were able to complete that integration and get the system smoothly running over the course of the quarter. And now we're in a position to gain back some of those sales, as you mentioned. And we expect that when we do the final part of our integration later this year, that it'll be significantly smoother now that we've gone through it and we've built the right teams, the right processes, and we have the historical experience with the new system. So we don't expect this situation to continue to come around and, you know, nip at our sails. This is sort of a one-time thing. And yeah, unfortunately, you know, with the consumer products, sometimes if you're unable to complete a transaction to a customer, they'll go somewhere else to find that. So some of those sales are obviously lost, but we believe that some of them will be recaptured just over time from some of our enterprise clients, and ultimately the key now is to make sure it's smooth sailing going forward.
spk08: Okay, that's helpful. And then I guess just kind of shifting gears to the partnership with Universal, I guess, just given the rationalization and skews that you're doing, given the reduction in headcount that you're kind of taking on and all that's going on in the business, I guess can you talk about why now is the right time to pursue a LATAM strategy? And then I guess can you also talk about, you know, how you will go about this partnership and how does it, you know, actually impact sales? You know, how are we going to roll it out over the next few quarters? Thank you.
spk04: Yeah, no, that's a great question. And, you know, I think it highlights one of the key advantages that we have at GreenLane being an ancillary provider. So we're going to be really smart about how we attack international markets. We're not going to be investing into infrastructure in these markets. The good news is we don't need to. So we're going to be focused on building our brands primarily domestically. But given our brands have high-quality proprietary products, meaningful brand value and traction with consumers, there is appetite for these brands globally. So maybe in the past, we would have made that investment ourselves and put boots on the ground in these international markets. Under our new strategy, we're not going to be doing that. We're going to find partners that are fully capable, that are fully funded, that are able to just buy in bulk quantity the products from GreenLane and be able to then leverage their own sales force and their own infrastructure in these international markets to gain traction with these brands and penetrate the retail customer and the end consumer directly. So our costs and our investment in this partnership is going to be extremely light. outside of the investment we're already making in our brands and in our branded products, which complements our core business here in the U.S. So that's how we're able to enter into an agreement like this and know that we're not going to be taking much-needed resources from our base country here and allocating them there. We're going to leverage their resources and their partnership to do the heavy lifting. And this is a model that's extremely scalable. It's something we can replicate in a lot of these emerging markets. It's something that's certainly asset light, as I mentioned. And there's other demand from other distributors that are interested in these types of deals. So you can expect to see more deals like this coming from GreenLane. We've also talked about how we're going to be leveraging major global platforms like Amazon, eBay, potentially Walmart, to help distribute our products as well. So, again, in the future, it's going to be about working smarter, leveraging infrastructure that's already in existence, and being able to bolt on top of it in a very asset-light, cost-light manner. Now, our core business, where we're going to continue to make bigger investments, that'll be limited more to the domestic U.S., where we have, obviously, a huge opportunity with our industrial goods, that is yet to be materializing in some of these foreign markets, right? We need regulation and legalization before that part of our business shows up. But on our consumer side, perfect opportunity to get ahead of the curve, get out there into these international markets without a big investment on our behalf, and still be able to reap those benefits and essentially front-run what is going to be at some point a gigantic legal cannabis market.
spk08: Great, okay, understood. I'll pass it on. Thanks. Thank you.
spk00: Thank you very much. Your next question is coming from Aaron Gray of Alliance Global Partners. Aaron, please ask your question.
spk09: Hi, good morning, and thank you for the questions. So first question for me, hey, how's it going? During some channel checks recently around New Jersey with the Star of Adultery Sales, saw a good amount of Green Lane branded products and third-party products that you guys distribute on display on the floor as well as countertops. I know that was a big initiative that you guys had with the merger with Cushco, kind of leveraging the two relationships. So I'd love to get an update of the progress. It seems to be going well in the early days of that. And also, just in terms of new adult use markets, just talking with a lot of the staff at Spencer, they noted a big uptick in the number of accessory sales. So how important you think it is for you to be able to be at the forefront of new retail stores opening up with new adult use sales, how you're looking to then target new retail licenses as they're getting awarded in New Jersey, as well as other markets that are coming online, such as New York and Connecticut, just to go along with that initiative. Thank you.
spk04: Yeah, Aaron, great question. And I'm glad you were able to see some of our products in those New Jersey dispensaries as they were lighting up into the first days of adult use. So, look, I think it's a key part of our strategy. A lot of work to be done. We're just getting started. But we have all the pieces to this puzzle, right? We have relationships with the large MSOs, the control majority of the retail, especially in the limited license states. We have the product set. It's a comprehensive product set. I mean, for a dispensary client, we could be their sole ancillary provider for all the things that they would need. They could, of course, supplement that with one or two other providers. But we do have the wide range of offering to be a meaningful, if not a complete solution for these dispensaries, which is not the case with our traditional channel, Smoke Shop and Head Shop. You go to a Smoke Shop and Head Shop, there's thousands and thousands of SKUs. There's SKUs that Green Lane doesn't carry. Any Green Lane SKU wanted to try to carry all the SKUs in a smoke shop and head shop, it'd be impossible. But that's going to be a very different product mix than you're going to see in a retail dispensary. In a retail dispensary, a dispensary channel doesn't need to carry five or six different brands of rolling papers. No, they just need to have all the different relevant form factors, whether it's cones, whether it's rice paper, hemp paper, Those are things that GreenLane has within our vibes portfolio alone. So you're not going to see a need for as much skew proliferation in these retail channels, which makes it even more attractive channel for GreenLane to hopefully be able to own. So we're super excited and we're going to leverage those relationships, but we plan to do this more in an enterprise way. I think historically we've sold to these clients more on a, ad hoc basis. We've sold to, the good news is we've sold to most of the MSOs, a vast majority, and we continue to sell, but it's not a comprehensive enterprise solution yet. And that's what we're having discussions with leading MSOs about right now is really solving this or providing the solution for them to not only address the problem, but also to to capitalize on an opportunity. I think smart retailers are understanding that ancillary products are a great additional value add for their customer. Now that retail storefronts, especially in some markets, are getting more competitive, it's a great way to differentiate. It's a great way to drive incremental spend. Again, somebody spends $100, they're likely to be able to spend another $5 on accessories, right, or $10 on accessories. So great opportunity there, especially with tourists. Right. They need something to consume cannabis with and they might go after some of the cheaper price point items. Or if you're going with a heavy user, they might discover a vaporizer product that's better fit for their consumption needs. So we think that, again, being able to instead of just be transactional and say, hey, Green Lane has products when you need them, buy them from us. We want to be more of an enterprise solution where we can work with these retailers and say, how do we best merchandise your store? How do we best optimize your ability to drive that incremental revenue and to create that value add for your customer? And it's not going to be the same in every market. So being a national player, having that data, having that lens, having that network that we do, that's really our differentiator, not to mention our complete product portfolio that You know, we just don't see out there in the market that anyone else has with our extent of our brands that we offer. We're going to be leveraging all that. So this will be a little bit of a longer sales cycle. And ultimately, it's going to be something that becomes extremely sticky if we're able to land these enterprise type relationships with master supply agreements. In some cases, we're tucking these into existing master supply agreements that we have with MSOs for our industrial goods. And then in terms of servicing the more independent retail channel for social equity licenses and things like that, what we want to do, again, being smarter, is build that into automated systems. So we have our B2B portal that we've been in beta testing since the ERP integration in Q1, and we're expecting to be able to launch that live to our customer base here any day now. And this is going to allow smaller customers to transact themselves through our portal. It doesn't tie up nearly the same amount of resources at Greenline. It makes that a much more efficient transaction. And so we want to have self-service solutions for the smaller retailers, and we want to have enterprise solutions for the larger chain. And we really want to capture a majority of this market. So we're super excited. Again, that was a long-winded answer, but great question, Aaron, and I'm glad you caught a glimpse of it, and it should only get more robust from here.
spk09: Thanks for the detailed response. That was really helpful. And then second question for me, just moving up north to Canada, I know a lot more focus on the U.S. now, but could you just remind us where you see the Canadian market right now in terms of where it fits for the Green Lane, particularly because it's still a very competitive market? You talked about lower margin products there historically, so is that still one? where you're looking to maybe shift away, you know, focus right now, especially as you look to be a little bit more asset light and focus on profitability? Thanks.
spk04: Yeah, another good question. We are going to look to streamline our Canadian activities. One of the things about owning our own consumer brands is we can leverage the help of other distributors or sub-distributors that already have relationships in the market. There's certainly enough margin to go around when we own our own brands and we produce our own goods. So we plan to do that in Canada on the consumer side, but we are seeing in Canada, which is very, you know, I would say it's expected, but it's interesting to see it materializing because we've been talking about this for quite some time, but we are seeing a gigantic migration from smoke shops and head shops to LCRs, licensed cannabis retailers, right? And why is that showing up so profound in Canada versus some of the markets here in the U.S.? And the reason is, you know, it's still very early here in the U.S. A lot of these limited license dates. You know, these stores are more focused on selling cannabis. They're getting great margins still on their cannabis products. And competition is very light. And so the market has not yet adopted a wholesale or whole scale market. of ancillary offerings in many markets in the U.S. Now, however, in Canada, it's highly competitive, as you know. Margins of cannabis have come way down. So smart retailers have really embraced the ancillary products, which is what we offer with our consumer goods, and they're looking for ways to offset the margin degradation of cannabis with these products that have typically keystone type margins, which is like a double up for the retailer. You know, they buy a pipe for 10, they sell it for 20. And then they also want to differentiate from competition, right? You go to a market like Toronto, there's a dispensary on every corner. How do you become the dispensary of choice? Well, if you're the one-stop shop where someone can go and buy their cannabis and their papers and their pipes and their vaporizers, That's a competitive advantage. So we see Canada really embracing this. Again, for GreenLane, we want to be able to streamline. We want to get our self-service portal open in Canada, which is scheduled in the coming months. We also want to be able to leverage sub-distributors. So we want to really do more with less infrastructure. That's our key here. So we see opportunity there on the consumer side. On the industrial side, it's been tough. You know, you guys know, obviously, everybody's seen the market. There's massive facility closures left and right from the LPs. There's layoffs left and right. And, you know, these are the companies that also simultaneously need to invest in hardware to build their vape brands, packaging, child-resistant packaging. They're going to be very cost-conscious at the moment, right? Normally, these companies would spend the extra money to go with the C-cell product that's best in class. They might not be in a position to do that right at this moment. Same with packaging. A lot of the unique custom proprietary designs are being down-traded for, give me the cheapest option available. So Canada, on the brand side, on the cultivation side, it's a bit of a survival mode up there. again, in that market, not to say we can't make sales and we don't make sales because we do, but we're not going to be as focused there, right? We're going to be more focused in the market that's growing, which is the U.S., where companies actually do have the capital to invest more heavily and, you know, are at the size and scale and volume where they need a solution like C-Cell that is, you know, has such capacity and high quality in their manufacturing. So You know, we're there. We expect that to continue to be tough in the near term on the industrial side. We're more focused on taking advantage of Canada on the consumer side at the moment and really focus our industrial goods still with the U.S. MSOs.
spk09: All right, great. Makes sense. Thanks so much for the call, and I'll jump back in the queue.
spk04: Thanks, Aaron. Appreciate it.
spk00: Thank you. Our next question is coming from Scott Fortune of Roth Capital Partners. Scott, over to you.
spk03: Good morning, and thank you for the questions. You mentioned a little bit of kind of sales channel mix, but can you provide a little more color on the smoke shops channel as far as that as a sales channel? And with the cuts that you've made on the sales force focused on third party and supplying those channels, how do you look at the channel mix going forward, especially in light with the smoke shop channel, as you mentioned, a lot of focus on the MSLs going forward currently?
spk04: Yeah. Hey, Scott. Good morning. Appreciate you dialing in early. I know you're West Coast, like us. Look, I think the reality is we're going through a transition, as you guys can see, with total business, with what we're doing here, cost-cutting, right-sizing, streamlining our go-to-market approach internationally and domestically, trying to use technology tools versus people. and ultimately pivoting the business into more higher margin goods. So that's a bit of a transition we're going through as a company. It's also a transition that we're going through with our customer base. So as you mentioned, smoke shops and head shops have historically driven the bulk of our consumer goods business, and it still does today. So that's still a very big channel for us. We have started using sub-distributors a lot as well, but they're accessing more of those channels too, so it's a bit complementary to the same in-channel, which is smoke shops and head shops. So a lot of our business is tied up there. So we're simultaneously going to continue to work those channels because they have historically been our bread and butter, and it's an avenue that Green Lane plays well in. However, we'd like to move a lot of that purchasing, especially for the smaller mom-and-pop retail owners, to a digital platform, right? Again, using technology instead of manpower. And that transition is underway. Like I mentioned, the portal is set to turn to the customer side any day now as we've been in beta testing on the GreenLine side, you know, working on all the kinks over the last couple of months. So we're going to continue to service that channel. We want to do it in the most efficient manner possible. And then we're simultaneously really taking our eye toward the future channels. You know, as Wayne Gretzky said, you know, we want to skate where the puck's going, right? And where we see that going is more to where there's higher consumer traffic, right? As cannabis moves out of the shadows, you know, folks are not going to no longer, or in our opinion, are no longer need to go to a separate, smoke shop or head shop that was kind of built as an alternative channel because none of the traditional channels were open to carrying these products. So what are these traditional channels? Well, we talked a lot about the retail cannabis retail store. Again, when there was no cannabis retail store and everybody was transacting with their, with their dealer on the corner of their house, well, he's not going to be carrying around a bunch of ancillary products or, or, or pipes or whatever. So they do need to travel to that smoke shop and head shop. Well, once they can go to a retail store or even a delivery service, licensed delivery service to buy their goods, they can hopefully then also be able to get their ancillary product needs met at that same point of transaction. So we really focus there. We're also focused on tea stores. This is a channel that has historically benefited from the tobacco consumer. That consumer is dying literally and figuratively. And we know that these fee stores are finding an interest in what's next. And that's the millennial consumer who is more aligned with cannabis consumption. So rather than using an old tobacco brand like ZigZag, for example, that's associated with the nicotine tobacco industry, the millennial consumer is more inclined to buy vibes. that's a cannabis consumer, cannabis rolling paper brand, right? So being able to take advantage of that opportunity, and look, there's products that they've historically not carried, like, you know, pipes, spoon pipes, one-hitters, dugouts. We've got the silicone line with ice. It's doing very well with C-stores. So we see that as a great opportunity. Now, they're not going to carry everything. Again, our premium DaVinci dryer vaporizer is $300 price point. That's not an item for a C-store, but there's going to be a lot of volume transacted at C-stores. It's really an opportunity to be a first mover and to give them a new slate of products to replace what they've historically benefited from that incremental spend on the tobacco side that's slowing down these days and be able to accelerate them into a new category. We're also super excited about Amazon. We've talked about that a lot. Amazon in the U.S. it's still pretty restrictive. We can't sell our full catalog. There's a lot within our catalog we can sell here in the U.S., and we're expecting to launch our comprehensive Amazon strategy here very soon. We've been in the background building out all the data materials, ad campaigns, all the stuff that we need to do to launch. And in Europe, for example, they allow a much broader swath of our catalog. Virtually all of our products can be sold over there. So Amazon is great because we can leverage that globally, again, without putting significant infrastructure or resources. And again, these are channels that most people go online to buy stuff from Amazon. Why weren't you buying your grinders and your papers from Amazon? Because you didn't think they carried it, right? You're used to going to happen to go to Smoke Shop and Head Shop. Well, as you see, these products are now more available on Amazon, just like consumers have changed their behavior with virtually all other brick and mortar, and they're now buying more online and buying more on Amazon, we expect the same to occur for our ancillary products as cannabis becomes more normalized and destigmatized. So we're very focused on these kind of new, you know, again, where the puck's going channels, but not to say we're not going to continue to monetize our existing smoke shop and head shop channels, especially if we can do it in a more efficient way.
spk03: I appreciate that detail. That's helpful. And then real quick, thinking about your business pace compared relative to MSOs and a broad look at what's happened here. Obviously, it's slower, 1Q, but we've seen a seasonal pickup in March and April, and many of these MSOs are looking for stronger second half growth here. How are you seeing the retail store pace now? New Jersey's on board as these new states are coming on board. What's the order level from the MSOs, or what are you hearing from your MSOs partners as coming out here into the second quarter already?
spk04: Yeah, I mean, look, I think everybody's trying to scramble and get ahead of every opportunity. We know New Jersey was a big one, so You know, we're seeing obviously that show up in the forecasting and demand planning that the MSOs are doing with us on their industrial goods, right? That's obviously much more critical. If they don't have jars, they don't sell flour in New Jersey, right? If they don't have A-pens or cartridges, they don't sell A-pens. Now, they'd like to have, you know, a fully stocked retail store with papers, lighters, grinders, all that. But if they're out of one of those items or they don't have the complete offering, it's not the end of the world. Consumers still walking in, consumers still buying cannabis. So it's a little bit different on both sides of our business. So we're getting more visibility on our industrial side than we are necessarily on the consumer side. We are seeing a little bit of a pickup with that channel on the consumer side. But we want these to be more comprehensive agreements, the enterprise type sales, So we don't have much that we can report on that other than anecdotally, you know, for example, one new MSO, not new, an MSO that we hadn't done much historically with on the consumer side, but we have on the industrial side, you know, they bought, you know, I think $400,000 worth of grinders, right? So you can just kind of see the scale that an MSO that owns, you know, 100 doors or whatever can buy in versus the smoke shops and head shops that maybe have a couple storefronts and are buying grinders across multiple vendors. This is, again, why we're investing so much in this channel. So, again, just anecdotal stuff at this point, but we expect to be able to have more comprehensive and substantive data that we can report on a go-forward basis as this starts to heat up.
spk03: Makes sense strategically focusing on the commercial or industrial challenge. That's it for me. I'll jump back in the queue. Thanks. Thanks, Scott. Appreciate it.
spk00: Thank you. Your next question is coming from Glenn Mattson of Leidenberg. Glenn, please ask your question.
spk05: Yeah, thanks for taking the question. Perhaps you touched on this and I didn't catch it or whatever, but just thought I'd, so sorry if it's a repeat, but you talked about kind of January sales being hurt by the, ERP implementation and stuff and I just wanted to get a sense of you know it's not clear if they'll be made up or not because like you said sometimes you miss those sales if if you miss your window or whatever but can you just give us the general sense has like the back half of the quarter bounced back to more normal levels and then particularly like into April is that is that how do you characterize the current environment?
spk04: Yeah, certainly January is the worst month and, you know, a little bit of a rebound in February and then March. April was a strong month for us, you know, just given 420. You know, we are going through a lot of changes at Green Lane. So the ERP was obviously a very big one that had a material impact, but there's other changes. that are, you know, make it hard for us at this very moment to kind of forecast, given that we're, you know, reducing SKUs, blowing out all the inventory. We've made some changes with personnel, as you guys know. So, you know, it's hard for us. We'd like to be able to give better visibility and guidance than we plan to. But part of that's making sure that we have a business model that is more predictable and we're leveraging contracts. We're leveraging larger customers that we can forecast better. And we're leveraging automated tools so we can transact more efficiently. So, you know, we're going to, in terms of your question specifically on the revenue, some of that is gone, certainly. Some of that, you know, showed up in later months, March and then April. And ultimately, some of it's about the sell-through. So when this product sells through, we're hoping to get bigger buys. but again, very hard to forecast right now on a go-forward basis.
spk05: Right. And then when you talk about profitability in the third quarter, you just leave it a basis. Can you, and I know you're not looking to give guidance, I guess, but just the general sense of a ballpark range of what kind of revenue level you need to be at and what kind of gross margin level. And then I don't know if you have thoughts yet on kind of like, you know, there's a lot going on with the gross margin. So a lot of shifting between the,
spk04: integration of cushion and the uh uh you know getting rid of the kind of lower margin stuff so just like the general sense of where you think gross margin will be when all this plays out maybe in in 18 months or 24 months or something like that yeah so if you look at our obviously there was some one-time inventory things if you look at our adjusted gross margin coming in at 25.3 percent uh we called out um the mix shift um you know and and in q1 Specifically, it was more skewed toward our industrial goods, just given the fact that the consumer was impacted by the ERP migration, right? So with that, we were still over 25% on an adjusted basis, on a normalized basis. So you can expect that to be sort of the floor that we're targeting. And really, we believe the margins should be in the high 20s. Our goal is really to get those to 30, you know, certainly by Q1 of next year. So, that's going to be what we're working on over the course of this year as we have margin enhancement initiatives that involve how we structure our pricing, various pass-throughs and surcharges to offset some of the heavy freight costs, and then, of course, the broader mix shift to higher margin GreenLane-owned brands. We're very confident there in terms of modeling for profitability. You know, we know the one thing that we can control more so than anything else is our costs. And we've just simply had far too high of costs at this business. If you look at, you know, Q1 of 2021, for example, you know, we had 16.5 of SG&A. And that's, you know, more than almost double our gross profit. If you go into this year, we're at a similar ratio. And again, Q1 is when we did our right sizing, when we took a lot of restructuring charges and severance charges. And so we've guided that we believe we can be down to 15 in Q3, sort of that $14 to $16 million range. And that would mean that we would either need to do $60 million in sales at a 25% gross margin, or some number lower than 60 million of quarterly sales at a higher gross margin if we're able to get a few extra incremental margin points. So we're right there. Again, 46.5 this quarter, but we did 55 million in Q4 prior to the ERP and some of those disruptions. So we're right there. Again, we've got work to do. We're very focused on building out certain channels that we believe are going to have the most long-term value. So we want to balance short-term and long-term. But we really do want to get this business profitable ASAP. We believe we can deliver on positive adjusted EBITDA in the back half of this year consistently. So that's how we would get there essentially in terms of the numbers. And hopefully we can drive revenue growth, although we are expecting revenue to be Lighter, just given the fact that we discontinued certain products, we still think we can get easily over that sort of $50 million threshold. If we can get up to $60 million, that's where you'd only need a 25% gross margin to deliver on a break-even quarter. And we plan to grow the margins as well and potentially hit as low as possible on that SG&A range.
spk05: Great. All right. That's it for me. Thanks for the call.
spk04: Thanks. I appreciate it.
spk01: Thank you. Your next question is coming from Andrew Bond of Jefferies. Andrew, over to you.
spk06: Hi. Good morning, Nick and Bill. Andrew Bond on the line for Owen Bennett. Thanks for taking our questions.
spk04: Thanks, Andrew.
spk06: So with some of the macroeconomic factors you touched on at the top of the call, just wanted to get your thoughts on some potential consumer headwinds you might be seeing, specifically related to your consumer business. So are you seeing a more challenged consumer this year related to your business, and do you see any particular risk specifically around sales for some of your more durable products like pipes and devices like ICE or DaVinci versus something like a rolling paper with Vibes? Thank you.
spk04: Yeah, great question. Given all of the things that have happened internally, it's hard for us to know the impact that consumer spending alone has had on Green Lane sales. One thing we can look at is our websites that are geared more direct to consumer. Those are certainly down, certainly significantly from, you know, the COVID stimulus days, right, 2020, and even into 2021. So we can read into that a little bit. I think what's probably interesting data to look at, and I haven't, to be honest, digested it fully, is, you know, sales of our, Lower price point items, some of the items that, you know, are just going to be more consistent. They go into, like, a C-store, for example, and that would be vibes. That would be ice. You know, those silicone products, especially the smaller hand pipes and spoon pipes, come at a very nice price point. I would imagine the volume there has been more stable versus the higher-end stuff, right? So the ultra-high-end, you know, we sell volcano vaporizers from stores in Bickel. We sell... the Pax products. We sell the Grenco products, which are a little bit of a lower price point. We also sell our own DaVinci dryer vaporizer, which is top of the market in terms of price and quality. So I would imagine that's where we're probably taking more of the brunt of this hit with the consumer discretionary spending being challenged in this current environment. But I regret to say I haven't fully digested the data, and a bit of that is a little hard given all of the other changes we've had at the company, but something we will certainly be looking into more as we progress and seeing how that impacts our business.
spk06: Yeah, fair enough. And just a quick follow-up to that. Within your strategic measures on slide four, could you tell us which products or which brands specifically you're planning to raise pricing on? Is this more related to some consumer products or industrial side of the business? Any color around that would be helpful. Thank you.
spk04: Yeah, no, it is around both sides of the business. When it comes to consumer brands, we are working with still some partner brands such as Pax, Grenco, Storz & Bickel, as I mentioned. And we're going to continue to sell through some of the other third-party brands that we've historically carried because we still have inventory in stock. But the idea is once we sell out of that inventory, we won't be rebuying a lot of those goods because we're going to be more selective about the partners we work with. We do have much stronger margins on our Green Lane brands, so we're less concerned about incremental price increases there. But we've worked with some of the third-party brands to offer some price increases, which we have. And then also just things like covering shipping and stuff that we've done historically. We look for ways to offset that and add incremental margin. On the industrial side, we've worked with clients that we have master supply agreements with. We've been able to reach terms to increase some of those prices. In some instances, there's a shipping surcharge. In some instances, there's a general material increase. So it varies. And then, of course, the stock products that we sell We're obviously in more control, and so we're looking at a couple things. I mean, cash flow is key. We're charging more deposits than we have historically because cash is tied up longer, right, in this current environment. It's just taking longer to produce goods and get them shipped over. So even though that doesn't necessarily affect margin, it does help cash flow. And then we also have, again, freight surcharges and tariff surcharges that we can play with. And, you know, we're monitoring everything as – You know, we get cost savings. We want to be mindful of that. And we don't want to overcharge our customers, especially on the industrial side. We always have to be very price competitive. But we also want to do what's fair, right? And through a lot of the pandemic, we ate the brunt of the additional expense with freight and with tariff. And I think our partners that we work with, especially at scale, have understood that investment we've made and understand that, hey, if it's temporary, you know, fine, we'll bear the brunt and we'll get back to normal. But this is, you know, kind of the new normal at this point, right? So I think they're understanding and we've seen that show up in some of those negotiations.
spk06: Great. Thank you, Nick. Very helpful, Culler. I'll pass it on.
spk04: No problem. Thanks.
spk00: Thank you very much. Your next question is coming from Pulkit Sanbawal of Canaccord Genuity. Pulkit, please ask your question.
spk10: Hi, good morning. Most of my questions have already been answered, but just a couple of clarifications on my end. So you talked about the ERP implementation and the impact on Q1. Now that I understood that, the system is now up and fully running, or are there any more components left to be implemented going forward?
spk04: Yeah, good question. So the system was onboarded in January and began transacting the system in mid-January, but it was very clunky, right? And so we've been able to make improvements throughout. We've been able to fix bugs. We've been able to make sure that, you know, that the data is flowing properly. And throughout most of this time, our sales team was entering orders into the back end of the system, essentially into the financial ops side of the system, which would be like entering orders into QuickBooks, right? It's fairly manual, right? It takes a little bit more time. So I was saying on average, you know, our staff was taking, you know, 20 to 30 minutes to enter an order into the system, which is not ideal, especially as you're dealing with a lot of small, you know, mom and pop type customers in some of the parts of our business with the smoke shops and head shops. So what we were able to do throughout is launch our CRM tool, which we have CRM where the customer data is, but it did not have a properly functioning order entry feature. So building the order entry feature, getting that dialed in, getting that beta tested, that occurred throughout Q1 as well and into Q2, and we're pleased to have been able to launch that which dramatically reduces the amount of time it takes a rep to enter an order. It goes from 20 to 30 minutes down to call it five minutes. And that just got live here recently. So you could see a big improvement with that change. And then the last piece, which I've talked about, is the self-serve portal. So we've been testing that internally. We're about to flip that externally any day now. and allow our customers to put their own order in. And so that takes your time of order entry down, again, from five minutes internally having one of our people do it to basically no time, right, zero minutes, because the time is then put on the customer to do their own order entry, right? So you can kind of see how we're progressively getting better and more efficient with our system. So to answer your question, you know, the system's been live and we've been transacting, but these incremental improvements do make a very big deal. And there's work that's been done and there's still a little bit more work to do before we have this exactly where we want it to be.
spk10: Okay, that's very helpful. And just in terms of the impact on Q2, so essentially it's just going to be the order backlog that you guys are going through as opposed to any more implementation associated things, right?
spk04: Yeah, exactly. You know, there's going to be a little bit of disruption to the business, but not nearly like it was in Q1.
spk10: Okay, perfect. And then just one last clarification. In terms of the SGN reductions and the headcount reductions that you mentioned in the press release and talked about earlier, are there any left to be implemented over the course of Q2 or the remainder of the year, or is that more or less it?
spk04: Sorry, you said any more ERP integrations?
spk10: No, I just meant the headcount reduction, sorry.
spk04: Oh, headcount reductions, yeah. Look, I think we've got to continue to monitor our situation, you know, again, controlling what we can control. If the sales are there as we'd like them to be, then, you know, we're in a great position. You know, if the sales remain a little softer than we'd like them to be, then, you know, we need to take a little bit more incremental cost reduction. Now, the good news is we're not going to have to do this in the form of layoffs. We, you know, have natural attrition as does every company, especially in this environment with the change in hiring and, you know, the remote working. I just read an article yesterday. It's called the, they're calling it now the forever resignation versus the great resignation. So, I think we've forever changed, right? And companies will have higher attrition rates than normal for the foreseeable future, maybe forever, as the job market is more available to employees because they can work from anywhere, right? And that means that, you know, for a company that needs to reduce costs, you simply just don't backfill, right? So we're going to be mindful, and if... if sales don't grow at the rate that we expect them to, then we're not going to be backfilling a lot of these positions and taking the incremental cost savings there. But in terms of the bulk of the heavy lifting, the large layoffs, anything like that, we did what we needed to do in Q1. As most of the analysts know on this call, we like to work very fast. We're even a bit disappointed that it took us so long from the merger to kind of align on the new business plan completely. And some of that's due to the market continuing to change and the further deterioration of cannabis equities in 2022, which nobody was expecting. People were expecting a rebound. But we made all the adjustments as quick as we could. And we implemented our plan starting in March. The plan is well underway. We don't expect anything material to be added to that right-sizing cost reduction plan that we implemented.
spk10: Okay, that's very helpful. Thanks a lot for the color. No problem.
spk00: Thank you, ladies and gentlemen. That now concludes the Q&A session. I will hand back over to Nick for any closing remarks.
spk04: Okay, thank you guys all for joining today, especially on the West Coast. I know it's early, but, you know, this is, again, You know, one more quarter where you see a big transformation with the Green Lane business. We do really expect the business to normalize from here on out. We're very confident in our guidance on SG&A and our ability to get the business profitable this year, which we think is paramount in this climate. We're less focused on revenue for revenue's sake, but really getting the right revenue into the right channels that strategically position us for the long term. and doing it with the right product mix that can deliver on the right margin profile for where our business needs to be today. So we appreciate you all being along for the journey and along for the ride. We look forward to giving you future updates and hope everybody has a great rest of your day today and look forward to seeing you in a few months. Thank you.
spk00: Thank you, ladies and gentlemen. This does conclude today's conference call. You may disconnect your phone lines at this time and have a wonderful day. Thank you for your participation.
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