Greenlane(GNLN) - 2022 Q4 - Annual Report

Note About Forward-Looking Statements Forward-Looking Statements Disclosure Forward-looking statements in this report are subject to risks and uncertainties that may cause actual results to differ materially from expectations - The report contains forward-looking statements, identifiable by terms like 'anticipate,' 'estimate,' 'plan,' 'expect,' 'believe,' 'intend,' 'may,' 'will,' 'should,' and 'could'[12] - Forward-looking statements are not guarantees of future performance and are subject to risks and uncertainties that could cause actual results to differ materially[13] - Key areas covered by forward-looking statements include growth strategies, financial and operational results, industry trends, management's objectives, regulatory impacts, and projections of revenue and earnings[14] Summary Risk Factors Key risks include global economic conditions, supply chain, liquidity, regulatory uncertainties, and potential Nasdaq delisting - Global economic conditions, including inflation and supply chain disruptions, could materially and adversely affect the business[19] - The company is vulnerable to third-party transportation risks, including governmental laws and common carriers' policies restricting product shipments[19] - The business depends partly on continued market acceptance and legalization of cannabis, with legislative uncertainty posing a risk[19] - Increased regulatory compliance burdens, particularly concerning vaporizer products and ENDS, could significantly impact business development and operations[19] - Failure to meet Nasdaq listing standards could lead to delisting, adversely affecting stock liquidity and the ability to raise capital[18] PART I Item 1. Business Greenlane Holdings, Inc. is a global platform for cannabis accessories and vape products, focused on profitability through cost reduction and divestitures General Organization Our Business Relating to the Cannabis Industry Product Information Our Competitive Strengths Our Operating Strategies Business Seasonality Human Capital Resources Competition Trademarks Regulatory Developments Corporate Information Available Information - Greenlane is a global platform for cannabis accessories, vape devices, and lifestyle products, founded in 2005[21] - Key acquisitions in 2021 included Eyce, DaVinci, and a merger with KushCo Holdings, significantly expanding proprietary brands and customer reach[21] - The business operates in two segments: Consumer Goods (serving consumers via wholesale, retail, e-commerce with Greenlane and third-party brands) and Industrial Goods (serving Cannabis Operators with ancillary products like packaging and vaporization solutions)[25] - Strategic initiatives for 2022 focused on accelerating profitability, including cost structure reduction, facility footprint optimization, non-core asset dispositions, and focusing on higher-margin Greenlane Brands[57][61] - The company received a USPS PACT Act Exemption in January 2022, allowing shipment of vaporizers and ENDS products to compliant businesses, improving shipping costs and fulfillment times[64][65] Item 1A. Risk Factors This section details risks impacting Greenlane, including macroeconomic conditions, liquidity, Nasdaq delisting, narrow margins, and evolving cannabis/vaping regulations Risks Related to Our Business and Industry Risks Related to Our Organizational Structure Risks Related to Ownership of Our Class A Common Stock - Global economic conditions, including inflation and rising interest rates, could negatively affect demand for Greenlane's products and exacerbate business risks[90][91] - The company faces significant liquidity challenges, with a low cash balance and negative cash flow, potentially requiring additional dilutive equity financing if strategic initiatives are unsuccessful[92][93][94] - Greenlane has failed to meet Nasdaq listing standards multiple times and faces a risk of delisting, which would negatively impact stock price, liquidity, and future financing capabilities[98][101][102] - Narrow operating margins magnify the impact of cost variations and unforeseen events, making the company vulnerable to increased costs and price competition[106] - The evolving and uncertain regulatory landscape for vaporization products and cannabis in the U.S., Canada, and Europe poses significant compliance burdens and risks to sales and operations[118][130][138] Item 1B. Unresolved Staff Comments There are no unresolved staff comments from the SEC regarding the company's previous filings Item 2. Properties Greenlane leases its headquarters, distribution centers, administrative offices, and a retail store across North America and Europe - Greenlane leases its headquarters (4,000 sq ft office) in Boca Raton, Florida[301] - The company also leases distribution centers in the U.S., Canada, and Europe, administrative offices in the U.S. and Europe, and a retail store in New York City[301] - Current facilities are deemed adequate for global operational needs, with flexibility for additional space[301] Item 3. Legal Proceedings Information on legal proceedings as of December 31, 2022, is detailed in Note 7 of the Consolidated Financial Statements - Information on legal proceedings as of December 31, 2022, is detailed in Note 7—Commitments and Contingencies of the Consolidated Financial Statements[302] Item 4. Mine Safety Disclosures This item is not applicable to Greenlane Holdings, Inc., as the company is not involved in mining operations PART II Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Greenlane's Class A common stock (GNLN) is listed on Nasdaq; no cash dividends are expected, and unregistered sales occurred in Q4 2022 Market Information Holders Dividends Unregistered Sales of Equity Securities - Class A common stock (GNLN) has been listed on the Nasdaq Global Select Market since April 18, 2019[305] - As of December 31, 2022, there were approximately 93 stockholders of record for Class A common stock[307] - The company has never declared or paid cash dividends and does not expect to in the foreseeable future, planning to retain future earnings[291][308] Unregistered Sales of Equity Securities (Q4 2022) | Date | Class A shares issued | | :--------- | :-------------------- | | 10/11/2022 | 172 | | 10/31/2022 | 1,588 | | 10/31/2022 | 428 | | 12/1/2022 | 172 | | 12/8/2022 | 172 | | 12/15/2022 | 71,250 | | 12/15/2022 | 76,137 | | 12/30/2022 | 172 | | 12/30/2022 | 86 | Item 6. [Reserved] This item is reserved and contains no information Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations This section reviews Greenlane's business, strategic plan for profitability, and financial performance for 2022 and 2021, noting decreased sales and gross profit Overview Plan to Accelerate Path to Profitability and Capitalize the Business USPS PACT Act Exemption Reverse Stock Split Critical Accounting Policies and Estimates Results of Operations Liquidity and Capital Resources Cash Flows - Greenlane is focused on achieving profitability and long-term sustainability through cost reduction, facility closures, headcount reduction (49% in FY2022), and divestiture of non-core assets[316][318][319][321] - The company generated over $30.0 million in non-dilutive liquidity by the end of 2022 through initiatives like selling its 50% stake in VIBES Holdings LLC for $4.6 million and its headquarters building for $9.95 million, and securing a $15.0 million asset-based loan[317][318] - A one-for-20 reverse stock split was effected on August 9, 2022, to regain Nasdaq compliance, adjusting all share and per share amounts retroactively[325][327] Consolidated Operating Results | Metric | 2022 ($ thousands) | 2021 ($ thousands) | Change ($ thousands) | Change (%) | | :---------------------------------------------- | :---------- | :---------- | :---------- | :--------- | | Net sales | $137,085 | $166,060 | $(28,975) | (17.4)% | | Cost of sales | $112,102 | $132,207 | $(20,105) | (15.2)% | | Gross profit | $24,983 | $33,853 | $(8,870) | (26.2)% | | Gross margin | 18.2% | 20.4% | (2.2)% | | | Salaries, benefits and payroll taxes | $31,290 | $34,012 | $(2,722) | (8.0)% | | General and administrative | $41,000 | $47,874 | $(6,874) | (14.4)% | | Goodwill and indefinite-lived intangibles impairment charge | $71,360 | $0 | $71,360 | * | | Depreciation and amortization | $9,067 | $4,689 | $4,378 | 93.4% | | Total operating expenses | $152,717 | $86,575 | $66,142 | 76.4% | | Loss from operations | $(127,734) | $(52,722) | $(75,012) | 142.3% | | Net loss attributable to Greenlane Holdings, Inc. | $(115,760) | $(30,583) | $(85,177) | 278.5% | Segment Net Sales and Gross Profit | Segment | 2022 Net Sales ($ thousands) | 2021 Net Sales ($ thousands) | Change ($ thousands) | Change (%) | 2022 Gross Profit ($ thousands) | 2021 Gross Profit ($ thousands) | Change ($ thousands) | Change (%) | | :--------------- | :------------- | :------------- | :--------- | :--------- | :---------------- | :---------------- | :--------- | :--------- | | Consumer Goods | $48,134 | $110,105 | $(61,971) | (56.3)% | $9,603 | $22,544 | $(12,941) | (57.4)% | | Industrial Goods | $88,951 | $55,955 | $32,996 | 59.0% | $15,380 | $11,309 | $4,071 | 36.0% | | Total | $137,085 | $166,060 | | | $24,983 | $33,853 | | | Item 7A. Quantitative and Qualitative Disclosures About Market Risk Quantitative and qualitative disclosures about market risk are not required for the company - Quantitative and qualitative disclosures about market risk are not required for the company[398] Item 8. Financial Statements and Supplementary Data This section presents Greenlane's audited consolidated financial statements for 2022 and 2021, including balance sheets, operations, equity, cash flows, and detailed notes Report of Independent Registered Public Accounting Firm Note 1. Business Operations and Organization Note 2. Summary of Significant Accounting Policies Note 3. Business Acquisitions Note 4. Fair Value of Financial Instruments Note 5. Leases Note 6. Debt Note 7. Commitments and Contingencies Note 8. Supplemental Financial Statement Information Note 9. Stockholders' Equity Note 10. Compensation Plans Note 11. Income Taxes Note 12. Segment Reporting Note 13. Subsequent Events - The section includes the Report of Independent Registered Public Accounting Firm, confirming the fair presentation of financial statements[400][401] - The company retrospectively changed its accounting method for outbound shipping and handling costs to classify them as 'general and administrative' expenses, effective January 1, 2021, to enhance comparability[402][449] Consolidated Balance Sheet Highlights | Metric | December 31, 2022 ($ thousands) | December 31, 2021 ($ thousands) | | :---------------------- | :---------------- | :---------------- | | Total assets | $146,053 | $285,827 | | Total liabilities | $50,694 | $89,463 | | Total stockholders' equity | $95,359 | $196,364 | | Cash | $6,458 | $12,857 | | Restricted cash | $5,718 | $0 | | Inventories, net | $40,643 | $66,982 | | Goodwill | $0 | $41,860 | Consolidated Statements of Operations Highlights | Metric | 2022 ($ thousands) | 2021 ($ thousands) | | :---------------------------------------------- | :---------- | :---------- | | Net sales | $137,085 | $166,060 | | Gross profit | $24,983 | $33,853 | | Goodwill and indefinite-lived intangibles impairment charge | $71,360 | $0 | | Net loss attributable to Greenlane Holdings, Inc. | $(115,760) | $(30,583) | | Net loss per share - basic and diluted | $(15.37) | $(15.85) | Consolidated Statements of Cash Flows Highlights | Metric | 2022 ($ thousands) | 2021 ($ thousands) | | :-------------------------------------- | :---------- | :---------- | | Net cash used in operating activities | $(26,426) | $(37,330) | | Net cash provided by (used in) investing activities | $12,025 | $(19,691) | | Net cash provided by financing activities | $13,930 | $38,963 | Item 9. Changes in Disagreements with Accountants on Accounting and Financial Disclosure There have been no changes in or disagreements with accountants on accounting and financial disclosure matters - There are no changes in or disagreements with accountants on accounting and financial disclosure[643] Item 9A. Controls and Procedures Management concluded that disclosure controls and internal control over financial reporting were ineffective as of December 2022 due to material weaknesses; remediation is ongoing Evaluation of Disclosure Controls and Procedures Management's Report on Internal Control Over Financial Reporting Material Weaknesses Remediation Plan and Status Changes in Internal Control Over Financial Reporting Inherent Limitations on Effectiveness of Controls - Management concluded that disclosure controls and procedures were ineffective as of December 31, 2022, due to material weaknesses[646] - Internal control over financial reporting was also deemed ineffective as of December 31, 2022, due to material weaknesses[648] - Identified material weaknesses include ineffective user access controls over IT systems, lack of an effective control environment, and deficiencies in risk assessment and control activities[651][653][654][655] - The company is implementing a multi-year ERP system, expected to be completed in 2023, as part of its remediation plan, but full remediation of identified material weaknesses is ongoing[658][659] Item 9B. Other Information This item states that there is no other information required to be disclosed Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections Disclosure regarding foreign jurisdictions that prevent inspections is not applicable to the company PART III Item 10. Directors, Executive Officers and Corporate Governance Information on directors, executive officers, and corporate governance is incorporated by reference from the 2023 Proxy Statement - Information is incorporated by reference from the Proxy Statement for the 2023 Annual Meeting of Stockholders[666] Item 11. Executive Compensation Information on executive compensation is incorporated by reference from the 2023 Proxy Statement - Information is incorporated by reference from the Proxy Statement for the 2023 Annual Meeting of Stockholders[667] Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Information on security ownership and related stockholder matters is incorporated by reference from the 2023 Proxy Statement - Information is incorporated by reference from the Proxy Statement for the 2023 Annual Meeting of Stockholders[668] Item 13. Certain Relationships and Related Transactions, and Director Independence Information on related transactions and director independence is incorporated by reference from the 2023 Proxy Statement - Information is incorporated by reference from the Proxy Statement for the 2023 Annual Meeting of Stockholders[669] Item 14. Principal Accounting Fees and Services Information on principal accounting fees and services is incorporated by reference from the 2023 Proxy Statement - Information is incorporated by reference from the Proxy Statement for the 2023 Annual Meeting of Stockholders[670] PART IV Item 15. Exhibits, Financial Statement Schedules This section lists consolidated financial statements, schedules, and exhibits filed as part of the Form 10-K, including an index and required exhibits (1) Consolidated Financial Statements (2) Financial Statement Schedules (3) Exhibits Required by Item 601 of Regulation S-K - The section includes an index to the consolidated financial statements, which are part of this Form 10-K[672] - All financial statement schedules are omitted as they are either not required, not applicable, or the information is included in the consolidated financial statements and notes[673] - A detailed list of exhibits required by Item 601 of Regulation S-K is provided, covering corporate documents, agreements, and certifications[674] Item 16. Form 10-K Summary No Form 10-K Summary is included in this report - No Form 10-K Summary is included in this report[679] Signatures Signatures This section contains the required signatures from executive officers and directors for the Form 10-K report, certifying submission on March 31, 2023 - The report is signed by the Chief Executive Officer, Craig Snyder, and Chief Financial and Legal Officer, Lana Reeve, as principal executive and financial officers[683] - Additional signatures from directors Donald Hunter, Aaron LoCascio, Renah Persofsky, and Jeff Uttz are included[684] - All signatures are dated March 31, 2023[683][684]