Greenlane Holdings, Inc. — Q2 2021 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2021. Amounts are U.S. dollars; financial statement figures are in millions unless otherwise noted. Results are unaudited and consolidated, including the Operating Company and its non-controlling interests.
Business context
Greenlane sells cannabis accessories, child-resistant packaging, and vaporization products through wholesale, e-commerce, and retail channels in the United States, Canada, and Europe. The company is investing in its proprietary Greenlane Brands and acquired substantially all assets of Eyce LLC in March 2021.
Financial performance
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Net sales | $34.715 | $32.400 | $68.724 | $66.268 |
| Gross profit | $7.771 | $6.817 | $15.084 | $14.146 |
| Gross margin | 22.4% | 21.0% | 21.9% | 21.3% |
| Operating loss | $(5.583) | $(6.380) | $(13.523) | $(24.030) |
| Net loss | $(5.840) | $(6.312) | $(13.554) | $(23.051) |
| Net loss attributable to Greenlane | $(3.043) | $(2.051) | $(7.299) | $(6.512) |
| Loss per Class A share, basic and diluted | $(0.16) | $(0.18) | $(0.45) | $(0.60) |
| Cash flow from operations | $0.099 | $(1.316) | $(15.158) | $(2.413) |
Q2 sales increased 7.1%; six-month sales increased 3.7%. Gross margin improved, while consolidated net loss narrowed year over year. However, the loss attributable to Greenlane widened in Q2 and for the first six months. The six-month operating cash outflow increased substantially, including from lower accounts payable and accrued expenses.
- Sales mix and brands: Q2 Greenlane Brand sales were $9.0 million, up 62.5%; six-month sales were $17.5 million, up 37.8%. VIBES sales rose 233.3% in Q2 to $3.0 million. Nicotine sales fell 89.6% in Q2 and 73.2% year to date.
- Geography: Q2 U.S. sales rose 16.4% to $30.7 million; Canada fell 59.8% to $1.4 million; Europe rose 3.4% to $2.6 million. Canada’s decline reflected lower nicotine sales, inventory shortages, and disruption from its May ERP implementation.
- Margins and expenses: Q2 gross margin improved 1.4 percentage points, but inventory adjustments and customs duties partly offset stronger merchandise margins. Q2 general and administrative expense rose 10.7%, primarily due to merger costs and IT services, partly offset by a VAT-related gain.
Balance sheet, debt, and liquidity
- At June 30, cash was $11.632 million, versus $30.435 million at December 31, 2020. Working capital was approximately $36.4 million, versus $54.2 million.
- Total current assets were $66.865 million and current liabilities $30.482 million. Total assets were $102.204 million; total liabilities were $43.379 million.
- Notes payable were $10.535 million before unamortized issuance costs and current portion: an $8.035 million real estate note and a $2.5 million Eyce promissory note. The balance sheet reported $9.039 million of notes payable, net, excluding the $1.407 million current portion. The revolving line of credit was not renewed and had no outstanding borrowings.
- Six-month investing cash outflow was $3.590 million, including $2.403 million for Eyce and $1.542 million for property and equipment. Financing cash outflow was $0.292 million.
- Management said cash on hand and access to capital markets were expected to fund working capital, capital expenditures, debt repayments, and other requirements for at least the next 12 months. This assessment is subject to financing availability and operating conditions.
Outlook, risks, and unusual items
- Merger: Greenlane expected its merger with KushCo Holdings to close in the second half of 2021, subject to approvals and other conditions; it gave no assurance it would close. The transaction could materially change share ownership and capital structure.
- Canada and ERP: Management said Canadian operations had stabilized after ERP-related disruption and expected a sales recovery in Q3 and Q4 2021. The filing warns that further ERP rollout problems could disrupt operations; internal control weaknesses remained unremediated.
- Regulation and logistics: PACT Act requirements and USPS, FedEx, and UPS restrictions on shipping many vaping products create uncertainty around delivery costs and the ability to ship. Restrictions, product taxes, or other vaping regulations could materially affect sales.
- Supply chain and pandemic: COVID-19 continued to affect supply chains and European retail operations. Winter storms and port backlogs caused supply issues in early 2021.
- VAT and legal matters: European VAT payable was $3.287 million at quarter-end; the amount and timing of further recoveries from sellers and exposure to penalties remain uncertain. Three shareholder complaints challenge merger-related disclosures; Greenlane said it intended to defend the claims.
- Acquisition and one-time effects: Eyce consideration totaled $8.739 million, including cash, shares, a promissory note, and contingent consideration; its purchase accounting remained preliminary. Six-month 2020 results included a $8.996 million goodwill impairment charge, while 2021 included a $1.692 million gain from partial reversal of a prior VAT indemnification charge.
- Subsequent financing: After quarter-end, Greenlane reported an August registered offering that generated approximately $29.9 million net proceeds and an ATM program of up to $50 million. Through August 12, ATM sales generated approximately $0.2 million gross proceeds. These events were subsequent to the reporting period.
No formal revenue or earnings guidance was provided in the filing. Management’s stated priorities included growing higher-margin Greenlane Brands, controlling costs, and pursuing the KushCo merger.
Investor verification priorities
- Track operating cash flow, cash balances, working-capital movements, and whether post-quarter financing meaningfully improves liquidity.
- Assess the sources and durability of Greenlane Brand growth and gross-margin improvement against inventory adjustments, freight, and customs costs.
- Verify Canadian sales recovery and the stability and control implications of ERP implementation in all regions.
- Monitor KushCo merger approvals, legal challenges, transaction costs, and resulting dilution and ownership structure.
- Follow developments in European VAT exposure and recovery, and changes to vaping-product shipping and regulatory restrictions.