Business context and reporting period
Greenlane Holdings, Inc. distributes cannabis-related accessories, vaporization devices, packaging and lifestyle products through wholesale, retail and e-commerce channels. Its Consumer Goods segment includes proprietary and third-party brands; Industrial Goods serves cannabis operators and includes packaging and vaporization solutions. This 10-K covers the fiscal year ended December 31, 2022; it does not provide standalone fourth-quarter results. The 2021 comparison includes KushCo only from its August 31, 2021 merger closing, limiting comparability.
Financial performance and liquidity
| Metric | 2022 | 2021 |
|---|---|---|
| Net sales | $137.1 million | $166.1 million |
| Gross profit and margin | $25.0 million; 18.2% | $33.9 million; 20.4% |
| Operating loss | $127.7 million | $52.7 million |
| Net loss | $125.9 million | $53.4 million |
| Net loss attributable to Greenlane | $115.8 million | $30.6 million |
| Cash used in operating activities | $26.4 million | $37.3 million |
| Cash provided by investing activities | $12.0 million | Cash used: $19.7 million |
| Cash provided by financing activities | $13.9 million | $39.0 million |
At year-end, cash was $6.5 million and restricted cash was $5.7 million; working capital was approximately $41.0 million, down from $53.8 million. Debt, excluding leases, was $18.2 million gross and $13.0 million net of issuance costs and current maturities. This included a $15.0 million asset-based loan, with interest at prime plus 8%; $5.7 million was held in a blocked account at year-end. The company reported compliance with the loan covenants. No dividend is planned.
Material changes versus the prior comparable period
- Sales fell $29.0 million, or 17.4%. Consumer Goods sales declined 56.3% to $48.1 million, while Industrial Goods sales increased 59.0% to $89.0 million, partly because KushCo was included for a full year in 2022 but only four months in 2021.
- Gross margin declined 2.2 percentage points to 18.2%. Management attributed much of the decline to Industrial Goods’ greater share of sales and its lower-margin mix. Excluding inventory write-offs, consolidated gross margin was 25.2%, compared with 26.7%.
- Operating expenses included a $71.4 million impairment charge: $41.9 million of goodwill and $29.5 million of indefinite-lived intangibles. Goodwill was fully impaired at year-end.
- Headcount fell approximately 49% during 2022. Salaries and benefits declined 8.0%; management said workforce and facility actions were intended to reduce costs, with approximately $8.0 million in annualized cash compensation savings expected from reductions in force.
- Inventory declined to $40.6 million from $67.0 million, and vendor deposits fell to $6.3 million from $18.5 million. The company sold its 50% VIBES stake for $4.6 million and sold its headquarters property, using proceeds in part to repay the real estate note.
Outlook, risks and unusual items
Management’s stated priority is to reach profitability in 2023; this is an objective, not quantified formal guidance. Initiatives include cost reductions, facility consolidation, inventory reduction, a planned packaging-division divestiture and a greater focus on higher-margin Greenlane Brands. The company says cash on hand and expected operating cash flow should meet requirements for at least 12 months, but also warns that low cash, negative operating cash flow and limited capital-market access could constrain operations and debt payments. It reports that additional financing may be needed.
- The company raised equity through ATM sales and June and October 2022 offerings; the October offering generated about $6.8 million net and included substantial warrants. A February 2023 registration statement for up to $8.0 million in units had not become effective when the 10-K was filed.
- In February 2023, the company agreed to prepay approximately $6.6 million under its asset-based loan; lenders agreed to release $5.7 million of blocked funds. It also sold its rights to employee retention credit payments for approximately $4.9 million in cash. The 2022 statements had recognized $4.9 million of ERC income and a receivable.
- Disclosure controls and internal control over financial reporting were ineffective at December 31, 2022 due to material weaknesses, including deficiencies in risk assessment, journal-entry review, IT access and monitoring. Management expected remediation to continue alongside the ERP implementation, targeted for completion in 2023. The auditor did not attest to internal control effectiveness.
- Nasdaq had notified the company in December 2022 that its share price was again below the minimum bid-price requirement. The filing describes potential delisting risk and a June 12, 2023 compliance deadline.
- Key business risks include supplier and customer concentration, vaporizer and cannabis regulation, shipping restrictions, thin margins, inventory obsolescence, financing access and execution of the restructuring. CCELL products represented 39.1% of 2022 sales; the ten largest customers represented 40.7% of sales, including one customer at approximately 22%.
- The company reported no litigation reserves and said pending proceedings were not expected to have a material adverse effect. Separately, it disclosed a February 2023 lawsuit seeking repayment of an approximately $0.4 million Unrivaled receivable, and continuing uncertainty around European VAT liabilities and recoveries.
Important facts for investors to verify
- Whether the 2023 profitability objective is supported by improving sales, gross margins and operating cash flow, rather than cost reductions alone.
- Available unrestricted liquidity, cash burn, borrowing-base availability, loan repayment terms and covenant compliance after the February 2023 amendment.
- Progress and proceeds from the packaging divestiture, excess-inventory sales and other planned liquidity initiatives.
- Potential dilution from outstanding warrants, equity financing and the company’s authorized share capacity.
- Whether internal-control weaknesses are remediated and the ERP system is implemented without further disruption.
- Nasdaq bid-price compliance, the status of the proposed offering, and material developments in the Unrivaled and VAT matters.