Greenlane Holdings, Inc. — FY2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021. This is an annual report, not a standalone fourth-quarter report. Greenlane distributes cannabis accessories, packaging, vaporization products and lifestyle goods through wholesale, e-commerce and retail channels. It completed its KushCo merger on August 31, 2021, and acquired Eyce and DaVinci during 2021; KushCo’s results are included only from the merger date.
Financial performance and liquidity
| Metric | FY2021 | FY2020 |
|---|---|---|
| Net sales | $166.1 million | $138.3 million |
| Gross profit / gross margin | $27.7 million / 16.7% | $22.8 million / 16.5% |
| Operating loss | $(52.7) million | $(49.0) million |
| Net loss | $(53.4) million | $(47.7) million |
| Net loss attributable to Greenlane Holdings, Inc. | $(30.6) million | $(14.5) million |
| Basic and diluted loss per Class A share | $(0.79) | $(1.22) |
| Cash used in operating activities | $(37.3) million | $(12.3) million |
| Cash used in investing activities | $(19.7) million | $(4.1) million |
| Cash provided by (used in) financing activities | $39.0 million | $(1.1) million |
- Revenue increased 20.1%, primarily due to $43.5 million of KushCo sales included after the merger. Excluding KushCo, management reported lower sales across legacy operations.
- Reported gross margin was nearly flat. Excluding inventory write-offs related to damaged, obsolete and rationalized products ($10.5 million in 2021; $6.7 million in 2020), management reported gross margins of 23.0% and 21.3%, respectively.
- Consumer Goods sales fell 9.9% to $110.1 million, reflecting reduced sales of lower-margin third-party nicotine and other brands. Greenlane Brand sales rose 52.3% to approximately $34.8 million. Industrial Goods sales rose to $56.0 million, largely reflecting KushCo’s contribution.
- At year-end, cash was $12.9 million, versus $30.4 million a year earlier; working capital was $53.8 million, versus $54.2 million. Total debt was $22.6 million, including an $8.0 million related-party bridge loan. The bridge loan bears 15% interest, is secured by company assets, and was due in full in June 2022.
- Year-end current assets included $67.0 million of inventory, with a $21.3 million obsolescence reserve. Total liabilities were $89.5 million.
Material changes, outlook and risks
- 2022 cost and liquidity plan: Announced in March 2022, the plan includes a workforce reduction expected to save approximately $8.0 million in annualized cash compensation, reducing facilities, pursuing a sale-leaseback of headquarters, disposing of non-core assets, discontinuing lower-margin third-party brands, selective price increases and seeking an asset-based loan. The filing gives no quantified revenue or earnings guidance and does not assure that the financing or asset-sale initiatives will be completed.
- Liquidity and financing risk: Management said cash on hand and potential capital-market access should fund requirements for at least 12 months, but cautioned that market conditions and share-price performance could limit access. The filing also warns that low cash and negative cash flow could force further cost reductions and raise substantial doubt about continuing as a going concern if additional funding is not secured.
- Equity dilution: The company raised capital through a public offering and an at-the-market program. Through March 28, 2022, it had sold approximately 11.7 million ATM shares for gross proceeds of about $9.4 million. It also reported issuing approximately 15.3 million additional Class A shares after year-end through March 28, including ATM sales, awards, unit redemptions and acquisition-related consideration.
- Other significant exposures: The filing highlights evolving cannabis, vaporizer and nicotine regulation; shipping restrictions; supplier and customer concentration; competition and narrow margins; COVID-19 and supply-chain uncertainty; and a German investigation and other potential claims concerning European VAT. Management reported no litigation reserves at year-end and said it did not believe pending proceedings would materially adversely affect the company, while noting outcomes remain uncertain.
- Nasdaq listing: The company received a deficiency notice on February 25, 2022 for failing to meet the $1.00 minimum bid-price requirement; the initial compliance period ran through August 24, 2022.
- Controls and reporting: Management concluded that disclosure controls and internal control over financial reporting were ineffective at December 31, 2021 because material weaknesses remained, including deficiencies in IT access, risk assessment, journal-entry and reconciliation review, and monitoring. KushCo was excluded from the year-end internal-control assessment during integration.
- Unusual items and audit: 2021 results include merger and acquisition activity, acquisition-related stock compensation and inventory rationalization write-offs. The 2020 comparison includes a $9.0 million goodwill impairment charge. The auditor issued an unqualified opinion on the 2021 financial statements; the auditor did not express an opinion on internal-control effectiveness.
Important facts for investors to verify
- Whether Greenlane repaid or refinanced the $8.0 million secured bridge loan due in June 2022, and what asset-based or other financing it ultimately obtained.
- Actual cash burn, available liquidity and progress toward positive operating cash flow after the 2022 cost-reduction measures.
- Execution and proceeds of the headquarters sale-leaseback and other planned asset dispositions, plus the realized savings from workforce and facility reductions.
- Post-merger performance and integration costs, including whether anticipated synergies materialized and whether Consumer Goods sales stabilized.
- Inventory quality and reserve adequacy, and any further write-offs from product rationalization or slow-moving stock.
- Resolution and remaining potential exposure from European VAT matters, including recoveries under seller indemnities.
- Progress in remediating material weaknesses and completing the ERP implementation, along with the status of Nasdaq listing compliance.