Greenlane Holdings, Inc. — FY2020 Form 10-K
Reporting period: Fiscal year ended December 31, 2020. This is an annual report, not a standalone fourth-quarter filing; the filing provides selected Q4 operating updates but not a complete Q4 income statement. Unless noted otherwise, financial figures are in U.S. dollars.
Business context
Greenlane distributes premium cannabis accessories and liquid nicotine products through wholesale, e-commerce, retail, and supply-and-packaging channels in the United States, Canada, and Europe. It also develops proprietary brands. The company shifted toward a lower-volume, higher-margin mix, including reducing nicotine exposure and expanding Greenlane Brands.
Financial performance and liquidity
| Metric | FY2020 | FY2019 |
|---|---|---|
| Net sales | $138.3 million | $185.0 million |
| Gross profit / margin | $22.8 million / 16.5% | $31.1 million / 16.8% |
| Operating loss | $49.0 million | $24.9 million |
| Net loss | $47.7 million | $39.8 million |
| Net loss attributable to Greenlane Holdings, Inc. | $14.5 million | $28.8 million |
| Basic and diluted loss per Class A share | $1.22 | $0.96 |
| Net cash used in operating activities | $12.3 million | $36.9 million |
| Adjusted EBITDA (non-GAAP) | $(24.4) million | $(13.4) million |
Sales fell 25.2%. The company reported $30.4 million cash and $58.2 million working capital at year-end, versus $47.8 million and $88.7 million, respectively, a year earlier. Total assets were $122.7 million and total liabilities $53.4 million. Long-term debt, net of issuance costs and current portion, was $7.8 million; the $15 million revolving credit line was not renewed after its November 2020 expiration, and had no year-end borrowings. Management said cash on hand should cover working capital, capital expenditures, debt repayments, and other needs for at least 12 months.
Material changes and notable items
- U.S. sales declined 29.8% to $112.5 million, mainly reflecting a $54.3 million decrease in nicotine-product revenue and the lower-volume mix. U.S. e-commerce sales increased $6.5 million, or 86.7%.
- Canada sales declined 30.1% to $15.5 million, amid flavored-product restrictions, temporary COVID-related customer closures, and loss of PAX exclusivity. Europe, including a full year of Conscious Wholesale operations, generated $10.3 million, up from $2.6 million in 2019.
- Channel mix shifted: B2B was 60.4% of sales (78.1% in 2019), B2C 14.3% (5.9%), supply and packaging 11.5% (10.8%), and channel/drop-ship 13.8% (5.2%). Greenlane Brands were 16.5% of sales, versus 8.3% in 2019.
- Four major vendors represented 49.5% of sales and 41.6% of purchases, compared with 63.4% and 52.9% in 2019. No single customer exceeded 10% of sales.
- Gross margin was pressured by inventory write-downs and other strategic rationalization charges, including approximately $3.2 million of damaged/obsolete inventory adjustments. The company recorded a $9.0 million U.S. goodwill impairment.
- Operating cash use improved year over year, with working capital contributing $17.7 million of cash in 2020. Investing activities used $4.1 million, and financing activities used $1.1 million.
Outlook, risks, and contingencies
- No quantified revenue or earnings guidance was provided. Management cited continued growth potential for proprietary brands, e-commerce, and international operations, and expected B2B and B2C retail sales to recover to and exceed pre-pandemic levels as vaccines became more available. It also emphasized uncertainty about COVID-19’s duration and effects.
- Management’s outlook depends on evolving regulation of nicotine/vaping, cannabis and hemp-derived products, and shipping restrictions. The 2021 mailing restrictions on ENDS could raise costs or limit deliveries; the company said the full impact was not yet clear.
- A European VAT matter resulted in a $9.9 million VAT payable and $4.4 million VAT receivable at year-end. Greenlane recorded a $0.9 million indemnification asset supported by a bank guarantee and a $4.5 million expense for amounts not considered probable of recovery. Additional recovery from the sellers, and possible fines, penalties, or litigation costs, remain uncertain. German authorities had commenced a criminal investigation.
- Management concluded internal control over financial reporting and disclosure controls were ineffective at year-end because of material weaknesses, including deficiencies in financial close and reconciliation, inventory controls, IT access and controls, and monitoring. Remediation was underway, including implementation of a new ERP system expected during 2021.
- Five securities class actions relating to the IPO had been dismissed by February 2021; the filing reported no securities lawsuits then pending. Other ordinary-course legal and tax matters remain subject to uncertainty.
- After year-end, Greenlane acquired substantially all Eyce assets for stated consideration of $11.1 million and announced a proposed merger with KushCo on March 31, 2021. The merger remained subject to shareholder and other closing conditions; it was not a completed transaction at filing.
Most important facts for investors to verify
- Whether sales, gross margins, and cash usage stabilize after the steep 2020 revenue decline, and whether higher-margin brands and e-commerce can offset lower wholesale nicotine sales.
- The final resolution, timing, and recoverability of the European VAT balances, indemnification claims, and any penalties or related costs.
- Progress in remediating material weaknesses and implementing the new ERP system, including testing evidence that controls operate effectively.
- The operational and cash impact of ENDS shipping rules, supplier concentration, and continuing federal, state, and international product regulation.
- Liquidity after the expired revolving credit facility, planned acquisitions, potential TRA payments, and any future share issuance or Common Unit redemptions.
- Whether the Eyce integration and proposed KushCo merger close on the disclosed terms and deliver expected strategic benefits.