Greenlane Holdings, Inc. Q4 FY2021 earnings call

Management Statement and Operational Highlights:

• Mergers and Acquisitions: 2021 was pivotal as Greenlane completed a transformational merger with KushCo, strengthening its brands portfolio with acquisitions of Eyce and DaVinci.
• 2022 Plan: Two-pronged strategy:
  • Cost Reduction: Target to achieve positive adjusted EBITDA by Q3 2022 by reducing adjusted SG&A to $14-16 million quarterly (a ~40% reduction from previous levels). This includes a reduction in force expected to save ~$8 million annually, facility footprint reductions, and adjusted go-to-market strategy.
  • Non-Dilutive Capitalization: Pausing acquisitions, focusing on non-dilutive liquidity through selling noncore assets (including headquarters), reducing inventory, and securing an asset-based loan (ABL) to support the business.

Segment Performance:

• Consumer Goods Segment: Q4 2021 sales totaled $24.9 million, down from $32.7 million in Q4 2020 due to the company's shift to higher-margin proprietary Greenlane brands.
• Industrial Goods Segment: Q4 2021 sales were $31.1 million, up from $3.6 million in Q4 2020, driven by the merger with KushCo.
• Greenlane Brands: Net sales increased 17% to $7.4 million for the quarter, fueled by higher sales of VIBES and the inclusion of acquired brands (Eyce, DaVinci). Revenue contribution from Greenlane brands was a significant portion of the overall sales, though exact percentage wasn't specified but emphasized their growing importance.

Guidance:

• Aim to achieve positive adjusted EBITDA by Q3 2022.
• Target adjusted SG&A to be between $14 million and $16 million quarterly by Q3 2022.
• Pausing acquisitions, focusing on non-dilutive liquidity through asset sales, inventory reduction, and pursuit of an ABL facility to generate over $30 million in liquidity.

Risks:

• Industry Headwinds: Cannabis industry facing challenges like inflation, supply chain disruptions, and capital dry-up.
• Market Sensitivity: Influence of macroeconomic factors on consumer spending and MSO ordering patterns, which could impact sales and margins.
• Execution Risk: Uncertainty in achieving sales and margin targets due to market variables and the complexity of executing cost reduction and non-dilutive capitalization plans.

Q: Vivien Azer from Cowen asks about the macro backdrop influence on Greenlane brands.

A: Nick Kovacevich responds that while macro factors like consumer spending could impact, the company has a diverse product range including economy and high-end products, confident in the business and strategy with an innovation pipeline.

Q: Aaron Grey from Alliance Global Partners inquires about the integration initiative and channels.

A: Nick Kovacevich states ongoing integration, channels shifting to dispensaries, C-store, and e-commerce, with progress in C-store (e.g., VIBES in 7-Eleven) and plans to leverage sub distributors and e-commerce platforms.

Q: Owen Bennett from Jefferies asks about noncore assets and lower margin brands.

A: Nick Kovacevich discusses noncore assets like e-commerce units and European business, and lower margin brands contributing ~$12-14 million annually, with focus on rationalizing smaller brands and expanding own brands.

Q: Scott Fortune from ROTH Capital Partners asks about e-com strategy and legalization.

A: Nick Kovacevich talks about direct-to-consumer focus, legalization efforts with Capitol Hill engagements and optimism about potential progress, and state growth tracking MSO-excelling markets.

Q: Glenn Mattson from Ladenburg Thalmann asks about cost reduction progress and gross margin outlook.

A: Bill Mote and Nick Kovacevich discuss progress on cost reduction with achieved synergies and headcount reductions, and conservative gross margin projections around 24-25% range, focusing on mix shift to higher-margin brands.