UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2023
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____ to _____
001-38875
(Commission file number)
Greenlane Holdings, Inc.
(Exact name of registrant as specified in its charter)
Delaware
State or other jurisdiction of
incorporation or organization
1095 Broken Sound Parkway, Suite 100
Boca Raton, FL
(Address of principal executive offices)
83-0806637
(I.R.S. Employer
Identification No.)
33487
(Zip Code)
(877) 292-7660
Registrant’s telephone number, including area code
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Class A Common Stock, $0.01 par value per share
Trading Symbol(s)
GNLN
Name of each exchange on which registered
Nasdaq Capital Market
Securities registered pursuant to Section 12 (g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15 (d) of the Act. Yes ☐ No ☒
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☐ No ☒
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T
(§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit such files). Yes ☐ No ☒
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth
company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Non-accelerated filer
☐
☒
Accelerated filer
Smaller reporting company
Emerging growth company
☐
☒
☒
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial
accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☒
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial
reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the
correction of an error to previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the
registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒
The aggregate market value of the common equity held by non-affiliates of the registrant as of June 30, 2024, the last business day of the registrant’s most recently completed
second fiscal quarter, was approximately $1.0 million based upon the closing price reported for such date on the Nasdaq Capital Market.
As of July 18, 2024, Greenlane Holdings, Inc. had 5,819,335 shares of Class A common stock outstanding.
Greenlane Holdings, Inc.
Form 10-K
For the Fiscal Year Ended December 31, 2023
TABLE OF CONTENTS
Note About Forward-Looking Statements
PART I
Item 1.
Item 1A.
Item 1B.
Item 1C.
Item 2.
Item 3.
Item 4.
PART II
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
Item 9C.
PART III
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
PART IV
Item 15.
Item 16.
Signatures
Business
Risk Factors
Unresolved Staff Comments
Cybersecurity
Properties
Legal Proceedings
Mine Safety Disclosures
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
[Reserved]
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Quantitative and Qualitative Disclosures About Market Risk
Financial Statements and Supplementary Data
Changes in Disagreements with Accountants on Accounting and Financial Disclosure
Controls and Procedures
Other Information
Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Related Stockholder Matters
Certain Relationships and Related Transactions, and Director Independence
Principal Accounting Fees and Services
Exhibits, Financial Statement Schedules
Form 10-K Summary
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NOTE ABOUT FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K (“Form 10-K”) contains forward-looking statements, within the meaning of the Private Securities Litigation Reform Act of 1995,
that involve risks and uncertainties. Many of the forward-looking statements are located in Part, Item 7 of this Form 10-K under the heading “Management’s Discussion and
Analysis of Financial Condition and Results of Operations.” Forward-looking statements provide current expectations of future events based on certain assumptions and include
any statement that does not directly relate to any historical or current fact. In some cases, you can identify forward-looking statements by terminology such as “anticipate,”
“estimate,” “plan,” “project,” “continuing,” “ongoing,” “expect,” “believe,” “intend,” “may,” “will,” “should,” “could” and similar expressions. Examples of forward-looking
statements include, without limitation:
● statements regarding our growth and other strategies, results of operations or liquidity;
● statements concerning projections, predictions, expectations, estimates or forecasts as to our business, financial and operational results and future economic
performance;
● statements regarding our industry;
● statements of management’s goals and objectives;
● statements regarding laws, regulations, and policies relevant to our business;
● projections of revenue, earnings, capital structure and other financial items;
● assumptions underlying statements regarding us or our business; and
● other similar expressions concerning matters that are not historical facts.
Forward-looking statements should not be read as a guarantee of future performance or results and will not necessarily be accurate indications of the times at, or by,
which such performance or results will be achieved. Forward-looking statements are based on information available at the time those statements are made or management’s
good faith belief as of that time with respect to future events and are subject to risks and uncertainties that could cause actual performance or results to differ materially from
those expressed in or suggested by the forward-looking statements. Important factors that could cause such differences include, but are not limited to, those discussed in Part I,
Item 1A of this Form 10-K under the heading “Risk Factors” and in other documents that we file from time to time with the Securities and Exchange Commission (the “SEC”).
Forward-looking statements involve estimates, assumptions, known and unknown risks, uncertainties and other factors that could cause actual results to differ
materially from any future results, performances, or achievements expressed or implied by the forward-looking statements. These risks include, but are not limited to, those
listed below and those discussed in greater detail in Part I, Item 1A of this Form 10-K under the heading “Risk Factors.”
● our strategy, outlook, and growth prospects;
● general economic trends, trends in the industry, and the competitive markets in which we operate;
● our ability to generate adequate cash from our existing business to support our growth;
● our ability to raise capital on favorable terms, or at all, to support the continued growth of the business, including high inflation and increasing interest rates;
● our dependence on, and our ability to establish and maintain business relationships with third-party suppliers and service suppliers, including vulnerability to third-
party transportation risks;
● our ability to accurately estimate demand for our products and maintain appropriate levels of inventory;
● our ability to maintain or improve our operating margins and meet sales expectations;
● our ability to adapt to changes in consumer spending and general economic conditions;
● our ability to maintain consumer brand recognition and loyalty of our products;
● our ability to protect our intellectual property rights and use or license certain trademarks;
● our ability to successfully identify and complete strategic acquisitions and/or dispositions;
● our ability to address product defects and contamination of, or damage to, our products;
our exposure to potential various claims, lawsuits, and administrative proceedings;
● our and our customers’ ability to establish or maintain banking relationships;
● the impact of governmental laws and regulations and the outcomes of regulatory or agency proceedings;
● fluctuations in U.S. federal, state, local, and foreign tax obligations and changes in tariffs;
● any unfavorable scientific studies on the long-term health risks of vaporizers, electronic cigarettes, or cannabis and hemp-derived products, including cannabidiol
(“CBD”);
● failure of our information technology systems to support our current and growing business;
● our ability to prevent and recover from Internet security breaches;
● our sensitivity to global economic conditions and international trade issues;
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● the onset of an economic recession in the United States or other countries, including the impact of the ongoing wars, and their impact on the economy generally;
● natural disasters, adverse weather conditions, operating hazards, environmental incidents and labor disputes;
● public heath crises;
● the potential delisting of our Class A common stock from Nasdaq;
● increased costs as a result of being a public company; and
● our failure to maintain adequate internal controls over financial reporting.
Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial
condition or operating results.
The forward-looking statements speak only as of the date on which they are made, and, except as required by law, we undertake no obligation to update any forward-
looking statement to reflect events or circumstances after the date on which the statement is made or to reflect the occurrence of unanticipated events. In addition, we cannot
assess the impact of each factor on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained
in any forward-looking statements. Consequently, you should not place undue reliance on forward-looking statements.
Summary Risk Factors
Our business is subject to a number of risks, including risks that may prevent us from achieving our business objectives or may materially and adversely affect our
business, financial condition, results of operations, cash flows and prospects. These risks are discussed more fully in Item 1A. Risk Factors herein. These risks include, but are
not limited to, the following:
● Global economic conditions, including inflation and supply chain disruptions, could materially and adversely our business, prospects, results of operations, financial
condition or cash flows.
● A significant percentage of our revenue is dependent on sales of products from a relatively small number of key suppliers, and a decline in sales of products from these
suppliers could materially harm our business.
● We do not have long-term agreements or guaranteed price or delivery arrangements with most of our suppliers. The loss of a significant supplier would require us to
rely more heavily on our other existing suppliers or to develop relationships with new suppliers. Such a loss may have an adverse effect on our product offerings and
our business.
● We are vulnerable to third-party transportation risks, including governmental laws and common carriers’ policies that prevent the shipment of the types of products we
sell.
● If we are unable to successfully execute our on our liquidity and strategic initiatives, we may have significant cash constraints, which would have a material and
adverse impact on our business and results of operations and ability to pay our debts as they come due.
● Complications and disruptions associated with the design and implementation of our new ERP system have occurred and could adversely impact our business and
operations in the future.
● We may be required to seek additional financing sources, which may not be available to us on attractive terms if at all and could restrict our ability to engage in
important business activities.
● While we believe that our business and sales do not violate the Federal Paraphernalia Law, legal proceedings alleging violations of such law or changes in such law or
interpretations thereof could materially and adversely affect our business, financial condition, or results of operations.
● Officials of the U.S. Customs and Border Protection agency (“CBP”) have broad discretion regarding products imported into the United States, and the CBP has on
occasion seized imported products, and seizures of the products we sell could have a material adverse effect on our business operations or our results of operations.
● Our business depends partly on continued purchases by businesses and individuals selling or using cannabis and cannabis ancillary products pursuant to federal and
state laws in the United States and laws in Canada, the European Union, United Kingdom, Mexico, and Latin America. Because our business is dependent, in part,
upon continued market acceptance of cannabis by consumers, any negative trends could materially and adversely affect our business, financial conditions or results of
operations. Additionally, we are subject to legislative uncertainty that could slow or halt the legalization and use of cannabis, which could negatively affect our
business.
● The market for vaporizer products and related items is a niche market, subject to a great deal of uncertainty and is still evolving, including uncertainty related to the
regulation of vaporization products and certain other consumption accessories. Increased regulatory compliance burdens, no matter how they arise, could have a
material adverse impact on our business development efforts and our operations.
● Recently adopted laws prohibit the mailing of certain vaporizer products through the United States Postal Service (“USPS”) and place certain regulatory requirements
on shipment of those products through other carriers. Additionally, carriers including UPS and FedEx have imposed policies restricting the shipment of vaporizers. If a
significant volume of the products we carry cannot be shipped by the USPS or private carriers, or we must comply with burdensome policies and regulations, our
shipping costs could increase materially and we could lose our ability to deliver products to customers in a timely and economical matter.
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● The FDA has expressed growing concern about the popularity among youth of certain vaporization products, including electronic nicotine delivery systems (“ENDS”)
and has imposed significant regulation on ENDS products. Additional regulatory actions may further impact our ability to sell these products, as well as other
vaporization products, in the United States or online.
● Our narrow margins may magnify the impact of variations in operating costs and of adverse or unforeseen events on operating results.
● Management and employee turnover creates uncertainties and could harm our business.
● We and our customers may have difficulty accessing the service of banks, which may make it difficult for us and for them to sell our products.
● We have failed, and may continue to fail, to meet the listing standards of Nasdaq, and as a result our Class A common stock may become delisted, which could have a
material adverse effect on the liquidity of our Class A common stock.
● The market price of our Class A common stock has been volatile and has declined significantly since our initial public offering and may face more volatility and price
declines in the future. As a result, you may not be able to resell your shares at or above the price at which you have acquired or will acquire shares of our Class A
common stock.
● Substantial sales and issuances of our Class A common stock have occurred and may continue to occur, or may be anticipated, which have caused and could continue
to cause our stock price to decline and your percentage ownership may be diluted in the future.
PART I
ITEM 1. BUSINESS
General
Founded in 2005, Greenlane is a premier global platform for the development and distribution of premium cannabis accessories, vape devices, and lifestyle products.
With three different mergers in 2021, Greenlane was able to strengthen its leading position as a consumer ancillary products house-of-brands business, significantly expanding
its customer network, bringing strategic relationships with leading cannabis multi-state operators (“MSOs”), cannabis single-state operators (“SSOs”), and Canadian licensed
producers (“LPs”). Greenlane provides a wide array of consumer ancillary products and industrial ancillary products to thousands of cannabis producers, processors, brands,
and retailers (“Cannabis Operators”). In addition, it serves specialty retailers, smoke shops, head shops, convenience stores, and consumers directly through its own proprietary
web stores and large online marketplaces such as Amazon.
We have been developing a world-class portfolio of both our own proprietary brands (the “Greenlane Brands”) along with close partner brands that we believe will,
over time, deliver higher margins and create long-term value for our customers and shareholders. Our Greenlane Brands include our more affordable product line – Groove, our
premium smoke shop and ancillary product brand – Higher Standards, and our child-resistant packaging brand - Pollen Gear. In collaboration with our partner brands, including
the innovative silicone pipes and accessories line, Eyce, and the premium vaporizer brand, DaVinci, Greenlane is strategically positioned to serve as a comprehensive one-stop
shop for all buyers. We also have category exclusive licenses for the premium Marley Natural branded products, as well as the Keith Haring branded products.
The Greenlane Brands, along with a curated set of third-party products, are offered to customers through our proprietary, owned and operated e-commerce platforms
which include Wholesale.Greenlane.com, Vapor.com, PuffItUp.com, HigherStandards.com, and MarleyNaturalShop.com. Additionally, our presence on popular e-commerce
platforms such as Amazon, Etsy, and eBay enables us to reach customers directly, providing them with valuable resources and a seamless purchasing experience.
We merchandise vaporizers, packaging, and other ancillary products in the United States, Canada, Europe, and Latin America. We distribute products to retailers
through wholesale operations and distribute products to consumers through constantly evolving e-commerce activities. We operate our own distribution centers in the United
States, while also utilizing third-party logistics (“3PL”) locations in the United States, Europe, and Canada. We have made tremendous progress consolidating and streamlining
our warehouse and distribution in 2023, including the consolidations of our warehouse in Worcester, MA and 3PL location in Hebron, KY to our owned facility in Moreno
Valley, California in 2023.
Greenlane offers a full-spectrum of Consumer and Industrial Goods, positioning us to meet all our customers’ growing demands. Our Consumer Goods segment
focuses on serving consumers across wholesale, retail, and e-commerce operations—offering all of our Greenlane Brands, as well as ancillary products and accessories from
select leading third-party brands such as Storz and Bickel, Grenco Science, PAX, Cookies, and more. The Consumer Goods segment forms a central part of our growth strategy,
especially as it relates to scaling our own portfolio of higher-margin proprietary owned brands. In addition to our Consumer Goods segment, we have our Industrial Goods
segment, which focuses on serving Cannabis Operators by providing ancillary products essential to their daily operations and growth, such as packaging and vaporization
solutions, including our Greenlane Brand Pollen Gear. Refer to Note 11 — Segment Reporting within Item 8 of this Annual Report on Form 10-K for additional information on
our reportable segments
We have historically experienced only moderate seasonality in the Consumer Goods side of our business, particularly during the fourth quarter. This coincides with
Cyber Monday (the first Monday after Thanksgiving, when online retailers typically offer holiday discounts), and as our customers build up their inventories in anticipation of
the holiday season. We also have related promotional marketing campaigns during this period. Our Industrial Goods business is generally not affected by seasonality, which
provides an important advantage to our overall business model. The stability of the Industrial Goods segment helps to offset the moderate seasonality in Consumer Goods,
providing a more consistent revenue stream throughout the year. This diversification in our business segments contributes to greater overall financial stability and resilience
against market fluctuations.
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Organization
Greenlane Holdings, Inc. (“Greenlane” and, collectively with the Operating Company (as defined below) and its consolidated subsidiaries, the “Company”, “we”, “us”
and “our”) was formed as a Delaware corporation on May 2, 2018. We are a holding company that was formed for the purpose of completing an underwritten initial public
offering (“IPO”) of shares of our Class A common stock on April 23, 2019 and other related transactions in order to carry on the business of Greenlane Holdings, LLC (the
“Operating Company”). The Operating Company was organized under the laws of the state of Delaware on September 1, 2015, and is based in Boca Raton, Florida. Refer to
“Note 1—Business Operations and Organization” within Item 8 for further information on the Company’s organization and the IPO and related transactions. We are the sole
manager of the Operating Company and, as of December 31, 2023, owned a 100% interest in the Operating Company.
Our Business Relating to the Cannabis Industry
While we do not cultivate, distribute or dispense marijuana as that term is defined by the Controlled Substances Act, several of the products we distribute, such as
vaporizers, pipes, rolling papers, and packaging solutions, can be used with marijuana or marijuana derivatives, as well as several other legal substances.
We believe the global cannabis industry is experiencing a transformation from a state of prohibition toward a state of legalization. We expect the number of states,
countries, and other jurisdictions legalizing cannabis for medical and adult use will continue to increase, which will create numerous opportunities for market participants,
including us.
The North American Cannabis Landscape
United States and Territories.
Twenty-four states, and the District of Columbia, have legalized cannabis for non-medical adult use with additional states, such as New Hampshire , actively
considering the legalization of cannabis for non-medical adult use. An additional seventeen states have legalized medical cannabis in some form, with certain of those states
permitting only low tetrahydrocannabinol (“THC”) oils for a limited class of patients. Notwithstanding the continued trend toward further state legalization, cannabis continues
to be categorized as a Schedule I controlled substance under the Federal Controlled Substances Act (the “CSA”) and, accordingly, the cultivation, processing, distribution, sale,
and possession of cannabis violate federal law in the United States as discussed further in Item 1A under the heading “Risk Factors.” However, after President Biden first
directed federal agencies in October 2022 to review how cannabis is scheduled, the Department of Health and Human Services reviewed and made recommendations in August
2023 to reschedule cannabis from a Schedule I to Schedule III controlled substance. On May 16, 2024, the U.S. Drug Enforcement Administration (the “DEA”) issued a
proposed rule to reclassify marijuana from its current classification as a Schedule I drug to a Schedule III drug. Schedule III classification represents a moderate to low potential
for physical and psychological dependence and reclassification of marijuana from a Schedule I to a Schedule III drug would thereby loosen DEA restrictions. Nonetheless, the
DEA has made clear that if reclassification were to take place, the “regulatory controls applicable to Schedule III controlled substances would apply” which includes controls
related to the manufacture, distribution, dispensing, and possession of marijuana. Our business depends partly on continued purchases by businesses and individuals selling or
using cannabis and cannabis ancillary products pursuant to state laws in the United States.
In the United States, the legal cannabis market generated $26.5 billion in 2022, which increased to $31.4 billion in 2023, reflecting an 18.5% growth (XYZ Cannabis
Market Report 2023). The number of U.S. states with legalized cannabis increased from 18 in 2022 to 23 in 2023, a 27.8% rise in state participation (National Cannabis
Industry Association Reports). The cannabis consumers base for legal cannabis has expanded notably across all regions. In the United States, the number of users grew from 42
million in 2022 to 47 million in 2023, an 11.9% increase (Cannabis Consumer Trends Study 2023.
Canada.
Legal access to dried cannabis for medical purposes was first allowed in Canada in 1999. The Cannabis Act (the “Cannabis Act”) currently governs the production,
sale and distribution of medical cannabis and related oil extracts in Canada.
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On April 13, 2017, the Government of Canada introduced Bill C-45, which proposed the enactment of the Cannabis Act to legalize and regulate access to cannabis.
The Cannabis Act proposed a strict legal framework for controlling the production, distribution, sale and possession of medical and recreational adult-use cannabis in Canada.
On June 21, 2018, the Government of Canada announced that Bill C-45 received Royal Assent. On July 11, 2018, the Government of Canada published the Cannabis
Regulations under the Cannabis Act, which has been subsequently amended. The Cannabis Regulations provide more detail on the medical and recreational regulatory regimes
for cannabis, including regarding licensing, security clearances and physical security requirements, product practices, outdoor growing, packaging and labelling, cannabis-
containing drugs, document retention requirements, reporting and disclosure requirements, the new access to cannabis for medical purposes regime and industrial hemp. The
majority of the Cannabis Act and the Cannabis Regulations came into force on October 17, 2018, with additional Cannabis regulations coming into effect on October 17, 2019.
While the Cannabis Act provides for the regulation by the federal government of, among other things, the commercial cultivation and processing of cannabis for
recreational purposes, it provides the provinces and territories of Canada with the authority to regulate in respect of the other aspects of recreational cannabis, such as
distribution, sale, minimum age requirements, places where cannabis can be consumed, and a range of other matters.
The governments of every Canadian province and territory have implemented regulatory regimes for the distribution and sale of cannabis for recreational purposes.
Most provinces and territories have announced a minimum age of 19 years old, except for Alberta, where the minimum age will be 18. Certain provinces, such as Ontario, have
legislation in place that restricts the packaging of vapor products and the manner in which vapor products are displayed or promoted in stores.
The Canadian market grew from CAD 4.8 billion in 2022 to CAD 5.6 billion in 2023, marking a 16.7% increase (Government of Canada, Cannabis Market Reports).
In Canada, all ten provinces and three territories have legalized cannabis, with significant improvements in regulatory frameworks and retail infrastructure between 2022 and
2023, particularly in Ontario and British Columbia (Health Canada Reports). In Canada, cannabis consumers increased from 7.6 million in 2022 to 8.3 million in 2023, a 9.2%
rise (Canadian Cannabis Consumer Survey 2023).
The European Cannabis Landscape
Europe’s population is larger than that of the U.S. and Canadian markets combined, suggesting the potential of a very significant market. The changes in regulations
for cannabis products across Europe are expected to result in a market growth of approximately $6.2 billion in annual sales in 2024, a significant growth from approximately
$3.7 billion in 2023.
Many European Union countries allow limited cannabis use for medicinal purposes, with some of those countries operating pilot programs. It has been widely reported
that other countries are considering following suit. Additionally, certain countries in Europe, including Germany, which approved a plan to legalize some recreational cannabis
use in August 2023, are considering the adoption of laws that would legalize cannabis for adult use.
Europe’s legal cannabis market also saw significant growth, with revenues rising from €2.1 billion in 2022 to €2.5 billion in 2023, a 19% increase (Prohibition
Partners Europe Cannabis Report 2023). In Europe, the number of countries with legalized medical cannabis grew from seven in 2022 (Germany, Italy, Netherlands, Czech
Republic, Greece, Denmark, and Poland) to nine in 2023, with Luxembourg and Malta joining the list, representing a 28.6% increase (European Monitoring Centre for Drugs
and Drug Addiction, EMCDDA). Europe also saw a significant rise in cannabis consumers, from 1.2 million in 2022 to 1.5 million in 2023, a 25% increase (Prohibition
Partners Europe Cannabis Report 2023).
Other Drivers for the Legal Cannabis Industry
Several factors have driven the growth of the legal cannabis industry. Legislative changes have been pivotal, with ongoing legalization efforts in various regions
contributing to market expansion. For instance, recent legislation in Germany is set to make it the largest cannabis market in Europe. Medical advancements have also played a
crucial role, with increasing acceptance of cannabis for medical purposes driven by research and positive patient outcomes, particularly in Europe where medical cannabis
programs are rapidly expanding. Consumer trends towards wellness and natural products have boosted demand for cannabis-based products such as CBD oils, edibles, and
topicals. Economic benefits have been significant, with governments recognizing the potential for job creation, tax revenues, and reduced law enforcement and incarceration
costs related to cannabis offenses. Additionally, technological innovations in cultivation techniques, product development, and delivery methods have enhanced product quality
and consumer experience, further driving market growth.
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Product Information
Consumers of cannabis, herbs, flavored compounds, aromatherapy oils, and nicotine require the types of products we distribute, including vaporizers, pipes, rolling
papers and packaging. Producers of cannabis products are able to source compliant packaging, vape hardware, and other products needed in the manufacturing and distribution
stages of the supply chain. We believe we distribute the “picks & shovels” for these rapidly-growing industries and producers. As the world of cannabis and its respective
aesthetic continues to expand, we strive to keep our product mix relevant, popular, and innovative; offering an array of products from vaporizers, grinders, pipes and other
inhalation devices to storage solutions, to rolling papers and even apparel lines. As our product offerings continue to develop, we expect our revenue by categories to increase
accordingly.
Inhalation Delivery Methods
There are two prevalent types of inhalation methods for cannabis and nicotine: combustion and vaporization. Vaporizers are devices that heat materials to temperatures
below the point of combustion, extracting the flavors, aromas and effects of dry herbs and concentrates in the form of vapor. Measured by revenue, vaporizers are our largest
product category.
The Science and Popularity of Vaporization
Vaporizers continue to increase in popularity and as a preferred method of consumption among a variety of demographics of consumers. They have elements that are
designed to quickly heat material, causing vaporization to occur without the carbon dioxide that is typically generated through combustion. The vapor byproduct is then
immediately inhaled through the mouthpiece on the device itself, or through a hose or an inflatable bag. Vaporizers can heat a variety of dry materials, viscous liquids and
waxes, and provide a convenient way for users to consume the active ingredient such as tobacco, nicotine extracts, legal herbs, hemp-derived CBD, aromatherapy oils,
cannabis, and propylene glycol and glycerin blends.
Vaporization Technology. Consumers have a wide array of vaporization devices at their disposal, which can be broadly categorized into two primary categories:
desktop and portable vaporizers. Our vaporizer portfolio spans just shy of 200 distinct products across 12 brands.
Desktop Vaporizers. Vaporizers were first developed as desktop models that were powered through traditional electric power sources. Desktop vaporizers are capable
of heating the material to a more precise temperature choice determined by the consumer or as advised by a health practitioner.
Portable Vaporizers. With the development of lithium batteries, vaporizers have now become portable. Technological advances are resulting in lighter, sleeker, and
more visually-appealing units that are capable of quickly heating material to the user’s desired temperature setting. Portable vaporizers, of which vape pens are a sub-set, are
differentiated by many features, including output, battery life, recharge time, material, capacity, and design.
Other Methods of Consumption. In addition to vaporizers, consumers have a wide array of methods of consumption at their disposal, including, hand pipes, water
pipes, rolling papers, and oral and topical delivery methods.
Hand and Water Pipes. We offer a diverse portfolio of over 200 hand and water pipes across five brands, including products within our Greenlane Brands. Many
display iconic, licensed logos and artwork, as pipes have grown into an artistic expression and are available in countless creative forms and functionality. Hand pipes are small,
portable and simple to use, and function by trapping the smoke produced from burning materials. Water pipes include large table-top models, bubblers and rigs, and incorporate
the cooling effects of water to the burning materials before inhalation.
Rolling Papers. Rolling papers are a traditional consumption method used to smoke dried plant material in a “roll-your-own” application. These include papers, cones
and wraps. Our rolling papers category is comprised of over 100 products across two unique brands, not including accessories such as rolling trays or tips.
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Our Competitive Strengths
We attribute our success to the following competitive strengths:
A Clear Market Leader in an Attractive Industry.
We are a global platform for the development and distribution of premium cannabis accessories, packaging, vape solutions, and lifestyle products, reaching thousands
of retail locations, including, licensed cannabis dispensaries, smoke shops, head shops, and specialty retailers. We also own and operate one of the industry’s most visited North
American direct-to-consumer e-commerce websites, Vapor.com, as well as PuffItUp.com, and Vaposhop which serves the European market. We also sell our proprietary
products direct to consumers via Higherstandards.com, and MarleyNaturalShop.com. We operate storefronts on Amazon, Ebay, Etsy, and other online high traffic marketplaces.
Market Knowledge and Understanding.
Because of our experience and our extensive, long-term industry relationships, we believe we have a deep understanding of customer needs and desires in our
Consumer Goods and Industrial Goods business segments. This allows us to influence customer demand and the pipeline between product manufacturers, suppliers, advertisers
and the marketplace. We have also established strong relationships with a wide array of industry participants including leading MSOs, SSOs, retailers, and third party ancillary
product producers.
Comprehensive and Best-in-Class Product Offering.
We offer a curated portfolio of products and accessories across many major categories with diverse, best-in-class offerings that cater to our customers’ needs. This
comprehensive and best-in-class product offering creates a “one-stop shop” for many of our customers and positively distinguishes us from our competitors. In addition, we
have carefully cultivated a portfolio of well-known brands and premium products and have helped many of the brands we distribute to become established names in the
industry.
Entrepreneurial Culture.
We believe our entrepreneurial, results-driven culture fosters highly-dedicated employees who provide our customers with superior service. We invest in our talent by
providing ongoing training and have successfully developed programs that provide comprehensive product knowledge and tools needed to have a unique understanding of our
customers’ goals and decision-making processes.
Customers. We believe we offer superior services and solutions due to our comprehensive product offering, proprietary industry data and analytics, product expertise
and quality of service. We deliver products to our customers in a precise, safe and timely manner with complementary support from our dedicated sales and service teams. In
2022, we launched our new business to business (“B2B”) customer portal at Wholesale.Greenlane.com which provides our business customers seamless access to our catalog of
products for purchase 24-hours a day, 365 days a year. Consumers can access our products easily by purchasing from our e-commerce properties or access many of our
products via large marketplaces such Amazon.
Suppliers. Our industry knowledge, market reach, and resources allow us to establish trusted relationships with many industry suppliers. Our senior management team
makes tremendous efforts to establish and build these key relationships to help ensure Greenlane has a strong supply chain established for in-demand products at favorable
pricing. Our suppliers can be categorized into two buckets, factories that produce our Greenlane Brand’s products, as well as some generic products, and other third party
branded products (who either manufacture themselves or outsource production) that Greenlane will, in essence, resell. While we purchase our products from over 150 suppliers,
a significant percentage of our net sales is dependent on sales of products from a small number of key suppliers, which is why strong relationships are essential to our future
success. An important reason we have elected to focus on our Greenlane Brands is, since we own the brand itself (or license it), we can control which factory produces our
products. Generally, there are a variety of capable factory partners and we are able to leverage our Greenlane Brands to negotiate better pricing and service. When reselling an
established third-party brand’s products, we are somewhat beholden to the one supplier who owns or distributes that brand. However, we do believe there is a trend of third-
party branded suppliers in our industry to consolidate their relationships to do more business with fewer distribution partners. We believe our established track record, historical
relationships, ability to be value-added, and overall size and scale position us to benefit from this trend.
Employees. We aim to recruit best-in-class talent to join our Greenlane team. We provide our employees with an entrepreneurial culture, a safe, fun and fast-paced
work environment, financial incentives and career development opportunities.
Experienced and Proven Management Team Driving Organic and Acquisition Growth.
We recently revamped our management team to directly align with our strategic goals and initiatives. Our management team features vast relevant experience in
consumer-packaged goods, brand building, and e-commerce. In addition, our management team has expertise in accounting and finance, mergers and acquisitions, supply
chain, information technology, and operations.
7
Our Operating Strategies
We intend to leverage our competitive strengths to increase shareholder value through the following core strategies:
Plan to Accelerate Path to Profitability and Capitalize the Business
In today’s economic landscape, particularly within the cannabis industry, achieving profitability and preserving working capital are paramount. At Greenlane, we are
intensely focused on making our business profitable and well-capitalized for long-term sustainability. Our key initiatives include:
1. Technology Enhancements: We remain fully committed to improving our technology, particularly our B2B and e-commerce platforms, to provide a seamless shopping
experience for our wholesale and retail customers.
2. Facility Footprint Rationalization: In 2023, we optimized our facilities footprint by reducing warehouse and office space while increasing operational efficiency and
improving fulfillment practices. The full benefit of those efforts are expected to be realized in 2024.
3. Headcount Reduction: We have significantly reduced our headcount and associated salary expenses, focusing on maintaining a core group of key employees as we
collectively right-size the business.
4. Cost Structure Optimization: We continue to reduce our overall cost structure while improving margins. In April 2023, we formed two strategic partnerships (described
below in greater detail) to increase margins and significantly reduce working capital requirements in our Industrial Goods segment. Similarly, our Consumer Goods
segment restructured arrangements with several third-party brands in 2022 and 2023 to reduce our working capital needs.
Inventory Management: In 2023, we implemented a new inventory management and lifecycle strategy that is focused on a quarterly turn and a regular review of
inventory to avoid future write-offs.
5.
6. Sales Force Upgrade: We have upgraded and will continue to upgrade our sales force from a solely account management centric team to a skilled and driven sales team
to acquire new customers while maintaining excellent service with our existing customers
7. Product Innovation: In 2023, we launched Groove, an innovative new product line with a value-based price point and in 2024 we have begun to expand our product
offering to further enhance our assortment available to our customers.
8. Capital Investment: We continue to seek opportunities for securing investment capital to leverage our platform, increase availability and reduce stockouts of our high
demand third-party brands, invest in marketing and sales, and improve our product offerings.
Management believes that these initiatives will significantly reduce costs, help accelerate the Company’s path to profitability, support business growth, and allow the
Company to reinvest capital into its highest demand and highest potential product lines.
During 2022 and 2023, the Company received capital from various sources permitting it to right-size the business and position the company for growth. Such sources
are described in greater detail in the Liquidity and Capital Resources Section of this report. During 2022, the Company also monetized several non-core assets to provide
necessary working capital including the sale and lease-back of its headquarters building and the sale of its interest in the Vibes brand.
During 2023 and 2024, the Company also entered into certain arrangements to reduce working capital requirements and improve its balance sheet.
In April 2023, we entered into two strategic partnerships. First, we entered into a strategic partnership (the “MJ Packaging Partnership”) with A&A Global Imports
d/b/a MarijuanaPackaging.com (“MJ Pack”), a provider of packaging solutions to the cannabis industry. Second, we entered into a strategic partnership with an affiliate of one
of our existing vape suppliers (“Vape Partner”) to service certain key customers with vaporizer goods and services (the “Vape Partnership”). As part of the Vape Partnership, we
will introduce our Vape Partner to certain key customers, assist with the promotion and the sale of certain vaporizer goods and services, and help coordinate the logistics,
storage and distribution of such vaporizer products. If our Vape Partner and key customer(s) enter into a direct relationship, the customers would directly purchase vaporizer
goods and services, which we currently sell them, directly from our Vape Partner and we would no longer need to purchase such vape inventory on behalf of such key
customer(s). In exchange we would earn quarterly and annual commission payments from our strategic partners. While the strategic partnerships may result in a decrease in top
line revenue for these packaging and vape products, these partnerships combined with some of our other restructuring initiatives should allow us to reduce our overall cost-
structure and enhance our margins, thereby improving our balance sheet.
On May 6, 2024, the Company, Warehouse Goods and Synergy Imports LLC (“Synergy”) entered into an asset purchase agreement, dated May 1, 2024 (the “Asset
Purchase Agreement”) pursuant to which Synergy purchased all of the intellectual property, a specified amount of inventory, and other assets related to the Eyce and DaVinci
brands. In consideration for the acquisition, all parties entered into a loan modification agreement, effective May 1, 2024 (the “Loan Modification Agreement”) and an amended
and restated secured promissory note, effective May 1, 2024 (the Amended and Restated Secured Promissory Note”), an amendment to the original Eyce and Davinci Asset
Purchase Agreements, a distribution agreement, the termination of a license granted by Eyce, and the termination of certain consulting and employment agreements.
Developing A World-Class Portfolio of Products.
We intend to continue to develop a portfolio of brands that includes our Greenlane Brands, exclusively licensed brands and third party brand products, which over time
will help to increase our blended margins and create increased long-term value. Our brand development is based upon our proprietary industry intelligence that allows us to
identify market opportunities for new brands and products. We leverage our distribution infrastructure and customer relationships to penetrate the market quickly with our
proprietary brands and to gain placement in thousands of retail stores. Currently, we sell such products directly to consumers through our brand websites and our e-commerce
properties. Over time, we expect an increasing percentage of our overall sales to be from our Greenlane Brands, which in turn should allow our gross margin to trend upwards
and should allow for lasting brand value to be built in the marketplace.
8
USPS PACT Act Exemption
On January 11, 2022, we announced via press release that the United States Postal Service (the “USPS”) had approved our application for a business and regulatory
exemption to the PACT Act (with respect to the business and regulatory exemption granted by the USPS, the “PACT Act Exemption”), allowing us to ship vaporizers and
accessories classified as electronic nicotine delivery systems (“ENDS”) products to other compliant businesses. With this approval, over 97% of our total annual sales became
eligible for shipment by freight, USPS and other major parcel carriers. The PACT Act Exemption also enables us to partner with other businesses that ship ENDS products and
had their supply chains disrupted by PACT Act compliance.
On June 24, 2022, we provided via press release an update on the progress of the PACT Act Exemption, following our successful implementation of the controls,
processes and systems required by the USPS in connection with the shipment of ENDS products. We expect the ability to fulfill ENDS orders with the USPS to allow us to
reduce shipping costs, decrease fulfillment times and enhance the overall customer experience for approved wholesale customers.
Enhance Our Operating Margins.
We expect to enhance our operating margins as our business expands through a combination of additional product purchasing discounts, reduced inbound and
outbound shipping and handling rates, reduced transaction processing fees, increased operating efficiencies, and realization of benefits through leveraging our existing assets
and consolidated distribution facilities.. We are focused on converting more of our overall sales to be completed through technology platforms such as our e-commerce
consumer sites, large marketplace sites like Amazon, and our proprietary B2B ordering portal at Wholesale.Greenlane.com. Transacting a higher percentage of our sales
through automated technological platforms, versus the manual phone and email efforts in play today, should improve our overall operating margins.
Build Upon Strong Customer and Supplier Relationships to Expand Organically.
Our North American footprint and broad supplier relationships, combined with our regular interaction with our large and diverse customer base, provides us key
insights and positions us to be a critical link in the supply chain for premium vaporization products and consumption accessories. Our suppliers benefit from access to
thousands of brick and mortar retail locations as we are a single point of contact for improved production, planning and efficiency. Our customers, in turn, benefit from our
market leadership, talented sales force, broad product offerings, high inventory availability, timely delivery and exceptional customer service. We believe our strong customer
and supplier relationships will enable us to expand and broaden our market share in the premium vaporization products and consumption accessories marketplace and expand
into new categories.
Be the Employer of Choice.
When it comes to attracting and retaining top talent, Greenlane strives to be the employer of choice. At Greenlane we are committed to creating valuable career
opportunities for our employees, supporting them and fostering a culture that invites and encourages diverse opinions and ideas. This work is grounded in the belief that we are
at our best when we create inclusive, supportive and welcoming environments, where we uplift one another with dignity, respect and kindness. We are focused on ensuring our
employees see Greenlane as a home of possibility with good jobs, a sense of belonging, and a bright future.
9
Business Seasonality
We have historically experienced only moderate seasonality in our Consumer Goods business, particularly during the fourth quarter, which coincides with Cyber
Monday (the first Monday after Thanksgiving, when online retailers typically offer holiday discounts), and as our customers build up their inventories in anticipation of the
holiday season and for which we have related promotional marketing campaigns. Our Industrial Goods business is generally not affected by seasonality.
Human Capital Resources
As of July 18, 2024, we had 66 full-time employees. Approximately 54 were employed in the U.S., and 12 were employed in Europe. None of our employees are
represented by a labor union. We have never experienced a labor-related work stoppage.
During 2022 and 2023, we completed a series of reductions in force, which we expect to result in approximately $10.0 million in annualized cash compensation cost
savings. We believe our current headcount and resources are sufficient to execute our plan of achieving profitability in the near-term, while remaining flexible to scale our
hiring as industry demand and our sales grow.
As we mention in our core operating strategies, we aim to be the employer of choice, as our employees are the key drivers of our success. We aim to recruit, train,
promote and retain the most talented and success-driven personnel in the industry. Our industry knowledge and scale provide opportunities for our employees to obtain
structured training and career path opportunities across all departments and positions. We are a company that operates with three core values: never settle, never follow, and
never disrespect.
Culture and Engagement
We exist to elevate all elements of the consumption experience. We are the driving force behind broadening accessibility to best-in-class ancillary products. We
cultivate a passionate culture that empowers our team to thrive within our rapidly evolving industry. Our values are to: never settle, never follow, and never disrespect. We
envision a world where humanity is free to enjoy mother nature’s magic, and we pledge that each of our employees will play an integral role in helping us make our vision a
reality.
Everything we do is powered by our vision and core values and our culture reflects that. As a result, we enjoy a highly motivated and skilled workforce committed to
our company. We send out regular employee engagement surveys, and in consultation with our employees we have addressed several opportunities to further improve our
culture. By being open, honest, and transparent, our employees feel more actively engaged in our success.
Total Rewards, Pay Equity and Retention
We strive to attract and retain diverse, high caliber employees who raise the talent bar by offering competitive compensation and benefit packages, regardless of their
gender, race, or other personal characteristics. We regularly review and survey our compensation and benefit programs against the market to ensure we remain competitive in
our hiring practices. We provide employee salaries that are competitive and consider factors such as an employee’s role and experience, the location of their job and their
performance. We also encourage, support, and compensate our employees based on our philosophy of recognizing and rewarding exceptional performance. We believe that
performance and development is an ongoing process in which all employees should be active participants. Individual and company key performance goals are linked to
employee compensation, and we have begun work on a Greenlane Learning and Development curriculum that will include a blended approach to both in person and virtual
learning.
Competition
Business-to-Business. We operate in an evolving industry in which the market and its participants remain highly fragmented. Although it is difficult to find reliable
independent research, we believe there is a vast number of potential B2B customers in North America comprised of licensed cannabis dispensaries, smoke shops, and specialty
retailers. Our B2B customers compete primarily on the basis of the breadth, style, quality, pricing and availability of merchandise, the level of customer service, brand
recognition and loyalty. We successfully reach our B2B customers through our direct sales force and other marketing initiatives, and provide them with our strategically-curated
mix of brands and products, merchandise planning strategies and exceptional customer service. Among vaporizer product distributors, we compete against both suppliers and
other distributors. A number of suppliers choose to distribute directly in some sales channels and may also operate their own e-commerce platforms. We face competition from
many small privately-owned regional distributors that carry a narrow range of products. We believe there are only a select few wholesale distributors carrying a complete line of
premium vaporization products and consumption accessories. This has led to our emphasis on our wholesale business through our business-to-business (B2B) customer portal
at Greenlane.Wholesale.com. This platform provides our business customers seamless access to our catalog of products for purchase 24 hours a day, 365 days a year. The
wholesale website offers customers an improved user experience with an easy-to-use layout that streamlines processes and allows customers to interact with us at their
convenience.
Business-to-Consumer. A number of suppliers of vaporizers and specialized consumption products and accessories operate their own e-commerce websites through
which they sell their items directly to end consumers. Additionally, there are hundreds of websites that sell products similar to those we offer in North America, Europe,
Australia and other parts of the world. We believe we compete effectively with other e-commerce websites. Further, we provide fulfillment services to the owners of some of
these websites as they do not carry their own inventory, are not able to ship as efficiently as we do and are unable to meet certain regulatory requirements, such as sales tax
collection. Our primary e-commerce website, Vapor.com, ranks above many of our competitors’ websites in various search engine categories. We believe our market
knowledge, large product selection, relationships with vaporizer brands, in-house search engine optimization teams, social media focus and distribution facilities will enable us
to remain a market leader in e-commerce.
10
Trademarks
We own a number of registered trademarks and service marks, including without limitation, trademarks in the relevant classes of goods for Greenlane, Higher
Standards, Aerospaced, Groove, and Pollen Gear. We also license certain trademarks and other intellectual property, most notably those associated with our Marley Natural and
Keith Haring brands. Solely for convenience, trademarks and trade names referred to in this Form 10-K may appear without the ® or TM symbols, but such references are not
intended to indicate, in any way, that we will not assert, to the fullest extent under applicable law, our rights or the rights of the applicable licensor to these trademarks and trade
names. In addition, this Form 10-K contains trade names, trademarks and service marks of other companies that we do not own. We do not intend our use or display of other
companies’ trade names, trademarks or service marks to imply a relationship with, or endorsement or sponsorship of us by, these other companies. We believe our largest
trademarks are widely recognized throughout the world and have considerable value. The duration of trademark registrations varies from country to country. However,
trademarks are generally valid and may be renewed indefinitely as long as they are in use and/or their registrations are properly maintained.
Regulatory Developments
Our operating results and prospects will be impacted, directly and indirectly, by regulatory developments at the local, state, and federal levels. Certain changes in local,
state, national, and international laws and regulations, such as increased legalization of cannabis, create significant opportunities for our business. However, other changes to
laws and regulations result in restrictions on which products we are permitted to sell and the manner in which we market our products, increased taxation of our products, and
negative changes to the public perceptions of our products, among other effects.
We believe the ongoing trend of states legalizing medicinal and adult-use cannabis will likely drive increased demand for many of our products. In the 2020 election,
voters approved initiatives for adult-use cannabis in New Jersey, Arizona, Montana, and South Dakota, as well as medical marijuana in Mississippi and South Dakota.
Subsequent years saw Connecticut and Virginia (2021), Maryland and Missouri (2022), and Delaware, Minnesota, and Ohio (2023) legalizing adult-use cannabis. Although we
cannot guarantee that state-level legalization will continue, the Department of Justice’s proposal to reclassify cannabis from Schedule I to Schedule III of the Controlled
Substances Act is a significant indicator of potential regulatory changes. This reclassification could have a profound impact on nationwide regulation, boosting market
confidence.
In addition, 30 states and the District of Columbia have recently adopted laws imposing taxes on vaping products. Additionally, as of 2022, at least 31 states have
adopted laws imposing taxes on vaporizers. These taxes will result in increased prices to end consumers, which may adversely impact the demand for our products. We expect
these taxes would impact our competitors similarly, assuming their compliance with applicable laws.
11
The Consolidated Appropriations Act, 2021, which was signed into law on December 27, 2020, contains provisions that prohibit the mailing of electronic nicotine
delivery systems (“ENDS”) through the United States Postal Service (“USPS”) and place certain regulatory requirements on shipment of ENDS through other carriers. Certain
private carriers, including UPS and FedEx, also have policies restricting or prohibiting the shipment of many vaporization products we sell. On December 30, 2021, the USPS
granted us an exception that permits Greenlane to continue shipping ENDS business to business via the USPS. This exception, combined with our use of alternative carriers,
permits us to continue shipping almost all of our products to the vast majority of our customers, provided that we continue to meet all regulatory requirements. While we
currently retain our ability to ship products to customers, additional legal or policy changes concerning the shipment of vaporizers could increase our costs materially and
deprive us of our ability to timely deliver certain products to certain types of customers.
Corporate Information
Our executive offices are located at 1095 Broken Sound Parkway, Suite 100, Boca Raton, Florida 33487. Our telephone number at our executive offices is (877) 292-
7660.
Available Information
The Company’s Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to reports filed pursuant to Sections 13(a) and 15(d) of
the Securities Exchange Act of 1934, as amended (the “Exchange Act”), are filed with the SEC. We are subject to the informational requirements of the Exchange Act and file
or furnish reports, proxy statements and other information with the SEC. Such reports and other information filed by us with the SEC are available free of charge at
investor.gnln.com/financial-information/sec-filings when such reports are available on the SEC’s website. The SEC maintains an Internet site that contains reports, proxy and
information statements, and other information regarding issuers that file electronically with the SEC at www.sec.gov. We periodically provide other information for investors on
our corporate website, www.gnln.com, and our investor relations website, investor.gnln.com. This includes press releases and other information about financial performance,
information on corporate governance and details related to our annual meeting of shareholders. The information contained on the websites referenced in this Form 10-K is not
incorporated by reference into this filing. Further, our references to website URLs are intended to be inactive textual references only.
ITEM 1A. RISK FACTORS
Our operations and financial results are subject to various risks and uncertainties, including but not limited to those described below, which could harm our business,
reputation, financial condition, and operating results. The following is a description of what we consider the key challenges and material risks to our business and an investment
in our Class A common stock.
Risks Related to Our Business and Industry
Global economic conditions, including inflation and supply chain disruptions, could materially and adversely our business, prospects, results of operations, financial
condition, or cash flows.
Our business and operations are sensitive to global economic conditions. General global economic downturns and macroeconomic trends, including heightened
inflation, volatility in the capital markets, interest rate and currency rate fluctuations, the ongoing war in Ukraine, and economic slowdown or recession, may result in
unfavorable conditions that could negatively affect demand for our products and exacerbate some of the other risks that affect our business, financial condition and results of
operations. Both domestic and international markets experienced significant inflationary pressures in 2022 and inflation rates in the U.S. are currently expected to continue at
elevated levels for the near-term. In addition, the Federal Reserve has raised, and is expected to continue to raise, interest rates in response to concerns about inflation, which,
coupled with reduced government spending and volatility in financial markets, may have the effect of further increasing economic uncertainty and heightening these risks.
Interest rate increases or other government actions taken to reduce inflation could also result in an economic recession.
A material decline in the economic conditions affecting consumers, which results in a reduction in disposable income for the average consumer, may change
consumption patterns, and may result in a reduction in spending on vaporization products and consumption accessories or a switch to cheaper products or products obtained
through illicit channels. Many of our products are relatively new to the market and may be regarded by consumers as a novelty item and expendable. As such, demand for our
vaporizer products may be particularly sensitive to economic conditions such as inflation, recession, high energy costs, unemployment, changes in interest rates and money
supply, changes in the political environment and other factors beyond our control, any combination of which could result in a material adverse effect on our business, results of
operations and financial condition.
12
Our ability to fund our capital requirements will depend on many factors, and if we are unsuccessful in increasing sales and generating positive cash flows we may have to
further reduce our costs by curtailing future operations to continue as a business.
Our ability to fund our capital requirements out of our available cash and cash generated from our operations in the future will depend on many factors, but largely on
our ability to (i) increase sales of our products, (ii) raise capital on favorable terms, and (iii) generate positive cash flow and/or profits from our operations. If we are not
successful in generating needed funds from operations or in equity or debt capital raising transactions, we may need to further reduce our costs, which measures could include
selling or consolidating certain operations or assets, and delaying, canceling or scaling back product development and marketing programs.
In addition, our low cash balance and negative cash flow may cause an inability to pay our vendors on time, purchase all the inventory we need, and meet various other
obligations going forward. Also, if we are not successful in generating funds from operations or from capital-raising transactions, substantial doubt may be raised about our
status as a going concern.
If we are required to seek additional financing sources, they may not be available to us on attractive terms if at all and could restrict our ability to engage in certain
business activities.
Due to limited access to the debt markets, we have been required to issue equity at prices that are dilutive to stockholders. We may be forced to continue to seek equity
capital at dilutive prices through other means if other financing is not available to us to fund our working capital needs. In the past, because of the nature of our industry, we
have had difficulties establishing relationships with certain financial institutions and may continue to face such difficulties. As a result, indebtedness or other forms of financing
may not be available to us on attractive terms or at all. Furthermore, we may have to seek financing from non-traditional sources such as private equity and hedge funds, which
may require us to give up significant governance or other rights or agree to economic and other terms that are not favorable.
In addition, future financing agreements we may enter into in the future may contain customary negative covenants and other financial and operating covenants that,
among other things:
● restrict our ability to incur additional indebtedness;
● restrict our ability to incur additional liens;
● restrict our ability to make certain investments (including capital expenditures);
● restrict our ability to merge with another company;
● restrict our ability to sell or dispose of assets;
● restrict our ability to make distributions to stockholders; and
● require us to satisfy minimum financial coverage ratios, minimum net worth requirements, maximum leverage ratios, or other financial covenants.
We had cash available as of December 31, 2023 of $0.5 million. In addition, our revenue for the year ended December 31, 2023 was down from prior years and has
declined in recent quarters. If we are unable to access additional liquidity through successful execution of our cost cutting strategic initiatives and revenue goals, we may have
significant cash constraints, which would have a material adverse impact on our business, results of operations and ability to pay our debts as they come due.
We have failed, and may continue to fail, to meet the listing standards of Nasdaq, and as a result our Class A common stock may become delisted, which could have a
material adverse effect on the liquidity of our Class A common stock.
If we fail to continue to satisfy the continued listing requirements of Nasdaq, such as the corporate governance or public float requirements, or the minimum closing
bid price requirement, Nasdaq will take steps to de-list our Class A common stock. As a result of several factors, including but not limited to our financial performance, market
sentiment about the cannabis industry, volatility in the financial markets generally due to the tightening of monetary policy by the Board of Governors of the United States
Federal Reserve Bank (the “Federal Reserve”) and other geopolitical events, events such as the ongoing wars around the world, the per share price of our Class A common
stock has declined below the minimum bid price threshold required for continued listing. Such a de-listing would likely have a negative effect on the price of our Class A
common stock and would impair your ability to sell or purchase our Class A common stock when you wish to do so, as well as adversely affect our ability to issue additional
securities and obtain additional financing in the future.
13
On August 21, 2023, we received a letter from the staff of Nasdaq indicating that we were not in compliance with Nasdaq Listing Rule 5450(a)(1) because the closing
bid price per share for our Class A common stock had closed below $1.00 for the previous 30 consecutive business days (the “Minimum Bid Price Requirement”). We were
given 180 days, or until February 20, 2024 to regain compliance with the Minimum Bid Price Requirement. We also filed an application to transfer the listing of our Class A
common stock from the Nasdaq Global Market to the Nasdaq Capital Market, which transfer was approved and occurred on February 9, 2024. As a result of the transfer, we
became eligible to request an additional an additional 180-day compliance period.
On February 21, 2024, Nasdaq notified us in writing that while we had not regained compliance with the Minimum Bid Price Requirement, we were eligible for an
additional 180-day compliance period, or until August 19, 2024, to regain compliance with the Minimum Bid Price Requirement. Nasdaq’s determination was based on us
having met the continued listing requirement for market value of publicly held shares and all other applicable requirements for initial listing on The Nasdaq Capital Market,
with the exception of the Minimum Bid Price Requirement, and on our written notice to Nasdaq of our intention to cure the deficiency during the second compliance period by
effecting a reverse stock split, if necessary.
If we do not regain compliance during the second 180-day period, then Nasdaq will notify us of its determination to delist our Class A common stock, at which point
we would have an opportunity to appeal the delisting determination to a hearings panel. We would remain listed on Nasdaq pending the hearings panel’s decision. There can be
no assurance that, if we do appeal the delisting determination by Nasdaq to the hearings panel, that such appeal would be successful.
On January 24, 2024, Gina Collins gave notice of her resignation from our Board of Directors and from each committee of the Board, effective immediately. Ms.
Collins was an independent director, and as a result of her resignation, we no longer comply with the majority independent board requirement of Nasdaq as set forth in Nasdaq
Listing Rule 5605(b)(1) because independent directors do not comprise a majority of the Board of Directors, and Nasdaq’s audit committee requirements as set forth in Nasdaq
Listing Rule 5605(c)(2)(A) because the Audit Committee of the Board of Directors is not comprised of at least three independent directors.
On January 29, 2024, in accordance with Nasdaq Listing Rules, we notified Nasdaq of Ms. Collins’ resignation and the resulting non-compliance. On January 30,
2024, we received a notice from Nasdaq acknowledging the fact that we do not meet the requirements of such rules. In accordance with Nasdaq Listing Rules 5605(b)(1)(A)
and 5605(c)(4), to regain compliance with the Nasdaq Listing Rules, we have until the earlier of our next annual stockholders meeting or January 24, 2025.
On April 18, 2024, we received a notice from Nasdaq stating that because we had not yet filed our Annual Report on Form 10-K for the fiscal year ended December
31, 2023, we were no longer in compliance with Nasdaq Listing Rule 5250(c)(1). Nasdaq Listing Rule 5250(c)(1) requires listed companies to timely file all required periodic
financial reports with the Securities and Exchange Commission.
On May 21, 2024, we received a notice from Nasdaq stating that because we had not yet filed our Quarterly Report on Form 10-Q for the fiscal quarter ended March
31, 2024, we were no longer in compliance with Nasdaq Listing Rule 5250(c)(1).
The Company had 60 calendar days from April 18, 2024, or until June 17, 2024, to regain compliance by filing the Form 10-K and the Form 10-Q or to submit to
Nasdaq a plan to regain compliance with the Nasdaq Listing Rules. We timely submitted the plan to regain compliance to Nasdaq and Nasdaq granted us additional time to file
the Form 10K and 10Q.
14
Our narrow margins may magnify the impact of variations in operating costs and of adverse or unforeseen events on operating results.
We are subject to intense price competition. As a result of this and other factors, our gross and operating margins have historically been narrow. Narrow margins
magnify the impact of variations in operating costs and of gross margin and of unforeseen adverse events on operating results. Continued increases in costs, such as the cost of
merchandise, wage levels, shipping rates, import duties and fuel costs, may negatively impact our margins and profitability. We are not always able to raise the sales price to
offset cost increases or to effect increased operating efficiencies in response to increasing costs. If we are unable to maintain our margins in the future, it could have a material
adverse effect on our business, results of operations and financial condition. If we become subject to increased price competition in the future, we cannot assure you that we
will not lose market share, that we will not be forced to reduce our prices and further reduce our margins, or that we will be able to compete effectively.
Additionally, promotional activities can significantly increase net sales in the periods in which they are initiated and net sales can be adversely impacted in the periods
after a promotion. Accordingly, based upon the timing of our marketing and promotional initiatives, we have and may continue to experience significant variability in our
month-to-month results, which could affect our ability to formulate strategies that allow us to maintain our market presence across volatile months. If our monthly sales
fluctuations obscure our ability to track important trends in our key markets, it may have a material adverse effect on our business, results of operations and financial condition.
If we fail to manage our business and growth effectively, we may be unable to execute our business plan, maintain high levels of service or address competitive challenges
adequately.
Our success will depend, in part, on our ability to manage our business and its growth, both domestically and internationally. Any growth in, expansion of, or shift in
the focus of our business, is likely to continue to place a strain on our management and administrative resources, infrastructure and systems. As with other businesses, we
expect that we will need to further refine and expand our business development capabilities, our systems and processes and our access to financing sources. We will also need to
hire, train, supervise, and manage new employees. These processes are time consuming and expensive and will increase management responsibilities and divert management
attention. We cannot assure that we will be able to:
● optimize our product offerings effectively or efficiently or in a timely manner, if at all;
● achieve expected synergies or other anticipated benefits;
● allocate our human resources optimally;
● meet our capital needs;
● identify and hire qualified employees or retain valued employees;
● effectively incorporate the components of any business or product line that we may acquire in our effort to achieve growth; or
● continue to grow our business.
Our inability or failure to manage our business and its growth effectively could harm our business and materially adversely affect our operating results and financial
condition. In addition, we believe that an important contributor to our success has been and will continue to be our corporate culture, which we believe fosters innovation,
teamwork and a passion for our products and customers. As a result of our rapid growth, we may find it difficult to build and maintain our strong corporate culture, which could
limit our ability to innovate and operate effectively. Any failure to preserve our culture could also negatively affect our ability to retain current and recruit new personnel,
continue to perform at current levels or execute on our business strategy.
Management and employee turnover creates uncertainties and could harm our business.
We have experienced significant turnover in our executive leadership in recent years. Changes to strategic or operating goals, which oftentimes occur with the
appointment of new executives and board members, can create uncertainty, may negatively impact our ability to execute quickly and effectively, and may ultimately be
unsuccessful. In addition, executive leadership transition periods are often difficult as the new executives gain detailed knowledge of our operations, and friction can result from
changes in strategy and management style. Management turnover inherently causes some loss of institutional knowledge, which can negatively affect strategy and execution.
Until we integrate new personnel, and unless they are able to succeed in their positions, we may be unable to successfully manage and grow our business, and our financial
condition and profitability may suffer.
Further, to the extent we experience additional management turnover, competition for top management is high and it may take months to find a candidate that meets
our requirements. If we are unable to attract and retain qualified management personnel, our business could suffer. Our future success will also depend on our ability to identify,
recruit and retain additional qualified technical and managerial personnel. We operate in several geographic locations where labor markets are particularly competitive, where
demand for personnel with these skills is extremely high and is likely to remain high. As a result, competition for qualified personnel is intense, particularly in the areas of
general management, finance, engineering and science, and the process of hiring suitably qualified personnel is often lengthy and expensive and may become more expensive
in the future. If we are unable to hire and retain a sufficient number of qualified employees, our ability to conduct and expand our business could be seriously reduced.
15
The market for vaporizer products and related items is a niche market, subject to a great deal of uncertainty and is still evolving.
Vaporizer products comprise a significant portion of our product portfolio. Many of these products have only recently been introduced to the market and are at an early
stage of development. These products represent core components of a niche market that is evolving rapidly, is characterized by a number of market participants and is subject to
regulatory oversight and a potentially fluctuating regulatory framework. Rapid growth in the use of, and interest in, vaporizer products is recent, and may not continue on a
lasting basis. The demand and market acceptance for these products is subject to a high level of uncertainty, including, but not limited to, changes in governmental regulation,
developments in product technology, perceived safety and efficacy of our products, perceived advantages of competing products and sale and use of materials that can be
vaporized, including in the expanding legal state cannabis markets. Therefore, we are subject to many of the business risks associated with a new enterprise in a niche market.
Continued technical evolution, market uncertainty, evolving regulation and the resulting risk of failure of our new and existing product offerings in this market could have a
material adverse effect on our ability to build and maintain market share and on our business, results of operations and financial condition. Further, there can be no assurance
that we will be able to continue to compete effectively in this marketplace.
We depend on third-party suppliers for our products and may experience supply shortages which could have a material adverse effect on our business.
We depend on third-party suppliers for our vaporization products and consumption accessories product offerings. Our customers associate certain characteristics of our
products, including the weight, feel, draw, flavor, packaging and other unique attributes, to the brands we market, distribute and sell. In the future, we may have difficulty
obtaining the products we need from our suppliers as a result of unexpected demand or production difficulties that might extended lead times, as well as due to constraints
relating to our low cash position. Also, products may not be available to us in quantities sufficient to meet our customer demand. Any interruption in supply and/or consistency
of these products may adversely impact our ability to deliver products to our customers, may harm our relationships and reputation with our customers, and may have a material
adverse effect on our business, results of operations and financial condition. Interruptions in supply or consistency of products could arise for a number of reasons, including
but not limited to economic and civil unrest, public health crises, embargoes, and sanctions.
We may enter into new markets or lines of business that offer new products and services, or may expand existing lines of business, which may subject us to additional risks.
From time to time, we may enter into new markets or lines of business that entail offering new products and services, or may expand existing lines of business. For
example, our merger with KushCo significantly expanded our exposure to the leading MSOs and LPs, as well as a presence on the west coast. Our historical experience in these
markets does not ensure that we will be able to successfully operate expended lines of business or will be successful in launching new products or entering new markets. In
addition, external factors, such as competitive alternatives, potential conflicts of interest, either real or perceived, and shifting market preferences, in addition to our lack of
experience with or knowledge of new lines of business or markets may impact our implementation, expansion and operation of new and existing lines of business. Other related
risks include:
● the potential diversion of management’s attention, available cash, and other resources from our existing businesses;
● unanticipated liabilities or contingencies;
● compliance with additional regulatory burdens;
● potential damage to existing customer relationships, lack of customer acceptance or an inability to attract new customers; and
● the inability to compete effectively in the new line or expanded line of business or in a new market.
Failure to successfully manage these risks in the implementation, expansion or operation of new and existing lines of business and markets or the offering of new
products or services could have a material adverse effect on our reputation, business, results of operations and financial condition.
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A significant percentage of our revenue is dependent on sales of products from a relatively small number of key suppliers, and a decline in sales of products from these
suppliers could materially harm our business.
A significant percentage of our revenue is dependent on sales of products, primarily vaporizers and related components, that we purchase from a small number of key
suppliers, including CCELL, Storz & Bickel, Grenco Science and Davinci. For example, products manufactured by CCELL represented approximately 41.5% and 39.1% of our
net sales in the years ended December 31, 2023 and 2022, respectively, and products manufactured by Storz & Bickel represented approximately 5.5% of our net sales in both
years ended December 31, 2023 and 2022. Products manufactured by PAX represented approximately 3.6% and 3.3% of our net sales in the years ended December 31, 2023
and 2022, respectively, and products manufactured by Davinci represented approximately 7.5% and 4.0% of our net sales in the years ended December 31, 2023 and 2022,
respectively. A decline in sales of any of our key suppliers’ products, whether due to decreases in supply of, or demand for, their products, termination of our agreements with
them, regulatory actions or otherwise, could have a material adverse impact on our sales and earnings and adversely affect our business.
There is uncertainty related to the regulation of vaporization products and certain other consumption accessories. Increased regulatory compliance burdens, no matter
how they arise, could have a material adverse impact on our business development efforts and our operations.
United States
There is uncertainty regarding whether, in what circumstances, how and when the FDA will seek to enforce the tobacco-related provisions of the Federal Food, Drug,
and Cosmetic Act (“FFDCA”) relative to vaporizer hardware and accessories that can be used to vaporize cannabis and other material, including electronic cigarettes, rolling
papers and glassware, in light of the potential for dual use with tobacco.
Through amendments to the FFDCA, the Tobacco Control Act established, by statute, that the FDA has oversight over specific types of tobacco products (cigarettes,
cigarette tobacco, roll-your-own (“RYO”) tobacco, and smokeless tobacco) and granted the FDA the authority to “deem” other types of tobacco products as subject to the
statutory requirements. In addition to establishing authority, defining key terminology, and setting adulteration and misbranding standards, the Tobacco Control Act established
FDA’s authority over tobacco products in a number of areas such as: submission of health information to the FDA; registration with the FDA; premarket authorization
requirements; good manufacturing practice requirements; tobacco product standards; notification, recall, corrections, and removals; records and reports; marketing
considerations and restrictions; post-market surveillance and studies; labeling and warnings; and recordkeeping and tracking. Although the vast majority of our vaporizer
products are not subject to these regulations because they are not intended for use with tobacco or nicotine, changes in law, regulation, or policy that subject a greater portion of
our products to these regulations could occur.
In a final rule effective August 8, 2016 (“Deeming Rule”), the FDA deemed all products that meet the Tobacco Control Act’s definition of “tobacco product,” including
components and parts but excluding accessories, to be subject to the tobacco control requirements of the FFDCA and the FDA’s implementing regulations. Accordingly, as of
the Deeming Rule’s effective date, deemed tobacco products that are “new” (i.e., those that were not commercially marketed in the United States as of February 15, 2007) are
subject to the premarket authorization requirements. Deemed new tobacco products that remain on the market without authorization are marketed unlawfully.
Deemed new tobacco products include, among other things: products such as electronic cigarettes, electronic cigars, electronic hookahs, vape pens, certain vaporizers
and e-liquids and their components or parts (such as tanks, coils and batteries) (“ENDS”). The FDA’s interpretation of components and parts of a tobacco product includes any
assembly of materials intended or reasonably expected to be used with or for the human consumption of a tobacco product. In a 2017 decision of the D.C. Circuit court, the
court upheld the FDA’s authority to regulate ENDS even though they do not actually contain tobacco, and even if the products could be used with nicotine-free e-liquids.
The Tobacco Control Act and FDA’s implementation of regulations require regulatory approvals before certain products may be sold and restrict the way tobacco
product manufacturers, retailers, and distributors can advertise and promote tobacco products, including a prohibition against free samples or the use of vending machines,
requirements for presentation of warning information, and age verification of purchasers.
Newly-deemed tobacco products are also subject to the other requirements of the Tobacco Control Act, such as that they not be adulterated or misbranded. The FDA
has been directed under the Tobacco Control Act to establish specific good manufacturing practice (“GMP”) regulations for tobacco products, and could do so in the future,
which could have a material adverse impact on the ability of some of our suppliers to manufacture, and the cost to manufacture, certain of our products. Even in the absence of
specific GMP regulations, a facility’s failure to maintain sanitary conditions or to prevent contamination of products could result in the FDA deeming the products produced
there adulterated.
The FDA has announced its intention to take enforcement measures related to ENDS products offered for sale after September 9, 2020, for which the manufacturers
had not submitted a PMTA. Following that date, the FDA did in fact take actions against certain manufacturers of ENDS products for which a PMTA had not been submitted.
Accordingly, and in light of the laws noted above, premarket authorizations will be necessary for us to continue our distribution of any vaporizer hardware and accessories that
meet the FDA’s definition of ENDS. While we do not believe vaporizers intended for use with non-tobacco substances meet the FDA’s definition of ENDS, it is possible that
the FDA could require premarket authorization for such products.
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Our suppliers who make vaporizers that are currently, or in the future become, subject to FDA regulation must timely file applications for the appropriate
authorizations so that we may continue selling their products in the United States. We have no control over the content of those applications, and we have no assurances that the
outcome of the FDA’s review will result in authorization of the marketing of these products. If the FDA establishes or applies review standards or processes that our suppliers
are unable or unwilling to comply with, our business, results of operations, financial condition and prospects would be adversely affected.
The anticipated costs to our suppliers of complying with future FDA regulations will be dependent on the rules issued by the FDA, the timing and clarity of any new
rules or guidance documents accompanying these rules, the reliability and simplicity (or complexity) of the electronic systems utilized by the FDA for information and reports
to be submitted, and the details required by the FDA for such information and reports with respect to each regulated product. Any failure to comply with existing or new FDA
regulatory requirements could result in significant financial penalties to us or our suppliers, which could ultimately have a material adverse effect on our business, results of
operations, financial condition and ability to market and sell our products. Compliance and related costs could be substantial and could significantly increase the costs of
operating in the vaporization products and certain other consumption accessories markets.
In addition, failure to comply with the Tobacco Control Act and with FDA regulatory requirements could result in litigation, criminal convictions or significant
financial penalties and could impair our ability to market and sell some of our vaporizer products. At present, we are not able to predict whether the Tobacco Control Act will
impact our business to a greater degree than competitors in the industry, thus affecting our competitive position.
As discussed elsewhere in these Risk Factors and under the heading Regulatory Developments, a number of states and cities have implemented bans or restrictions on
the sale of vaporizers and accessories, as well as flavored tobacco products, including vaping liquids and menthol cigarettes. There may, in the future, also be increased
regulation of additives in smokeless products and internet sales of vaporization products and certain other consumption accessories. The application of either or both of current
federal, state, and local, laws, and of any new laws or regulations which may be adopted in the future at the federal, state, or local level, to vaporization products, consumption
accessories or such additives could result in additional expenses and require us to change our advertising and labeling, and methods of marketing and distribution of our
products, any of which could have a material adverse effect on our business, results of operations and financial condition.
Canada
On May 23, 2018, the Tobacco and Vaping Products Act (“TVPA”) became effective, and now governs the manufacture, sale, labeling and promotion of vaping
products sold in Canada. The TVPA replaced the former Tobacco Act (Canada) and established a legislative framework that applies to vaping products, whether or not they
contain nicotine. The TVPA prescribes high-level requirements in relation to vaping products, with regulations governing specific topics such as nicotine concentration and the
promotion of vaping products. Other regulations remain forthcoming and there remains a high degree of uncertainty with respect to the compliance landscape for vaping
products. As such, there can be no assurance that we will initially be in total compliance, remain competitive, or financially able to meet future requirements administered
pursuant to the TVPA. Prior to the TVPA becoming effective, Health Canada had taken the position that electronic smoking products (i.e., electronic products for the
vaporization and administration of inhaled doses of nicotine, including electronic cigarettes, cigars, cigarillos and pipes, as well as cartridges of nicotine solutions and related
products) fell within the scope of the Food and Drugs Act (Canada) (“Food and Drugs Act”). Vaping products with therapeutic or health-related claims are subject to the Food
and Drugs Act and related regulations. Finally, the TVPA provides the authority to make regulations to collect information from industry about vaping products, their emissions
and any research and development (e.g., sales data and information on market research, product composition, ingredients, materials, health effects, hazardous properties and
brand elements). Health Canada is currently developing proposed regulations in this area.
On December 21, 2019, Health Canada issued a Regulatory Impact Analysis Statement titled “Vaping Products Promotion Regulations.” The Impact Analysis
addressed two proposed new regulations that would place stricter limits on the advertising and promotion of nicotine vaping products and make health warnings on nicotine
vaping products mandatory (the “Proposed Regulations”). The Proposed Regulations would: (1) prohibit the promotion of nicotine vaping products and nicotine vaping
product-related brand elements by means of advertising that is done in a manner that can be seen or heard by youth, including the display of nicotine vaping products a points
of sale where can be seen by youth; and (2) require that all nicotine vaping advertising convey a health warning about the health hazards of nicotine vaping product use.
On July 1, 2020, Health Canada’s “Vaping Products Labeling and Packaging Regulations” (the “VPLPR”) came into effect; requiring (1) all vaping products
containing nicotine to display a standardized nicotine concentration statement and health warning about the addictiveness of nicotine; (2) products containing nicotine to be
packaged in child-resistant containers and display a toxicity warning and first aid treatment statement; and (3) the display of a list of ingredients contained in the vaping
substances, regardless of nicotine content. On July 14, 2020, Health Canada issued a guidance document on vaping products titled, “Industry Guide to vaping products subject
to the Canada Consumer Product Safety Act” (the “CCPA Guidance”). The CCPA Guidance provided clarity on requirements under the Canada Consumer Product Safety Act
(“CCPSA”) for vaping products that are manufactured, imported, advertised, or sold in Canada. The CCPA Guidance provided clarity on the requirements of the VPLPR and
the authority of the CCPSA to address safety issues posed by a vaping product not marketed for therapeutic use or by a cannabis accessory (such as a vaporizer represented to
be used in the consumption of cannabis) not marketed for a therapeutic use.
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In addition to federal regulations, several provinces, including Alberta, British Columbia, Nova Scotia, Ontario, Prince Edward Island (“PEI”), Quebec, and
Saskatchewan, have passed regulations fully restricting or limiting the advertising and sales of certain types of nicotine vaping products. Many provinces have focused their
tobacco and vaping control efforts on retail access and have taken action to go beyond the minimum requirements in the TVPA. For example, Nova Scotia, Newfoundland and
Labrador, and the Northwest Territories, have increased the minimum age of sale to 19. Notably, in Prince Edward Island, as of March 1, 2020, the minimum age for purchasing
nicotine products increased to age 21. In 2019. British Columbia, Saskatchewan, and Ontario limited the sales of flavored vaping products with exceptions for some flavors to
specialty stores, whereas some provinces have banned flavored vaping products, with the exception of tobacco flavor (Nova Scotia and Prince Edward Island). By way of
example, on August 11, 2020, PEI adopted a regulation to ban the sale of all flavored vaping products, effective March 1, 2021. Quebec is currently considering a ban on
flavored products and effective as of March 25, 2022, the sale of flavored vapor products was banned in the Northwest Territories.
Moreover, certain provinces (British Columbia, Newfoundland and Labrador, Saskatchewan, Quebec, Nova Scotia) have implemented an e-cigarette retail licensing
system or have guidelines for retailers in order to prevent sales to minors (Alberta, British Columbia, Newfoundland and Labrador, Prince Edward Island, Saskatchewan).
Finally, with respect to the taxation of vaping products, the Canadian government introduced amendments to the Excise Act, 2001 to implement a new excise duty
framework on vaping products. These amendments became law on June 23, 2022. The new framework applies to vaping products that are manufactured in Canada or imported,
and that are intended for use in a vaping device in Canada. Manufacturers of vaping products are required to get a vaping product license from the Canada Revenue Agency
(“CRA”). Importers are required to apply for registration from the CRA. Manufacturers and importers are also required to register for the vaping stamping regime. All vaping
products entering the Canadian duty-paid market are required to be packaged with an excise stamp affixed to the product. The excise stamps shows that duties have been paid.
These developments, together with the passed and proposed federal and provincial regulations may have a material adverse effect on our business, results of
operations, and financial condition.
Europe
Throughout Europe, several countries’ laws implementing the European Union Tobacco Products Directive (“TPD”) impose strict regulations on the approval, sale,
and advertising of e-cigarettes. While we do not sell or market any material amount of products that we believe fall within the definition of e-cigarettes in Europe, if
vaporization products we sell are found to fall within the scope of laws implementing the TPD, we would be unable to continue selling those products in certain countries,
which may have a material adverse effect on our business, results of operations, and financial condition.
We may be unable to identify or contract with new suppliers in the event of a disruption to our supply.
In the event of a disruption to our supply of products, we would have to identify new suppliers that can meet our needs. Only a limited number of suppliers may have
the ability to produce certain products we sell at the volumes we need, and it could be costly or time-consuming to locate and approve such alternative sources. Moreover, it
may be difficult or costly to find suppliers to produce small volumes of products in the event we are looking only to supplement our current supply as suppliers may impose
minimum order requirements. In addition, we may be unable to negotiate pricing or other terms with our existing or new suppliers as favorable as those we currently enjoy. We
cannot guarantee that a failure to adequately replace or supplement our existing suppliers would not have a material adverse effect on our business, results of operations and
financial condition.
Demand for the products we distribute could decrease if the trend of our suppliers selling products directly to consumers or retailers continues or accelerates.
Retailers and consumers of vaporization products and consumption accessories have historically purchased certain amounts of these products directly from suppliers.
Recently, direct to consumer sales of vaporization products and consumption accessories have accelerated, consistent with broader sales trends. If our customers were to
increase their purchases of products directly from suppliers, or if suppliers further increase their efforts to sell such products directly to consumers or retailers, we could
experience a significant decrease in our business, results of operations and financial condition. These, or other developments that remove us from, or limit our role in, the
distribution chain, may harm our competitive position in the marketplace and reduce our sales and earnings and adversely affect our business.
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We are vulnerable to third-party transportation risks, including governmental laws and common carriers’ policies that prevent the shipment of the types of products we sell.
We depend on fast and efficient shipping services to distribute our products. Any prolonged disruption of these services may have a material adverse effect on our
business, financial condition and results of operations. Rising costs associated with transportation services used by us to receive or deliver our products, including tariffs, as
well as delays as a results of factors outside of our control have had and may continue to have a material adverse effect on our business, financial condition and results of
operations.
The Consolidated Appropriations Act, 2021, which was signed into law on December 27, 2020, contains provisions that prohibit the mailing of ENDS through the
United States Postal Service (“USPS”) and place certain regulatory requirements on shipment of ENDS through other carriers. Certain private carriers, including UPS and
FedEx, also have policies restricting or prohibiting the shipment of certain vaporization products we sell, requiring us to occasionally rely upon smaller carriers that are more
expensive and serve fewer geographic areas. Although we received USPS approval in December 2021 for a business and regulatory exception to the PACT Act (the “PACT Act
Exception”) permitting us to ship ENDS to other PACT Act compliant businesses, there can be no assurances that we will be able to maintain the PACT Act Exception or that
the USPS will not elect to rescind the PACT Act Exception. Additional legal or policy changes concerning the shipment of vaporizers could increase our costs materially and
deprive us of our ability to timely deliver certain products to certain types of customers. Additionally, rising costs associated with transportation services used by us to receive
or deliver our products (including tariffs) and prohibitions on the use of certain shipping services for specified products, may have a material adverse effect on our business,
financial condition and results of operations.
We do not have long-term agreements or guaranteed price or delivery arrangements with most of our suppliers. The loss of a significant supplier would require us to rely
more heavily on our other existing suppliers or to develop relationships with new suppliers. Such a loss may have an adverse effect on our product offerings and our
business.
While we have long-term distribution agreements with certain of our suppliers, consistent with industry practice, we do not have guaranteed price or delivery
arrangements with most of our suppliers. We generally make our purchases through purchase orders. As a result, we have experienced and may in the future experience
inventory shortages or price increases on certain products. Furthermore, our industry occasionally experiences significant product supply shortages, and we sometimes
experience customer order backlogs due to the inability of certain suppliers to make available to us certain products as needed. We cannot provide assurances that suppliers will
maintain an adequate inventory of products to fulfill our orders on a timely basis, or at all, or that we will be able to obtain particular products on favorable terms, or at all.
Additionally, we cannot provide assurances that product lines currently offered by suppliers will continue to be available to us. A decline in the supply or continued availability
of the products of our suppliers, or a significant increase in the price of those products, could reduce our sales and negatively affect our operating results.
In addition, some of our suppliers have the ability to terminate their relationships with us at any time, or to decide to sell, or increase their sales of, their products
through other resellers or channels. Although we believe there are numerous suppliers with the capacity to supply the products we distribute, the loss of one or more of our
major suppliers could have an adverse effect on our product offerings and our business. Such a loss would require us to rely more heavily on our other existing suppliers,
develop relationships with new suppliers or undertake our own manufacturing, which may cause us to pay higher prices for products due to, among other things, a loss of
volume discount benefits currently obtained from our major suppliers. Any termination, interruption or adverse modification of our relationship with a key supplier or a
significant number of other suppliers would likely adversely affect our operating income, cash flow and future prospects.
If we fail to maintain proper inventory levels, our business could be harmed.
We often purchase key products from suppliers prior to the time we receive purchase orders from customers. We do this to minimize purchasing costs, the time
necessary to fill customer orders, and the risk of non-delivery. However, we may be unable to sell the products we have purchased in advance. Inventory levels in excess of
customer demand have previously and may in the future, result in inventory write-downs, and the sale of excess inventory at discounted prices could significantly impair our
brand image and have a material adverse effect on our business, results of operations and financial condition. Conversely, if we underestimate demand for our products or if we
fail to acquire the products that we require at the time we need them, we may experience inventory shortages. Inventory shortages might delay shipments to customers, reduce
revenue, negatively impact customer relationships and diminish brand loyalty, which in turn could have a material adverse effect on our business, results of operations and
financial condition.
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Our success is dependent in part upon our ability to distribute popular products from new suppliers, as well as the ability of our existing suppliers to develop and market
products that meet changes in market demand or regulatory requirements.
Many of the products we sell are generally subject to rapid changes in marketplace demand and regulatory requirements. For example, recent laws and regulations
have prohibited the sale of certain types of ENDS products that we previously sold. Our success is dependent, in part, upon the ability of our suppliers to develop and market
products that meet these changes. Our success is also dependent on our ability to develop relationships with and sell products from new suppliers that address these changes in
market demand or regulatory requirements. To the extent products that address recent changes are not available to us, or are not available to us in sufficient quantities or on
acceptable terms, we could encounter increased competition, which would likely adversely affect our business, results of operations and financial condition.
We do not have long-term contracts with many of our customers. The agreements that we do have generally do not commit our customers to any minimum purchase
volume. The loss of a significant customer may have a material adverse effect on us.
Our customers generally place orders on an as-needed basis. Consistent with industry practice, we do not have long-term contracts with most of our customers, other
than certain retail chains or distributors in Canada and abroad and certain state-licensed cannabis businesses in the United States. In addition, our agreements generally do not
commit our customers to any minimum purchase volume. Accordingly, we are exposed to risks from potential adverse financial conditions in the vaporization products and
consumption accessories industry, a potentially shifting legal landscape, the general economy, a competitive landscape, a changing technological landscape or changing
customer needs or any other change that may affect the demand for our products. We cannot assure you that our customers will continue to place orders with us in similar
volumes, on the same terms, or at all. Our customers may terminate their relationships with us or reduce their purchasing volume at any time. Our ten largest customers, in the
aggregate, represented approximately 39.0% and 40.7% of our net sales for the years ended December 31, 2023 and 2022, respectively. The loss of a significant number of
customers, or a substantial decrease in a significant customer’s orders, may have an adverse effect on our revenue.
Changes in our customer, product or competition mix could cause our product margin and results of operations to fluctuate.
From time to time, we may experience changes in our customer mix, our product mix or our competition mix. Changes in our customer mix may result from
geographic expansion or contractions, mergers and acquisitions among our customer base, legislative, regulatory or enforcement priority changes affecting the products we
distribute, selling activities within current geographic markets and targeted selling activities to new customer sectors. For example, our merger with Kushco has shifted our
customer mix to include a greater concentration of customers who engage in the cultivation, processing, and/or sale of cannabis. Changes in our product mix may result from
marketing activities to existing customers, the needs of existing and prospective customers and from regulatory and legislative changes. Changes in our competition mix may
result from new competitors entering into our business segment or existing competitors growing their operations. If customer demand for lower-margin products increases and
demand for higher-margin products decreases, our business, results of operations and financial condition may suffer.
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Because a material portion of our revenues are derived from sales to consumers indirectly through third-party retailers who operate traditional brick-and-mortar locations,
the shift of sales to more online retail business could harm our market share and our revenues in certain sectors.
Our current model for consumer goods includes selling our products through third-party retailers. These third-party retailers operate physical brick-and-mortar
locations to sell our product to consumers. The current shift in purchasing demographics due to many factors and the changing preferences of consumers who are moving from
in-store purchases to online purchases creates the additional risks of our current revenue streams being impacted negatively and an overall decrease of market share.
We have experienced and may continue to experience difficulty collecting receivables.
If our customers begin or continue to experience financial challenges, they may not have sufficient funds to pay all amounts owed to us. Additionally, laws in some
jurisdictions in which we operate make collection of receivables difficult, time consuming or expensive. We generally do not require collateral in support of our trade
receivables. While we maintain reserves for expected credit losses, we cannot assure these reserves will be sufficient to meet write-offs of uncollectible receivables or that our
losses from such receivables will be consistent with our historical performance. Significant write-offs may affect our business, results of operations and financial condition. As
we begin selling our products indirectly through large retailers, customer credit risks will expand.
Our ability to distribute certain licensed brands and to use or license certain trademarks may be terminated or not renewed.
We are reliant upon brand recognition in the markets in which we compete, as the industry is characterized by a high degree of brand loyalty and a reluctance of
consumers to switch to substitute or unrecognizable brands. Some of the brands we distribute and the trademarks under which products are sold are licensed for a fixed period
of time with regard to specified markets.
In the event that the licenses to use the brand names and trademarks for the products we distribute are terminated or are not renewed after the end of the term, there is
no guarantee we or our suppliers will be able to find suitable replacement brands or trademarks, or that if a replacement is found, that it will be on favorable terms. Any loss in
brand-name appeal to our existing customers as a result of the lapse or termination of our licenses or the licenses of our suppliers could have a material adverse effect on our
business, results of operations and financial condition.
We may not be successful in maintaining the consumer brand recognition and loyalty of our products.
We compete in a market that relies on innovation and the ability to react to evolving consumer preferences. The vaporization products and consumption accessories
industry is subject to changing consumer trends, demands and preferences. Therefore, products once favored may, over time, become disfavored by consumers or no longer
perceived as the best option. Consumers in the vaporizer market have demonstrated a degree of brand loyalty, but suppliers must continue to adapt their products in order to
maintain their status among customers as the market evolves. Our continued success depends in part on our ability and our supplier’s ability to continue to differentiate the
brand names we represent, own or license and maintain similarly high levels of recognition with target consumers. Trends within the vaporization products and consumption
accessories industry change often and our failure to anticipate, identify or react to changes in these trends could, among other things, lead to reduced demand for our products.
Factors that have previously and may continue to affect consumer perception of our products include health trends and attention to health concerns associated with herbs, oils,
cannabis or other materials used with vaporizers, price-sensitivity in the presence of competitors’ products or substitute products and trends in favor of new vaporization
products or technology consumption accessories products that are currently being researched and produced by participants in our industry. For example, in recent years, we
have witnessed a shift in consumer purchases from vaporizers designed for dry herbs to those designed for liquids or wax type concentrates. A failure to react to similar trends
in the future could enable our competitors to grow or establish their brands’ market share in these categories before we have a chance to respond.
Regulations have recently been and are likely to continue to be enacted in the future that would make it more difficult to appeal to consumers or to leverage the brands
that we distribute, own or license. Furthermore, even if we are able to continue to distinguish our products, there can be no assurance that the sales, marketing and distribution
efforts of our competitors will not be successful in persuading consumers of our products to switch to their products. Some of our competitors have greater access to resources
than we do, which better positions them to conduct market research in relation to branding strategies or costly marketing campaigns. Any loss of consumer brand loyalty to our
products or in our ability to effectively brand our products in a recognizable way will have a material effect on our ability to continue to sell our products and maintain our
market share, which could have a material adverse effect on our business, results of operations and financial condition.
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We may not be able to establish sustainable relationships with large retailers or regional or national chains.
In connection with efforts to enter new sales channels, including large retailers and chains, we may not be able to develop these relationships or continue to maintain
relationships with these large retailers or national chains. Our inability to develop and sustain relationships with large retailers and chains may impede our ability to develop
brand and product recognition and increase sales volume and, ultimately, require us to continue to rely on local and more fragmented sales channels, which may have a material
adverse effect on our business, results of operations and financial condition. In addition, if we are unable to develop or maintain relationships with large retailers and national
chains and such large retailers or chains take market share from the smaller local and more fragmented sales channels, our business, results of operations and financial condition
will be adversely impacted.
New products face intense media attention and public pressure.
Many of our vaporizers and other products are new to the marketplace. Since their introduction, certain members of the media, politicians, government regulators and
advocacy groups, including independent doctors, have called for and driven the adoption of stringent regulation of the sale of certain products and in some cases, an outright
ban of such products pending increased regulatory review and a further demonstration of safety. For example, local and state governments have banned certain types of
vaporization products, such as those containing flavored liquid nicotine and flavored hemp-derived CBD. Additional bans of this type would likely have the effect of
terminating our sales and marketing efforts of certain products in jurisdictions in which we may currently market or have plans to market such products. Such bans would also
likely cause public confusion as to which products are the subject of bans, which confusion could also have a material adverse effect on our business, results of operations and
financial condition.
Our success depends, in part, on the quality and safety of our products, as well as the perception of quality and safety in the vaporization products and consumption
accessories industry generally.
Our success depends, in part, on the quality and safety of the products we sell, including manufacturing issues, health concerns about the substances consumed using
the products we sell, and unforeseen product misuse. Even a single incident of product defect or misuse, whether relating to products sold by us or just to our industry generally,
could result in significant harm to our reputation. For example, incidents of EVALI have, by some metrics, negatively impacted demand for vaporizers. If any of our products
are found to be, or are perceived to be, defective or unsafe, or if they otherwise fail to meet our customers’ standards, our relationship with our customers could suffer, our
reputation or the appeal of our brands could be diminished, and we could lose market share and/or become subject to liability claims, any of which could result in a material
adverse effect on our business, results of operations and financial condition.
Damage to our reputation, or that of any of our key suppliers or their brands, could affect our business performance.
The success of our business depends in part upon the positive image that consumers have of the third-party brands we distribute. Incidents, publicity or events arising
accidentally or through deliberate third-party action that harm the integrity or consumer support of the products we sell could affect the demand for those products. Unfavorable
media, whether accurate or not, related to our industry, to us, to our customers, or to the products we sell could negatively affect our corporate reputation, stock price, ability to
attract high-quality talent, or the performance of our business. Additional negative publicity or commentary on social media outlets also could cause consumers to react rapidly
by avoiding our products and brands or by choosing brands offered by our competitors, which could have a material adverse effect on our business, results of operations and
financial condition.
We are subject to substantial and increasing regulation regarding the vaporization industry.
In addition to the FDA regulations concerning vaporizer products discussed elsewhere in this Annual Report on Form 10-K, we are subject to regulation by numerous
other federal agencies, including the Federal Trade Commission, the Alcohol and Tobacco Tax and Trade Bureau, the Federal Communications Commission, the U.S.
Environmental Protection Agency, the U.S. Department of Agriculture, U.S. Customs and Border Protection and the U.S. Center for Disease Control and Prevention’s Office on
Smoking and Health. There have also been adverse legislative and political decisions and other unfavorable developments concerning cigarette smoking and the tobacco
industry, which have received widespread public attention. There can be no assurance as to the ultimate content, timing or effect of any regulation of vaporizer products by
governmental bodies, nor can there be any assurance that potential corresponding declines in demand resulting from negative media attention would not have a material adverse
effect on our business, results of operations and financial condition.
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Significant increases in state and local regulation of our vaporizer products have been proposed and enacted, and are likely to continue to be proposed and enacted in
numerous jurisdictions.
As discussed under the heading “Regulatory Developments” above, there has been increasing activity on the state, provincial and local levels with respect to scrutiny
of vaporizer products. State and local governmental bodies across the United States have indicated that vaporization products and certain other consumption accessories may
become subject to new laws and regulations at the state and local levels. For example, in January 2015, the California Department of Health declared electronic cigarettes and
certain other vaporizer products a health threat that should be strictly regulated like tobacco products. Further, many states and cities have enacted regulations that require
retailers to obtain a tobacco retail license in order to sell electronic cigarettes and vaporizer products. Many states, provinces and some cities have passed laws restricting the
sale of electronic cigarettes and certain other vaporizer products. In March 2023, new federal legislation granted the FDA regulatory authority over synthetic nicotine, making
all synthetic nicotine products without a marketing order from the FDA illegal as of July 13th, 2022. If one or more states or provinces from which we generate or anticipate
generating significant sales of vaporizer products bring actions that prevent us from selling certain or all of our vaporizer products, we would be required to cease sales and
distribution of certain products to those states, which could have a material adverse effect on our business, results of operations and financial condition. Additionally, if one or
more states or provinces from which we generate or anticipate generating significant sales of vaporizer products bring actions that require us to obtain certain licenses,
approvals or permits, and if we are not able to obtain the necessary licenses, approvals or permits for financial reasons or otherwise and/or any such license, approval or permit
is determined to be overly burdensome to us, then we may be required to cease sales and distribution of our products to those states, which could have a material adverse effect
on our business, results of operations and financial condition.
Certain states, provinces and cities have already restricted the use of electronic cigarettes and vaporizer products in smoke free venues. Additional city, state, provincial
or federal regulators, municipalities, local governments and private industry may enact rules and regulations restricting the use of electronic cigarettes and vaporizer products in
those same places where cigarettes cannot be smoked. Because of these restrictions, our customers may reduce or otherwise cease using our vaporization products or certain
other consumption accessories, which could have a material adverse effect on our business, results of operations and financial condition.
The Canadian federal government, as well as certain provincial governments have passed or propose to pass legislation which will restrict the extent to which e-
cigarettes, e-liquid and other vaping products may be displayed or sold. Additionally, Canadian laws require health warnings to be placed on certain vaporizer products, which
could reduce the appeal of these products. These regulations and future regulations could have a material adverse effect on our business, results of operations and financial
condition.
Based on regulations surrounding health-related concerns related to the use of some of our vaporizer products, possible new or increased taxes by government entities
intended to reduce use of our products or to raise revenue, additional governmental regulations concerning the marketing, labeling, packaging or sale of some of our products,
negative publicity resulting from actual or threatened legal actions against us or other companies in our industry, all may reduce demand for, or increase the cost of, certain of
our products, which could adversely affect our profitability and ultimate success.
Our business depends partly on continued purchases by businesses and individuals selling or using cannabis pursuant to state laws in the United States or Canadian and
provincial laws.
Because some of our B2C customers use some of the items that we sell to consume cannabis and some of our B2B customers operate in the legal national and state
cannabis industry, our business depends partly on federal, state, provincial and local laws, regulations, guidelines and enforcement pertaining to cannabis. In both the United
States and Canada, those factors are in flux.
United States
Currently, in the United States, 47 states and the District of Columbia permit some form of cannabis cultivation, sales, and use for certain medical purposes (“medical
states”). Twenty-four of those states and the District of Columbia have also legalized cannabis for adults for non-medical purposes (sometime referred to as recreational use).
Several medical states may extend legalization to adult use.
States’ cannabis programs have proliferated and grown even though the cultivation, sale and possession of cannabis is considered illegal under U.S. federal law. Under
the CSA, cannabis is a Schedule I drug, meaning that the Drug Enforcement Administration recognizes no accepted medical use for cannabis, and the substance is considered
illegal under federal law.
In an effort to provide guidance to U.S. Attorneys’ offices regarding the enforcement priorities associated with cannabis in the United States, the U.S. Department of
Justice (the “DOJ”) has issued a series of memoranda detailing its suggested enforcement approach. During the administration of former President Obama, each memorandum
acknowledged the DOJ’s authority to enforce the CSA in the face of state laws, but noted that the DOJ was more committed to using its limited investigative and prosecutorial
resources to address the most significant threats associated with cannabis in the most effective, consistent, and rational way.
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On August 29, 2013, the DOJ issued what came to be called the “Cole Memorandum,” which gave U.S. Attorneys the discretion not to prosecute federal cannabis
cases that were otherwise compliant with applicable state law that had legalized medical or adult-use cannabis and that have implemented strong regulatory systems to control
the cultivation, production, and distribution of cannabis. The eight federal priorities were preventing:
● The distribution of cannabis to minors;
● Revenue from the sale of cannabis from going to criminal enterprises, gangs, and cartels;
● The diversion of cannabis from states where it is legal under state law in some form to other states;
● State-authorized cannabis activities from being used as a cover or pretext for the trafficking of other illegal drugs or other illegal activity;
● Violence and the use of firearms in the cultivation and distribution of cannabis;
● Drugged driving and exacerbation of other adverse public health consequences associated with cannabis use;
● Growing cannabis on public lands and the attendant public safety and environmental dangers posed by cannabis production on public lands; and
● Cannabis possession or use on federal property.
Accordingly, the Cole Memorandum provided lawful cannabis-related enterprises a tacit federal go-ahead in states with legal cannabis programs, provided that the
state had adopted and was enforcing strict regulations and oversight of the medical or adult-use cannabis program in accordance with the specific directives of the Cole
Memorandum.
On January 4, 2018, Attorney General Jeff Sessions issued a memorandum that rescinded previous DOJ guidance on the state legal cannabis industry, including the
Cole Memorandum. Attorney General Sessions wrote that the previous guidance on cannabis law enforcement was unnecessary, given the well-established principles governing
federal prosecution that are already in place. As a result, federal prosecutors could and still can use their prosecutorial discretion to decide whether to prosecute even state-legal
cannabis activities.
Since the Cole Memorandum was rescinded, however, U.S. Attorneys have generally refrained from prosecuting state law compliant marijuana businesses. Current
Attorney General Merrick Garland during his confirmation hearings expressed that “It does not seem to me useful the use of limited resources that we have to be pursuing
prosecutions in states that have legalized and are regulating the use of marijuana, either medically or otherwise.”
Since December 2014, companies that are strictly complying with state medical cannabis laws have been protected against enforcement for that activity by an
amendment (originally called the Rohrabacher-Blumenauer Amendment, now called the Joyce Amendment) to the Omnibus Spending Bill, which prevents federal prosecutors
from using federal funds to impede the implementation of medical cannabis laws enacted at the state level. Federal courts have interpreted the provision to bar the DOJ from
prosecuting any person or entity in strict compliance with state medical cannabis laws.
While the protection of the Joyce Amendment prevents prosecutions of state law compliant medical cannabis activities, it does not make cannabis legal. The protection
of the Joyce Amendment depends on its continued inclusion in the federal omnibus spending bill, or in some other legislation, and entities’ strict compliance with the state
medical cannabis laws. While industry observers expect Congress to extend the protection in future Omnibus Spending Bills, there can be no assurance that it will do so.
Although several cannabis law reform bills are pending in the U.S. Congress, passage of any of them and ultimately the Biden Administration’s support and approval
remain uncertain. Unless and until the U.S. Government changes the law with respect to cannabis, and particularly if Congress does not extend the protection of state medical
cannabis programs, there is a risk that federal authorities could enforce current federal cannabis law. An increase in federal enforcement against companies licensed under state
cannabis laws would negatively impact the state cannabis industries and, in turn, our revenues, profits, financial condition, and business model.
Canada
On April 13, 2017, the Government of Canada introduced Bill C-45, which proposed the enactment of the Cannabis Act to legalize and regulate access to cannabis.
The Cannabis Act proposed a strict legal framework for controlling the production, distribution, sale and possession of medical and recreational adult-use cannabis in Canada.
On June 21, 2018, the Government of Canada announced that Bill C-45, received Royal Assent. On July 11, 2018, the Government of Canada published the Cannabis
Regulations under the Cannabis Act. The Cannabis Regulations provide more detail on the medical and recreational regulatory regimes for cannabis, including regarding
licensing, physical security requirements, product practices, outdoor growing, security, packaging and labelling (including for cannabis accessories), cannabis-containing drugs,
document retention requirements, reporting and disclosure requirements, the new access to cannabis for medical purposes regime and industrial hemp. The majority of the
Cannabis Act and the Cannabis Regulations came into force on October 17, 2018; additional Cannabis Regulations took effect on October 17, 2019.
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As of December 2022, the Minister of Health and the Minister of Mental Health and Addictions has launched the legislative review of the Cannabis Act. The review is
being conducted by a five-member independent, expert panel, who will report their final conclusions and advice to the Ministers by Spring 2024. In addition, Health Canada
announced that amendments to the Cannabis Act and its regulations concerning cannabis research and testing. Notably, these amendments increase the public possession limit
for cannabis beverages to a level that is similar to other forms of cannabis, such as solid edible cannabis products (i.e. gummies or chocolate) and the amendments change how
Health Canada regulates non-therapeutic cannabis research with human participants. As for proposed amendments, Health Canada is proposing amendments to the Cannabis
Regulations to protect public health and safety, in particular by protecting young persons and others from inducements to use inhaled cannabis extracts. The proposed
amendments would restrict the production, sale, promotion, packaging, or labelling of inhaled cannabis extracts with certain flavors, other than the flavor of cannabis.
While the Cannabis Act provides for the regulation by the federal government of, among other things, the commercial cultivation and processing of cannabis for
recreational purposes, it provides the provinces and territories of Canada with the authority to regulate with respect to the other aspects of recreational cannabis, such as
distribution, sale, minimum age requirements, places where cannabis can be consumed, and a range of other matters.
The governments of every Canadian province and territory have implemented regulatory regimes for the distribution and sale of cannabis for recreational purposes. In
most provinces and territories, the minimum age is 19 years old, except for Québec, where the minimum age is 18. Certain provinces, such as Ontario, have legislation in place
that restricts the packaging of vapor products and the manner in which vapor products are displayed or promoted in stores.
The Cannabis Act is a relatively new regime that has no close precedent in Canadian law. The effect of relevant governmental authorities’ administration, application
and enforcement of their respective regulatory regimes and delays in obtaining, or failure to obtain, applicable regulatory approvals which may be required may significantly
delay or impact the development of markets, products and sales initiatives and could have a material adverse effect on our business, financial condition and results of
operations.
The federal and state regulatory landscape regarding products containing hemp-derived CBD and other cannabinoids is uncertain and evolving, and new or changing laws
or regulations relating to hemp and hemp-derived products could have a material adverse effect on our business, financial condition and results of operations.
In December 2018, the U.S. government changed the legal status of hemp and its derivatives, including hemp-derived CBD and other cannabinoids. The 2018 Farm
Bill, which was signed into law by former President Trump on December 20, 2018 (Pub.L. 115-334), established a new framework for the regulation of hemp production
(defined in the Farm Bill as Cannabis sativa L. with a THC concentration of not more than 0.3 percent on a dry weight basis) and extracts of hemp, including CBD. The law
also removed hemp and extracts of hemp from the federal controlled substances schedules. The section of the Farm Bill establishing a framework for hemp production,
however, makes clear explicitly that it does not affect or modify the United States Federal Food, Drug, and Cosmetic Act (the “FDCA”), section 351 of the Public Health
Service Act (addressing the regulation of biological products), the authority of the Commissioner of the FDA under those laws, or the Commissioner’s authority to regulate
hemp production and sale under those laws.
Since passage of the Farm Bill, the FDA has expressed multiple times its position that any cannabis product, whether derived from hemp or otherwise, marketed with a
disease claim (e.g., a claim of therapeutic benefit or disease prevention) must be approved by the FDA for its intended use through one of the drug approval pathways prior to it
being introduced into interstate commerce. The FDA has also repeatedly stated its position that introducing food or dietary supplements with added CBD (or THC), regardless
of source, into interstate commerce is illegal under the FDCA. Although enforcement under the FDCA may be civil or criminal in nature, the FDA has thus far limited its recent
enforcement against companies selling CBD products to warning letters alleging various violations of the FDCA, including that the products bear claims that render the
products unapproved and misbranded new drugs, that CBD is excluded from the FDCA’s definition of “dietary supplement,” and that the FDCA prohibits the addition of CBD
to food. The FDA also tested some of the products, and found that many did not contain the levels of CBD they claimed to contain, which could be the basis for a separate
violation of the FDCA. In addition, some states have taken actions to restrict or prohibit the sale of CBD products under state law. On January 26, 2023, the FDA issued a
statement that after careful review, the FDA concluded that a new regulatory pathway for CBD is needed that balances individuals’ desire for access to CBD products with the
regulatory oversight needed to manage risks. The agency is prepared to work with Congress on this matter.
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We currently distribute very limited products containing hemp-derived CBD and other cannabinoids. Although the Farm Bill removed hemp and its derivatives from
the definition of “marijuana” under the CSA, uncertainties remain regarding the cultivation, sourcing, production and distribution of hemp and products containing hemp
derivatives. Certain states prohibit the sale of all or certain types of products containing hemp. The laws and regulations of states that permit the sale of products containing
hemp derivatives, such as CBD, impose various requirements, including requirements to obtain certain permits or licenses, related to the marketing, packaging, safety, and sale
of products containing hemp derivatives. These laws and regulations are rapidly developing. We may have to quickly adapt our operations to comply with forthcoming and
rapidly-shifting federal and state regulations. These regulations could require significant changes to our business, plans or operations concerning hemp-derived products, and
could adversely affect our business, financial condition or results of operations. Additionally, while we believe our current operations with respect to hemp derived products
such as CBD comply with existing federal and state laws relating to hemp and hemp-derived products in all material respects, legal proceedings alleging violations of such laws
could have a material adverse effect on our business, financial condition and results of operations.
We are subject to legislative uncertainty that could slow or halt the legalization and use of cannabis, which could materially and adversely affect our business.
Continued development of the cannabis industry is dependent upon continued legislative authorization of cannabis at the state level, as well as the U.S. government’s
continued non-enforcement of federal cannabis laws against state-law-compliant cannabis businesses. Any number of factors could slow or halt progress in this area. Further,
progress, while generally expected, is not assured. Well-funded interests, including businesses in the tobacco, alcohol beverage and the pharmaceutical industries, may have a
strong economic opposition to the continued legalization of cannabis. The pharmaceutical industry, for example, is well funded with a strong and experienced lobby that
eclipses the funding of the cannabis movement. Any inroads legalization opponents could make in halting the impending cannabis industry could have a detrimental impact on
our business. While there may be ample public support for legislative action, numerous factors impact the legislative process. Any one of those factors could slow or halt the
continued legalization and use of cannabis, which would negatively impact our business.
While we believe that our business and sales do not violate the Federal Paraphernalia Law, legal proceedings alleging violations of such law or changes in such law or
interpretations thereof could materially and adversely affect our business, financial condition or results of operations.
Under U.S. Code Title 21 Section 863 (the “Federal Paraphernalia Law”), the term “drug paraphernalia” means “any equipment, product or material of any kind which
is primarily intended or designed for use in manufacturing, compounding, converting, concealing, producing, processing, preparing, injecting, ingesting, inhaling, or otherwise
introducing into the human body a controlled substance.” That law exempts “(1) any person authorized by local, State, or Federal law to manufacture, possess, or distribute
such items” and “(2) any item that, in the normal lawful course of business, is imported, exported, transported, or sold through the mail or by any other means, and traditionally
intended for use with tobacco products, including any pipe, paper, or accessory.” Any nonexempt drug paraphernalia offered or sold by any person in violation of the Federal
Paraphernalia Law can be subject to seizure and forfeiture upon the conviction of such person for such violation, and a convicted person can be subject to fines under the
Federal Paraphernalia Law and even imprisonment.
We believe our sales do not violate the Federal Paraphernalia Law in any material respect. First, we understand that a substantial majority of the products we offer and
sell were and are not primarily intended or designed for any purpose not permitted by the Federal Paraphernalia Law. Indeed, many of the manufacturers whose products we
sell disclaim that the products are for use with cannabis. Second, we restrict the sale of certain products — those that may have been primarily intended or designed for use with
cannabis — to comply with the Federal Paraphernalia Law’s exemption for sales authorized by state law. In particular, we (a) do not sell those products at all into the states that
have maintained complete or near complete cannabis prohibition and (b) limit the sale of those products to licensed cannabis businesses, such as dispensaries, cultivators, and
manufacturers, in the states that authorize sales of cannabis paraphernalia only through state-licensed cannabis businesses. Third, we have been in business for many years
without facing even threatened legal action under the Federal Paraphernalia Law.
While we believe that our business and sales are legally compliant with the Federal Paraphernalia Law in all material respects, any legal action commenced against us
under such law could result in substantial costs and could have an adverse impact on our business, financial condition or results of operations. In addition, changes in cannabis
laws or interpretations of such laws are difficult to predict, and could materially and adversely affect our business.
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Officials of the U.S. Customs and Border Protection agency (“CBP”) have broad discretion regarding products imported into the United States, and the CBP has on
occasion seized imported products on the basis that such products violate the Federal Paraphernalia Law. While we believe the products that we import do not violate such
law, any such seizure of the products we sell could have a material adverse effect on our business operations or our results of operations.
Officials of the CBP have broad discretion regarding products imported into the United States. Individual shipments of imported products we distribute, as well as
similar products, have been detained or seized by the CBP for a variety of reasons, including because the CBP officials inspecting the goods believed such goods were marketed
as drug paraphernalia and therefore violated the Federal Paraphernalia Law. Although we and other suppliers or distributors of such products have at times successfully
contested such actions of the CBP, such challenges are costly and time consuming. While we would disagree with any conclusion of the CBP that our product sales violate the
Federal Paraphernalia Law, we cannot give any assurance that the CBP will not make additional seizures of our imports, or that if the CBP seizes any of our goods that the CBP
would not seek to impose penalties related to such imports. Should we elect to contest any such seizure, the costs of doing so could be substantial and there are no assurances
we would prevail in a contested proceeding. Additionally, the cost and/or results of any such contest could adversely impact our business, financial condition or results of
operations. Additionally, if the CBP fails to release seized products, we may no longer be able to ensure a sellable supply of some of our products, which could have a material
adverse impact on our business, financial condition and results of operations.
Because our business is dependent, in part, upon continued market acceptance of cannabis by consumers, any negative trends could materially and adversely affect our
business, financial conditions or results of operations.
We are dependent on public support, continued market acceptance and the proliferation of consumers in the legal cannabis markets. While we believe that the market
and opportunity in the space continue to grow, we cannot predict the future growth rate or size of the market. Any downturns in, or negative outlooks on, the cannabis industry
may materially and adversely affect our business and financial condition.
We and our customers may have difficulty accessing the service of banks, which may make it difficult for us and for them to sell our products.
Financial transactions involving proceeds generated by cannabis-related activities can form the basis for prosecution under the U.S. federal money laundering statutes,
unlicensed money transmitter statutes and the U.S. Bank Secrecy Act. Guidance issued by the Financial Crimes Enforcement Network (“FinCEN”) clarifies how financial
institutions can provide services to cannabis-related businesses consistent with their obligations under the Bank Secrecy Act. Furthermore, since the rescission by former U.S.
Attorney General Jeff Sessions on January 4, 2018 of the Cole Memorandum, U.S. federal prosecutors have had greater discretion when determining whether to charge
institutions or individuals with any of the financial crimes described above based upon cannabis-related activity. As a result, given these risks and their own related disclosure
requirements, many banks remain hesitant to offer banking services to cannabis-related businesses. Consequently, those businesses involved in the cannabis industry continue
to encounter difficulty establishing banking relationships. Indeed, we have been asked to close bank accounts due to our activity in the cannabis industry. We may become
unable maintain stable banking relationships, which would create significant challenges in operating our business, increase our operating costs, pose additional operational,
logistical and security challenges, and result in our inability to implement our business plan. Additionally, if our more significant customers to are unable maintain their current
banking relationships, we might not be able to continue transacting with such customers.
Our payments system and the payment systems of our customers depend on third-party providers and are subject to evolving laws and regulations.
We and our retail customers have engaged third-party service providers to perform underlying credit and debit card processing, currency exchange, identity
verification and fraud analysis services. If these service providers do not perform adequately or if our relationships, or the relationships of our retail customers with these
service providers, were to terminate, our ability or the ability of such retail customers to process payments could be adversely affected and our business would be harmed.
The laws and regulations related to payments are complex and are potentially impacted by tensions between federal and state treatment of the vaporization, tobacco,
nicotine and cannabis industries. These laws and regulations also vary across different jurisdictions in the United States, Canada and globally. As a result, we are required to
spend significant time and effort to comply with those laws and regulations. Any failure or claim of our failure to comply, or any failure by our third-party service providers to
comply, could cost us substantial resources, could result in liabilities, or could force us to stop offering our customers the ability to pay with credit cards, debit cards and bank
transfers. As we expand the availability of these payment methods or offer new payment methods to our customers in the future, we may become subject to additional
regulations and compliance requirements.
Further, through our agreement with our third-party credit card processors, we are indirectly subject to payment card association operating rules and certification
requirements, including restrictions on product mix and the Payment Card Industry Data Security Standard, 02 PCIDSS. We also are subject to rules governing electronic funds
transfers. Any change in these rules and requirements could make it difficult or impossible for us to comply.
Due to our acceptance of credit cards in our e-commerce business, we are subject to the Payment Card Industry Data Security Standard, designed to protect the
information of credit card users. We have had a security incident in the past, which we do not believe reached the level of a breach, that would be reportable under state laws or
our other obligations; however there can be no assurance that our determination was correct. In the event our determination is challenged and found to have been incorrect, we
may be subject to claims by one or more state attorney generals, federal regulators, or private plaintiffs and we may additionally be subject to claims or fines from credit
associations.
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We are subject to certain U.S. federal regulations relating to cash reporting.
The U.S. Bank Secrecy Act, enforced by FinCEN, a division of the U.S. Department of the Treasury, requires a party in trade or business to file with the U.S. Internal
Revenue Service (the “IRS”) a Form 8300 report within 15 days of receiving a cash payment of over $10,000. While we receive very few cash payments for the products we
sell, if we fail to comply with these laws and regulations, the imposition of a substantial penalty could have a material adverse effect on our business, results of operations and
financial condition.
If countries, states, and provinces continue the trend of imposing, expanding, and increasing taxes on vaporizer products, it could materially and adversely affect our
business.
Supply to our customers is sensitive to increased sales taxes and economic conditions affecting their disposable income. Discretionary consumer purchases, such as of
vaporization products and consumption accessories, may decline during recessionary periods or at other times when disposable income is lower and taxes may be higher.
As discussed under “Regulatory Developments” above, the sale of vaporization products and certain other consumption accessories is, in certain jurisdictions, subject
to federal, state, provincial and local excise taxes like the sale of conventional cigarettes or other tobacco products, all of which generally have high tax rates and have faced
significant increases in the amount of taxes collected on their sales. Other jurisdictions are contemplating similar legislation and other restrictions on electronic cigarettes and
certain other vaporizer products. Should federal, state, provincial and local governments and/or other taxing authorities continue to impose excise taxes similar to those levied
against conventional cigarettes and tobacco products on vaporization products or consumption accessories, it may have a material adverse effect on the demand for those
products, as consumers may be unwilling to pay the increased costs, which in turn could have a material adverse effect on our business, results of operations and financial
condition.
We could be required to collect additional sales taxes or be subject to other tax liabilities that may increase the costs our B2C customers would have to pay for our product
offering, which could materially and adversely affect our operating results.
An increasing number of states have considered or adopted laws that attempt to impose tax collection obligations on out-of-state companies. Additionally, the Supreme
Court of the United States ruled in South Dakota v. Wayfair, Inc. et al, or Wayfair, that online sellers can be required to collect sales and use tax despite not having a physical
presence in the buyer’s state. In response to Wayfair, or otherwise, states or local governments may adopt, or begin to enforce, laws requiring us to calculate, collect, and remit
taxes on sales in their jurisdictions. A successful assertion by one or more states requiring us to collect taxes where we presently do not do so, or to collect more taxes in a
jurisdiction in which we currently do collect some taxes, could result in substantial tax liabilities, including taxes on past sales, as well as penalties and interest. The imposition
by state governments or local governments of sales tax collection obligations on out-of-state sellers could also create additional administrative burdens for us, put us at a
competitive disadvantage if they do not impose similar obligations on our competitors and decrease our future sales, which could have a material adverse impact on our
business, financial condition and results of operations.
We may become involved in regulatory or agency proceedings, investigations, prosecutions, and audits.
Our business, and the businesses of the suppliers from which we acquire products we sell, requires compliance with many laws and regulations in many jurisdictions
globally across multiple product categories and regulatory regimes. Failure to comply with these laws and regulations could subject us or such suppliers to regulatory or agency
proceedings, investigations, or prosecutions, and could also lead to damage awards, fines and penalties. We or such suppliers may become involved in a number of government
proceedings, investigations and audits. The outcome of any government proceedings, investigations, prosecutions, audits, and other contingencies could harm our reputation or
the reputations of the brands that we sell, require us to take, or refrain from taking, actions that could harm our operations or require us to pay substantial amounts of money,
harming our financial condition. There can be no assurance that any pending or future regulatory or agency proceedings, investigations and audits will not result in substantial
costs or a diversion of management’s attention and resources or have a material adverse impact on our business, financial condition and results of operations.
We are subject to increasing international control and regulation.
The World Health Organization’s Framework Convention on Tobacco Control (“FCTC”) is the first international public health treaty that establishes a global agenda to
reduce initiation of tobacco use and regulate tobacco in an effort to encourage tobacco cessation. Over 180 governments worldwide have ratified the FCTC, including Canada.
The FCTC has led to increased efforts to reduce the supply of and demand for tobacco products and to encourage governments to further regulate the tobacco industry. The
tobacco industry and others expect significant regulatory developments to take place over the next few years, driven principally by the FCTC.
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If the United States ratifies the FCTC and/or national laws are enacted in the United States that reflect the major elements of the FCTC, our business, results of
operations and financial condition could be materially and adversely affected. In addition, if any of our vaporization products or consumption accessories become subject to one
or more of the significant regulatory initiatives proposed under the FCTC or any other international treaty, our business, results of operations and financial condition may also
be materially adversely affected.
Countries’ laws implementing the European Union Tobacco Products Directive (“TPD”) impose strict regulations on the approval, sale, and advertising of e-cigarettes.
Although we do not sell or market any material quantities of products classified as e-cigarettes in Europe, countries could enact new laws implementing the TPD or other laws
or regulations that re-classify and/or restrict the products we may sell or market in Europe. Any future measures that limit our ability to market or sell vaporization products or
other consumption accessories in Europe may have a material adverse effect on our business, results of operations, and financial condition.
To the extent our existing or future products become subject to international regulatory regimes that we are unable to comply with or fail to comply with, they may
have a material adverse effect on our business, results of operations and financial condition.
Changes in our credit profile may affect our relationship with our suppliers, which could have a material adverse effect on our liquidity.
Changes in our credit profile may affect the way our suppliers view our ability to make payments and may induce them to shorten the payment terms of their invoices.
Given the large dollar amounts and volume of our purchases from suppliers, a change in payment terms may have a material adverse effect on our liquidity and our ability to
make payments to our suppliers and, consequently, may have a material adverse effect on us.
We face intense competition and may fail to compete effectively.
The vaporization products and consumption accessories industry is characterized by brand recognition and loyalty, with product quality features, price, marketing and
packaging constituting the primary methods of competition. Substantial marketing support, merchandising display, competitive pricing and other financial incentives generally
are required to introduce a new brand or to improve or maintain a brand’s market position. Our principal competitors may be significantly larger than us and aggressively seek
to limit the distribution or sale of our products.
Competition in the vaporization products and consumption accessories industry is particularly intense, and the market is highly fragmented.
We experience variability in our net sales and net income on a quarterly basis as a result of many factors.
We experience variability in our net sales and net income on a quarterly basis as a result of many factors. These factors include:
● the relative mix of vaporization products and consumption accessories sold during the period;
● the general economic environment and competitive conditions, such as pricing;
● the timing of procurement cycles by our customers;
● seasonality in customer spending and demand for products we provide;
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● variability in supplier programs;
● the introduction of new and upgraded products;
● changes in prices from our suppliers;
● changes to our strategy;
● trade show attendance;
● promotions;
● the loss or consolidation of significant suppliers or customers;
● our ability to control costs;
● the timing of our capital expenditures;
● the condition of our industry in general and our customers specifically;
● regulatory developments that limit or expand the products we may sell, or the manner in which those products may be transported;
● any inability on our part to obtain adequate quantities of products;
● delays in the release by suppliers of new products and inventory adjustments;
● delays in the release of imported products by customs authorities;
● our expenditures on new business ventures and acquisitions;
● performance of acquired businesses;
● adverse weather conditions, natural disasters, pandemics, or other events that affect supply or customer response;
● distribution or shipping to our customers; and
● geopolitical events.
Our planned operating expenditures each quarter are based on sales forecasts for the quarter. If our sales do not meet expectations in any given quarter, our operating
results for that quarter may be materially adversely affected. We believe that period-to-period comparisons of our operating results are not necessarily a good indication of our
future performance. In addition, our results in any quarterly period are not necessarily indicative of results to be expected for a full fiscal year. In future quarters, our operating
results may be below the expectations of public market analysts or investors and, as a result, the market price of our Class A common stock could be materially adversely
affected.
Product defects could increase our expenses, damage our reputation or expose us to liability.
We may not be able to adequately address product defects. Product defects in vaporizers and other accessories may harm the health or safety of our end-consumers. In
addition, remedial efforts could be particularly time-consuming and expensive if product defects are only found after we have sold the defective product in volume. Any actual
or perceived defects in our products could result in unsold inventory, product recalls, repairs or replacements, damage to our reputation, increased customer service costs and
other expenses, as well as divert management attention and expose us to liabilities. Furthermore, a product liability claim brought against us by our customers or end-consumers
could be time-consuming and costly to defend and, if successful, could require us to make significant payments.
Contamination of, or damage to, our products could adversely impact sales volume, market share and profitability.
Our market position may be affected through the contamination of our products, as well as the material used during the manufacturing processes of the products we
sell, or at different points in the entire supply chain. For example, we have previously detected low levels of contaminants in certain extraction gasses sold by us. We keep
significant amounts of inventory of our products in warehouses and it is possible that this inventory could become contaminated prior to arrival at our premises or during the
storage period. If contamination of our inventory or packaged products occurs, whether as a result of a failure in quality control by us or by one of our suppliers, we may incur
significant costs in replacing the inventory and recalling products. We may be unable to meet customer demand and may lose customers who purchase alternative brands or
products. In addition, consumers may lose confidence in the affected product.
Under the terms of our contracts, we generally impose requirements on our suppliers to maintain quality and comply with product specifications and requirements, and
with all federal, state and local laws. Our suppliers, however, may not continue to produce products that are consistent with our standards or that are in compliance with
applicable laws, and we cannot guarantee that we will be able to identify instances in which our suppliers fail to comply with our standards or applicable laws. A loss of sales
volume from a contamination event may occur, and such a loss may affect our ability to supply our current customers and to recapture their business in the event they are forced
to switch products or brands, even if on a temporary basis. We may also be subject to legal action as a result of a contamination, which could result in negative publicity and
affect our sales. During this time, our competitors may benefit from an increased market share that could be difficult and costly to regain. Such a contamination event could
have a material adverse effect on our business, results of operations and financial condition.
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We may not have adequate insurance for potential liabilities, including liabilities arising from litigation.
In the ordinary course of business, we have and in the future may become the subject of various claims, lawsuits and governmental proceedings seeking damages or
other remedies concerning our commercial operations, the products we distribute, our employees and other matters, including potential claims by individuals alleging injury or
other harm caused by the products we distribute. Some of these claims may relate to the activities of businesses that we have acquired, even though these activities may have
occurred prior to our acquisition of the businesses. The products we distribute may contain lithium ion or similar type batteries that can explode or release hazardous
substances. In addition, defects in the products we distribute could result in death, personal injury, property damage, pollution, release of hazardous substances or damage to
equipment and facilities. Actual or claimed defects in the products we distribute may give rise to claims against us for losses and expose us to claims for damages.
We maintain insurance to cover certain of our potential losses, and we are subject to various self-retentions, deductibles and caps under our insurance. We face the
following risks with respect to our insurance coverage:
● we may not be able to continue to obtain insurance on commercially reasonable terms;
● we may incur losses from interruption of our business that exceed our insurance coverage;
● we may be faced with types of liabilities that will not be covered adequately or at all by our insurance;
● our insurance carriers may not be able to meet their obligations under the policies; or
● the dollar amount of any liabilities may exceed our policy limits.
Even a partially uninsured claim, if successful and of significant size, could have a material adverse effect on us. Finally, even in cases where we maintain insurance
coverage, our insurers may raise various objections and exceptions to coverage that could make uncertain the timing and amount of any possible insurance recovery.
Due to our position in the supply chain of vaporization products and consumption accessories, we are subject to personal injury, product liability and environmental claims
involving allegedly defective products.
Our customers use certain products we distribute in potentially hazardous applications that can result in personal injury, product liability and environmental claims. A
catastrophic occurrence at a location at which consumers use the products we distribute may result in our company being named as a defendant in lawsuits asserting potentially
large claims, even though we did not manufacture such products or even if such products were not used in the manner recommended by the manufacturer. Applicable law may
render us liable for damages without regard to negligence or fault. Certain of these risks are reduced by the fact that we are, in many instances, a distributor of products that
third-party manufacturers produce, and, thus, in certain circumstances, we may have third-party warranty or other claims against the manufacturer of products alleged to have
been defective. However, there is no assurance that these claims could fully protect us or that the manufacturer would be financially able to provide protection. There is no
assurance that our insurance coverage will be adequate to cover the underlying claims. Our insurance does not provide coverage for all liabilities (including liability for certain
events involving pollution or other environmental claims).
We may become subject to significant product liability litigation.
The tobacco and e-cigarette industries have experienced and continue to experience significant product liability litigation and other claims, such as those related to
marketing of tobacco and e-cigarettes to minors. As a result of their relative novelty, electronic cigarette, vaporizer product and other consumption product manufacturers,
suppliers, distributors and sellers have only recently become subject to litigation. While we have not been a party to any product liability litigation, several lawsuits have been
brought against other manufacturers and sellers of smokeless products for injuries to health allegedly caused by use of smokeless products. We may be subject to similar claims
in the future relating to our vaporizer products. We may also be named as a defendant in product liability litigation against one of our suppliers by association, including in class
action lawsuits. In addition, we may see increasing litigation over our vaporizer products or the regulation of our products as the regulatory regimes surrounding these products
develop. For example, California’s Proposition 65 (“Prop 65”) requires the State of California to identify chemicals that could cause cancer, birth defects, or reproductive harm,
and businesses selling products in California are then required to warn consumers of any possible exposure to the chemicals on the list. The State of California and private
plaintiffs have been active in enforcing Prop 65 against companies in the tobacco, nicotine, cannabis, and vaporization industries. We may face substantial costs due to
increased product liability litigation relating to new regulations or other potential defects associated with our vaporizer and other consumption products, including litigation
arising out of faulty devices or improper usage, which could have a material adverse effect on our business, results of operations and financial condition.
There can be no assurances that we will be able to obtain or maintain product liability insurance on acceptable terms or with adequate coverage against potential
liabilities. Such insurance is expensive and may not be available in the future on acceptable terms, or at all. The inability to obtain sufficient insurance coverage on reasonable
terms or to otherwise protect against potential product liability claims could prevent or inhibit the commercialization of products.
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The scientific community has not yet extensively studied the long-term health effects of the use of vaporizers, electronic cigarettes or e-liquids products.
Vaporizers, electronic cigarettes and related products were recently developed and therefore the scientific community has not had a sufficient period of time to study
the long-term health effects of their use. Currently, there is no way of knowing whether these products are safe for their intended use. If the scientific community were to
determine conclusively that use of any or all of these products poses long-term health risks, market demand for these products and their use could materially decline. Such a
determination could also lead to litigation and significant regulation. Loss of demand for our product, product liability claims and increased regulation stemming from
unfavorable scientific studies on these products could have a material adverse effect on our business, results of operations and financial condition.
Reliance on information technology means a significant disruption could affect our communications and operations.
We increasingly rely on information technology systems for our internal communications, controls, reporting and relations with customers, vendors and suppliers, and
information technology is becoming a significantly important tool for our sales staff. Our marketing and distribution strategy is dependent upon our ability to closely monitor
consumer and market trends on a highly specified level, for which we are reliant on our sophisticated data tracking systems, which are susceptible to disruption or failure. In
addition, our reliance on information technology exposes us to cyber-security risks, which could have a material adverse effect on our ability to compete. Security and privacy
breaches may expose us to liability and cause us to lose customers, or may disrupt our relationships and ongoing transactions with other entities with whom we contract
throughout our supply chain. The failure of our information systems to function as intended, or the penetration by outside parties intent on disrupting business processes, could
result in significant costs, loss of revenue, assets or personal or other sensitive data and reputational harm.
Internet security poses a risk to our e-commerce sales.
At present, we generate a portion of our sales through e-commerce sales on our own websites. We manage our websites and e-commerce platform internally and, as a
result, any compromise of our security or misappropriation of proprietary information could have a material adverse effect on our business, results of operations and financial
condition. We rely on encryption and authentication technology licensed from third parties to provide the security and authentication necessary to effect secure Internet
transmission of confidential information, such as credit and other proprietary information. Advances in computer capabilities, new discoveries in the field of cryptography or
other events or developments may result in a compromise or breach of the technology used by us to protect client transaction data. Anyone who is able to circumvent our
security measures could misappropriate proprietary information or cause material interruptions in our operations. We may be required to expend significant capital and other
resources to protect against security breaches or to minimize problems caused by security breaches. To the extent that our activities or the activities of others involve the storage
and transmission of proprietary information, security breaches could damage our reputation and expose us to a risk of loss and/or litigation. Our security measures may not
prevent security breaches. Our failure to prevent these security breaches may result in consumer distrust and may adversely affect our business, results of operations and
financial condition.
Security and privacy breaches may expose us to liability and cause us to lose customers.
Federal, provincial and state laws require us to safeguard our customers’ financial information, including credit information, as well as our employees’ information.
Although we have established security procedures to protect against identity theft and the theft of information of our customers, distributors, consumers, and employees, our
security and testing measures may not prevent security breaches and breaches of privacy may occur, which would harm our business. Typically, we rely on encryption and
authentication technology licensed from third parties to enhance transmission security of confidential information in relation to financial and other sensitive information that we
have on file. Advances in computer capabilities, new discoveries in the field of cryptography, inadequate facility security or other developments may result in a compromise or
breach of the technology used by us to protect customer data. Any compromise of our security could harm our reputation or financial condition and therefore, our business. In
addition, a party who is able to circumvent our security measures or exploit inadequacies in our security measures, could, among other effects, misappropriate proprietary
information, cause interruptions in our operations or expose customers and other entities with which we interact to computer viruses or other disruptions. Actual or perceived
vulnerabilities may lead to claims against us. To the extent the measures we have taken prove to be insufficient or inadequate, we may become subject to litigation or
administrative sanctions, which could result in significant fines, penalties or damages and harm to our reputation.
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If the methodologies of internet search engines are modified, traffic to our websites and corresponding consumer origination volumes could decline.
We depend in part on various internet search engines, including Google® and others to direct a significant amount of traffic to our websites. Our ability to maintain the
number of visitors directed to our websites by search engines through which we distribute our content is not entirely within our control. Our competitors’ search engine
optimization (“SEO”) efforts may result in their websites receiving a higher search result page ranking than ours, or Internet search engines could revise their methodologies,
which could adversely affect the placement of our search result page ranking. If search engine companies modify their search algorithms in ways that are detrimental to our
consumer growth or in ways that make it harder for our customers to access or use our websites, or if our competitors’ SEO efforts are more successful than ours, our consumer
engagement and number of consumers could decline. Any reduction in the number of consumers directed to our websites could negatively affect our ability to earn revenue. If
traffic on our websites declines, we may need to employ more costly resources to replace lost traffic, and such increased expense could adversely affect our business, results of
operations and financial condition.
We are a holding company and depend upon our subsidiaries for our cash flow.
We are a holding company. Our subsidiaries conduct all of our operations and own substantially all of our tangible assets. Consequently, our cash flow and our ability
to meet our obligations or to make other distributions in the future will depend upon the cash flow of our subsidiaries and our subsidiaries’ payment of funds to us in the form of
distributions, dividends, tax sharing payments or otherwise.
The ability of our subsidiaries to make any payments to us will depend on their earnings and cash flow, the terms of their current and future indebtedness, tax
considerations and legal and contractual restrictions on their ability to make distributions.
Our subsidiaries are separate and distinct legal entities. Any right that we have to receive any assets of or distributions from any of our subsidiaries upon the
bankruptcy, dissolution, liquidation or reorganization, or to realize proceeds from the sale of their assets, will be junior to the claims of that subsidiary’s creditors, including
trade creditors and holders of debt that the subsidiary issued.
Our intellectual property may be infringed and we may be unable to secure or maintain all the intellectual property required to sell all of our offerings.
We currently rely on trademark and other intellectual property rights to establish and protect the brand names and logos we own or license on the products we
distribute. Third parties have in the past infringed, and may in the future infringe, on these trademarks and our other intellectual property rights. Our ability to maintain and
further build brand recognition is dependent on the continued use of these trademarks, service marks and other proprietary intellectual property, including the names and logos
we own or license. Despite our attempts to ensure these intellectual property rights are protected, third parties may take actions that could materially and adversely affect our
rights or the value of this intellectual property. Any litigation concerning our intellectual property rights or the intellectual property rights of our suppliers, whether successful or
unsuccessful, could result in substantial costs to us and diversions of our resources. Expenses related to protecting our intellectual property rights or the intellectual property
rights of our suppliers, the loss or compromise of any of these rights or the loss of revenues as a result of infringement could have a material adverse effect on our business,
results of operations and financial condition, and may prevent the brands we own or license, or are owned or licensed by our suppliers, from growing or maintaining market
share. There can be no assurance that any trademarks or common marks that we own or license, or are owned or licensed by our suppliers, will not be challenged in the future,
invalidated or circumvented or that the rights granted thereunder or under licensing agreements will provide us or our suppliers competitive advantages. We are dependent on
the validity, integrity and intellectual property of our suppliers and their efforts to appropriately register, maintain and enforce intellectual property in all jurisdictions in which
their products are sold.
We devote significant resources to the registration and protection of our trademarks and to anti-counterfeiting efforts. Despite these efforts, we regularly discover
products that infringe on our proprietary rights or that otherwise seek to mimic or leverage our intellectual property or the intellectual property of our suppliers. Counterfeiting
and other infringing activities typically increase as brand recognition increases, especially in markets outside the United States and Canada. Counterfeiting and other
infringement of our intellectual property could divert away sales, and association of our brands with inferior counterfeit reproductions or third party labels could adversely
affect the integrity and reputation of our brands.
Although we currently hold a number of patents on our products, we generally rely on patents on the products of our suppliers as well as their efforts in successfully
defending third-party challenges to such products. Third parties have in the past infringed, and may in the future infringe, on our patents and our suppliers’ patents. Our ability
to maintain and enforce our patent rights, and the ability of our suppliers, licensors, collaborators and manufacturers to maintain and enforce their patent rights, against third-
party challenges to their validity, scope or enforceability plays an important role in determining our future. There can be no assurances that we will ever successfully file or
receive any patents in the future, and changes in either the patent laws or in interpretations of patent laws in the United States or other countries may diminish the value of the
intellectual property rights of the products we distribute, license or own. Accordingly, we cannot predict with any certainty the range of claims that may be allowed or enforced
concerning the products that we sell.
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In addition, there can be no assurance that standard intellectual property confidentiality and assignment agreements with employees, consultants and other advisors
will not be breached, that we will have adequate remedies for any breach, or that our trade secrets will not otherwise become known to or independently developed by
competitors. Furthermore, there can be no assurance that our efforts to protect our intellectual property will prevent others from unlawfully using our trademarks, trade secrets,
copyrights and other intellectual property. Our success depends in part, on our continued ability to maintain our intellectual property and those of our suppliers, and to protect
our trade secrets. An inability to continue to preserve and protect our intellectual property would likely have a material adverse effect on our business, results of operations and
financial condition.
We are subject to the risks of exchange rate fluctuations.
Currency movements and suppliers’ price increases relating to currency exchange rates are significant factors affecting our cost of sales. Many of our products are
purchased from suppliers located in foreign countries and we make payments for our products in numerous currencies. Thus, we bear certain foreign exchange rate risk for
certain of our inventory purchases. In addition, we recently expanded our footprint in Canada and Europe, and as part of our strategy, we may undertake further international
expansion. As a result, in the future, we may be more sensitive to the risks of exchange rate fluctuations, which may have a material adverse effect on our business, results of
operations and financial condition.
There are conflicts of interest among certain of our executive officers and our stockholders.
Certain of our executive officers are engaged in other activities and have interests in other entities on their own behalf or on behalf of other persons. Neither we, nor
our stockholders will have any rights in these ventures or their income or profits. Specifically, we sold $0.0 million and $0.4 million in products and supplies to Blum Holdings,
Inc. (“Blum”) in the years ended December 31, 2023 and 2022, respectively. Total gross accounts receivable due from Blum were approximately $0.4 million and $0.4 million
as of December 31, 2023 and 2022, respectively. Nicholas Kovacevich, our former Chief Corporate Development Officer, and a member of our Board until January 6, 2023 is
an investor in Blum and a member of its board of directors.
While we are not aware of any conflict that has arisen or any transaction that has not been conducted on an arm’s length basis to date, during the year, Mr. Kovacevich
may have had conflicting fiduciary duties between us, Blum and his own personal financial interests, for which he must recuse himself from certain of our decision-making
processes.
We do not allow a conflicted shareholder, director or executive officer to vote on matters wherein a conflict may be perceived. The conflicted person or entity is not
allowed to nominate an alternate person to vote for them either. Other than this safeguard, we do not current have any policy in place, should such a conflict arise.
In particular:
● our executive officers or directors or their affiliates may have an economic interest in, or other business relationship with, entities that compete in the same businesses
as us; and
● our executive officers or directors or their affiliates have interests in entities that we sell products or services to.
In any of these cases:
● our executive officers or directors may have a conflict between our current interests and their personal financial and other interests in another business venture;
● our executive officers or directors may have conflicting fiduciary duties to us and the other entity; and
● the terms of transactions with the other entity may not be subject to arm’s length negotiations and therefore may be on terms less favorable to us than those that could
be procured through arm’s length negotiations.
We are required to comply with laws and regulations in other countries and are exposed to business risks associated with our international operations.
For the years ended December 31, 2023 and 2022, we derived 7.1% and 7.8%, respectively, of our net sales from outside the United States, primarily in Canada and
certain European countries. As a result, we are subject to numerous evolving and complex laws and regulations which apply, among other things, to financial reporting
standards, corporate governance, data privacy, tax, trade regulations, export controls, competitive practices, labor, health and safety laws, laws regarding controlled substances,
laws regarding drug paraphernalia, and regulations in each jurisdiction in which we operate. We are also required to obtain permits and other authorizations or licenses from
governmental authorities for certain of our operations and we or our suppliers’ must protect our intellectual property worldwide. In the jurisdictions in which we operate, we
need to comply with various standards and practices of different regulatory, tax, judicial and administrative bodies.
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There are a number of risks associated with international business operations, including political instability (e.g., the threat of war, terrorist attacks or civil unrest),
inconsistent regulations across jurisdictions, unanticipated changes in the regulatory environment, and import and export restrictions. Any of these events may affect our
employees, reputation, business or financial results as well as our ability to meet our objectives, including the following international business risks:
● negative economic developments in economies around the world and the instability of governments, or the downgrades in the debt ratings of certain major economies;
● social and political instability;
● complex regulations governing certain of our products;
● potential terrorist attacks;
● adverse changes in governmental policies, especially those affecting trade, tariffs and investment;
● foreign currency exchange, particularly with respect to the Canadian Dollar, Euro, British Pound Sterling and Australian Dollar; and
● threats that our operations or property could be subject to nationalization and expropriation.
We may not be in full compliance at all times with the laws and regulations to which we are subject. Likewise, we may not have obtained or may not be able to obtain
the permits and other authorizations or licenses that we need. If we violate or fail to comply with laws, regulations, permits, labor, health and safety regulations or other
authorizations or licenses, we could be fined or otherwise sanctioned by regulators. In such a case, or if any of these international business risks were to materialize, our
business, results of operations and financial condition could be adversely affected.
New tariffs and the evolving trade policy dispute between the United States and China may adversely affect our business.
In 2018, the United States imposed significant tariffs on steel and aluminum imports from a number of countries, including China. These tariffs and the evolving trade
policy dispute between the United States and China may have a significant impact on the industries in which we participate. Many of the products we sell, including without
limitation, certain vaporizer products, aluminum grinders, paper products and plastic products, are subject to the 25 percent tariff and such tariff, along with resultant price
increases, may negatively impact our pricing and customer demand for these products. A “trade war” between the United States and China or other governmental action related
to tariffs or international trade agreements or policies has the potential to adversely impact demand for our products, our costs, customers, suppliers and/or the United States
economy or certain sectors thereof and, thus, to adversely impact our businesses and results of operations.
Our failure to comply with certain environmental, health and safety regulations could materially and adversely affect our business.
The storage, distribution and transportation of some of the products that we sell are subject to a variety of federal, state, provincial and local environmental regulations.
We are also subject to operational, health and safety laws and regulations. Our failure to comply with these laws and regulations could cause a disruption in our business, an
inability to maintain our warehousing resources, additional and potentially significant remedial costs and damages, fines, sanctions or other legal consequences that could have
a material adverse effect on our business, results of operations and financial condition. In addition, changes in environmental, employee health and safety or other laws, more
vigorous enforcement thereof or other unanticipated events could require extensive changes to our operations or give rise to material liabilities, which could have a material
adverse effect on our business, financial condition and results of operations.
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We are transitioning our business and have engaged, and may continue in engage in, dispositions via sales of our assets or other exit activities and other strategic
initiatives and we may face risks related to such transactions.
We have engaged in, and expect to continue to pursue, strategic dispositions and initiatives, as we transition our business. Dispositions present significant challenges
and risks relating the separation of disposed businesses. Such risks include: (i) we may incur unanticipated costs or expenses, (ii) we may not be able to successfully separate
divested businesses and related obligations from our operations as planned, and (iii) we may not be able to realize anticipated reductions in costs attributable to divested
businesses or assets. Divestitures may also involve continued financial involvement in, or liability with respect to, the divested businesses. As a result of divestiture
transactions, we could incur severance charges for personnel and payments for lease and other commitments, charges from the impairment or write-off of assets, and other
financial loss due to the transaction. Furthermore, there is the risk that we might lose customers. In addition, we may not realize the degree or timing of benefits we anticipate
when we first enter into a transaction. There can be no assurances that we will manage dispositions or other strategic initiatives successfully, that strategic opportunities will be
available to us on acceptable terms or at all, or that we will be able to consummate desired transactions. Any of the foregoing could materially adversely affect our competitive
position, financial condition, results of operations or cash flows. For more information on the disposition activities we have undertaken to date, please see “Item 7 —
Management’s Discussion and Analysis of Financial Condition and Results of Operations”.
Our operations are subject to natural disasters, adverse weather conditions, operating hazards, environmental incidents and labor disputes.
We may experience earthquakes, floods, typhoons, power outages, labor and trade disputes or similar events beyond our control that would affect our warehousing and
distribution operations. The occurrences of such events could result in shutdowns or periods of reduced operations, which could significantly disrupt our business operations,
cause us to incur additional costs and affect our ability to deliver our products to our customers as scheduled, which may adversely affect our business, results of operations and
financial condition. Moreover, such events could result in severe damage to property, personal injuries, fatalities, regulatory enforcement proceedings or in us being named as a
defendant in lawsuits asserting claims for large amounts of damages, which in turn could lead to significant liabilities.
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We are subject to risks associated with public health crises, such as pandemics and epidemics, , which may have a material adverse effect on our business. The nature and
extent of future impacts are highly uncertain and unpredictable.
We are subject to risks associated with public health crises, such as pandemics and epidemics and the emergence of new viruses may result in new governmental
lockdowns, quarantine requirements or other restrictions to slow the spread of the virus. In addition, any such measures could also impact the global economy more broadly, for
example by leading to further economic slowdowns. If we or any of the third parties with whom we engage, including the suppliers, manufacturers and other third parties in our
global supply chain, were to experience shutdowns or other significant business disruptions, our ability to conduct our business in the manner presently planned could be
materially and negatively impacted.
The scope and duration of any future public health crisis, the pace at which government restrictions are imposed and lifted, the scope of additional actions taken to
mitigate the spread of disease, global vaccination and booster rates, the speed and extent to which global markets and utilization rates for our products fully recover from the
disruptions caused by such a public health crisis, and the impact of these factors on our business, financial condition and results of operations, will depend on future
developments that are highly uncertain and cannot be predicted with confidence.
To the extent a new pandemic or other public health crises adversely affect our operations and global economic conditions more generally, it may also have the effect
of heightening many of the other risks described herein.
Risks Related to Our Organizational Structure
Our principal asset is our interest in the Operating Company, and, accordingly, we depend on distributions from the Operating Company to pay our taxes and expenses.
The Operating Company’s ability to make such distributions may be subject to various limitations and restrictions.
We are a holding company and have no material assets other than our ownership of all of the Common Units of the Operating Company. As such, we have no
independent means of generating revenue or cash flow. Our ability to pay our operating expenses or declare and pay dividends in the future, if any, will be dependent upon the
financial results and cash flows of the Operating Company and its subsidiaries and distributions we receive from the Operating Company. There can be no assurance that the
Operating Company and its subsidiaries will generate sufficient cash flow to distribute funds to us or that applicable state law and contractual restrictions, including negative
covenants, in any future debt instruments, will permit such distributions. In addition, because we are a holding company, our stockholders’ claims as a stockholder will be
structurally subordinated to all existing and future liabilities and obligations of the Operating Company. Therefore, in the event of our bankruptcy, liquidation or reorganization,
our assets and those of the Operating Company and its subsidiaries will be available to satisfy the claims of our stockholders only after all of our and Greenlane Holdings,
LLC’s and its subsidiaries’ liabilities and obligations have been paid in full.
The Operating Company is treated as a partnership for U.S. federal income tax purposes and, as such, is not subject to any entity-level U.S. federal income tax.
Instead, taxable income is allocated to holders of Common Units. As of December 31, 2023 and 2022, we hold all of the outstanding Common Units. Accordingly, we will incur
income taxes on any net taxable income of the Operating Company. Under the terms of the Fourth Amended and Restated Agreement of the Operating Company (the
“Operating Agreement”), the Operating Company is obligated to make tax distributions to holders of Common Units. In addition to tax expenses, we will also incur expenses
related to our operations which we expect could be significant. We intend, as its manager and sole member, to cause the Operating Company to make cash distributions to us in
an amount sufficient to (i) fund our tax obligations in respect of taxable income allocated to us and (ii) cover our operating expenses. However, the Operating Company’s
ability to make such distributions may be subject to various limitations and restrictions, such as restrictions on distributions that would either violate any contract or agreement
to which the Operating Company is then a party, including debt agreements, or any applicable law, or that would have the effect of rendering the Operating Company insolvent.
If we do not have sufficient funds to pay tax or other liabilities or to fund our operations, we may have to borrow funds, which could materially adversely affect our liquidity
and financial condition and subject us to various restrictions imposed by any such lenders.
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The Tax Receivable Agreement (the “TRA”) may require us to make cash payments to the members of the Operating Company in respect of certain tax benefits to which
we may become entitled.
Under the TRA we entered into with the Operating Company and its members, we are required to make cash payments to the members of the Operating Partnership
equal to 85% of the tax benefits, if any, that we actually realize, or in certain circumstances are deemed to realize, as a result of (i) the increases in the tax basis of assets of the
Operating Company resulting from any redemptions or exchanges of Common Units from the members and (ii) certain other tax benefits related to our making payments under
the TRA. Although we held all of the outstanding Common Units as of December 31, 2023 and 2022, payments under the TRA are not conditioned on any member’s continued
ownership of Common Units or our Class A common stock.
The actual amount and timing of any payments under the TRA will vary depending upon a number of factors, including the amount of gain recognized by prior holders
of Common Units, the amount and timing of the taxable income we generate in the future, and the federal tax rates then applicable.
Fluctuations in our tax obligations and effective tax rate and realization of our deferred tax assets may result in volatility of our operating results.
We are subject to taxes by the U.S. federal, state, local and foreign tax authorities, and our tax liabilities will be affected by the allocation of expenses to differing
jurisdictions. We record tax expense based on our estimates of future earnings, which may include reserves for uncertain tax positions in multiple tax jurisdictions, and
valuation allowances related to certain net deferred tax assets. At any one time, many tax years may be subject to audit by various taxing jurisdictions. The results of these
audits and negotiations with taxing authorities may affect the ultimate settlement of these matters. We expect that throughout the year there could be ongoing variability in our
quarterly tax rates as events occur and exposures are evaluated. Our future effective tax rates could be subject to volatility or adversely affected by a number of factors,
including:
● changes in the valuation of our deferred tax assets and liabilities;
● expected timing and amount of the release of any tax valuation allowances;
● tax effects of stock-based compensation;
● changes in tax laws, regulations or interpretations thereof; or
● future earnings being lower than anticipated in countries where we have lower statutory tax rates and higher than anticipated earnings in countries where we have
higher statutory tax rates.
In addition, our effective tax rate in a given financial statement period may be materially impacted by a variety of factors including but not limited to changes in the
mix and level of earnings, varying tax rates in the different jurisdictions in which we operate, fluctuations in valuation allowances, deductibility of certain items, or by changes
to existing accounting rules or regulations. Further, tax legislation may be enacted in the future which could negatively impact our current or future tax structure and effective
tax rates. We may be subject to audits of our income, sales, and other transaction taxes by U.S. federal, state, local, and foreign taxing authorities. Outcomes from these audits
could have an adverse effect on our operating results and financial condition.
If we were deemed to be an investment company under the U.S. Investment Company Act of 1940, as amended (the “1940 Act”), as a result of our ownership of the
Operating Company, applicable restrictions could make it impractical for us to continue our business as contemplated and could have a material adverse effect on our
business.
Under Sections 3(a)(1)(A) and (C) of the 1940 Act, a company generally will be deemed to be an “investment company” for purposes of the 1940 Act if (i) it is, or
holds itself out as being, engaged primarily, or proposes to engage primarily, in the business of investing, reinvesting or trading in securities or (ii) it engages, or proposes to
engage, in the business of investing, reinvesting, owning, holding or trading in securities and it owns or proposes to acquire investment securities having a value exceeding 40%
of the value of its total assets (exclusive of U.S. government securities and cash items) on an unconsolidated basis. We do not believe that we are an “investment company,” as
such term is defined in either of those sections of the 1940 Act.
As the sole manager of the Operating Company, we control and operate the Operating Company. On that basis, we believe that our interest in the Operating Company
is not an “investment security” as that term is used in the 1940 Act. However, if we were to cease participation in the management of the Operating Company, our interest in
The Operating Company could be deemed an “investment security” for purposes of the 1940 Act.
39
We and the Operating Company intend to continue to conduct our operations so that we will not be deemed an investment company. However, if we were to be
deemed an investment company, restrictions imposed by the 1940 Act, including limitations on our capital structure and our ability to transact with affiliates, could make it
impractical for us to continue our business as contemplated and could have a material adverse effect on our business.
Risks Related to Ownership of Our Class A Common Stock
The market price of our Class A common stock has been volatile and has declined significantly since our initial public offering and may face more volatility and price
declines in the future. As a result, you may not be able to resell your shares at or above the price at which you have acquired or will acquire shares of our Class A common
stock.
The market price of our Class A common stock has been volatile and has declined significantly since our initial public offering and could face more volatility and price
declines in the future as a result of a number of factors, many of which are beyond our control. Furthermore, volatility in our stock price may occur regardless of our operating
performance. As a result, you may not be able to sell your shares at or above the price you paid and you could lose a substantial part or all of your investment in our Class A
common stock. The following factors could affect our stock price:
● general market conditions, including conditions that are outside of our control, such as actions or proposed actions of the current U.S. Presidential administration and
the Federal Reserve to curb inflation or the impact of future public health crises; novel and unforeseen market volatility and trading strategies, such as the short
squeeze rallies caused by retail investors on retail trading platforms;
● our financing activities, including the issuance of additional securities;
● our operating and financial performance and the performance of other similar companies;
● the market perception of our industry;
● management turnover;
● the impact, or perceived impact, of new regulations applicable to us, our suppliers or our customers;
● quarterly variations in the rate of growth of our financial indicators, such as net income, net income per share, net sales and adjusted EBITDA;
● our ability to successfully execute our merger and acquisition strategy;
● significant acquisitions or business combinations, strategic partnerships, joint ventures or capital commitments by or involving us or our competitors;
● strategic actions by our competitors or our suppliers;
● product recalls or product liability claims;
● changes in revenue or earnings estimates, or changes in recommendations or withdrawal of research coverage, by equity research analysts;
● liquidity and activity in the market for our Class A common stock;
● speculation in the press or investment community;
● sales of our Class A common stock by us or other stockholders, or the perception that such sales may occur;
● the future incurrence of debt;
● changes in accounting principles;
● additions or departures of key management personnel;
● the de-listing of our Class A common stock from the Nasdaq Capital Market;
● news reports relating to trends, concerns or competitive developments, regulatory changes and other related issues in our industry or target markets;
● investors’ general perception of us and the public’s reaction to our press releases, our other public announcements and our filings with the SEC;
● actions by our stockholders; and
● domestic and international economic, legal and regulatory factors.
The stock markets in general have experienced extreme volatility, particularly recently, that has often been unrelated to the operating performance of particular
companies. These broad market fluctuations may adversely affect the trading price of our Class A common stock.
Your percentage ownership will be diluted in the future.
Your percentage ownership will be diluted in the future as a result of equity awards that we expect will be granted to our directors, officers and employees, as well as
any shares of our Class A common stock, or securities convertible into shares of our Class A common stock, we issue in connection with future capital raising or strategic
transactions at prices that are dilutive to shareholders. Our Second Amended and Restated 2019 Equity Incentive Plan provides for the grant of equity-based awards to our
directors, officers and employees. The issuance of any shares of Class A common stock will dilute the proportionate ownership and voting power of existing security holders.
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Substantial sales and issuances of our Class A common stock have and may continue to occur, or may be anticipated, which have and could continue to cause our stock
price to decline.
The market price of shares of our Class A common stock could decline further as a result of substantial sales of our Class A common stock, issuances of Class A
common stock at prices that are dilutive to stockholders, a large number of shares of our Class A common stock becoming available for sale or the perception in the market that
holders of a large number of shares intend to sell their shares. Additionally, we expect that we will seek to raise additional capital from time to time in the future, which may
involve the issuance of additional shares of our Class A common stock, or securities convertible into shares of our Class A common stock in subsequent public or private
offerings at dilutive prices if debt is not available to us to fund our working capital needs.
We cannot predict the effect, if any, that these sales, or anticipation of such sales, will have on the market price of our common stock or the timing of any redemption
of Common Units. Sales or issuances of substantial amounts of our Class A common stock (including shares issued in connection with an acquisition), or the perception that
such sales could occur, may adversely affect prevailing market price of our Class A common stock.
The requirements of being a public company may strain our resources and distract our management, which could make it difficult to manage our business, particularly
after we are no longer an “emerging growth company.”
As a public company, we are required to comply with various regulatory and reporting requirements, including those required by the SEC. Complying with these
reporting and other regulatory requirements is time-consuming and expensive and could have a negative effect on our business, results of operations and financial condition. As
a public company, we are subject to the reporting requirements of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and the requirements of the
Sarbanes-Oxley Act of 2002 (“SOX”). The cost of complying with these requirements may place a strain on our systems and resources. The Exchange Act requires that we file
annual, quarterly and current reports with respect to our business and financial condition. SOX requires that we maintain effective disclosure controls and procedures and
internal controls over financial reporting. To maintain and improve the effectiveness of our disclosure controls and procedures, we must commit significant resources, may be
required to hire additional staff and need to continue to provide effective management oversight. Sustaining our growth also will require us to commit additional management,
operational and financial resources to identify new professionals to join our company and to maintain appropriate operational and financial systems to adequately support
expansion. These activities may divert management’s attention from other business concerns, which could have a material adverse effect on our business, results of operations,
financial condition and cash flows.
In connection with becoming a public company, we obtained Side A directors’ and officers’ insurance coverage, which increased our annual insurance costs. In the
future, it may be more expensive for us to obtain director and officer liability insurance, and we may be required to accept reduced coverage or incur substantially higher costs
to obtain coverage. These factors could also make it more difficult for us to attract and retain qualified members to our Board in the future, particularly to serve on our audit
committee, and qualified executive officers.
As an “emerging growth company” as defined in the JOBS Act, we may take advantage of certain temporary exemptions from various reporting requirements,
including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404(b) of SOX and reduced disclosure obligations regarding
executive compensation in our periodic reports and proxy statements.
When these exemptions cease to apply, we expect to incur additional expenses and devote increased management effort toward ensuring compliance with them. We
will remain an “emerging growth company” for up to five years, although we may cease to be an “emerging growth company” earlier under certain circumstances. We cannot
predict or estimate the amount of additional costs we may incur as a result of becoming a public company or the timing of such costs.
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As a public reporting company, we are subject to rules and regulations established from time to time by the SEC regarding our internal control over financial reporting. In
connection with our assessment of the effectiveness of our disclosure controls and procedures, we identified certain material weaknesses in our internal control over
financial reporting, which caused our Chief Executive Officer and Chief Financial Officer to determine that our internal control over financial reporting, as well as our
disclosure controls and procedures, were not effective as of December 31, 2020 and these material weaknesses have not yet been fully remediated as of December 31, 2023.
As a public reporting company, we are subject to the rules and regulations established from time to time by the SEC. These rules and regulations require that, among
other things, we establish and periodically evaluate procedures with respect to our internal control over financial reporting. Reporting obligations as a public company are likely
to place a considerable strain on our financial and management systems, processes and controls, as well as on our personnel.
Our management, including our Chief Executive Officer and Chief Financial and Legal Officer, is responsible for establishing and maintaining adequate internal
control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act). Internal control over financial reporting is a process designed to provide
reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. GAAP. Our
internal control over financial reporting includes those policies and procedures that: (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of our assets; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements
in accordance with U.S. GAAP, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and (iii)
provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of our assets that could have a material effect on the
financial statements.
Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of
the effectiveness of our internal control over financial reporting as of December 31, 2020. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer
concluded that as of December 31, 2020, the Company had not maintained effective internal control over financial reporting as a result of the existence of material weaknesses.
Consequently, management, with the participation of our Chief Executive Officer and Chief Financial Officer, also concluded that our disclosure controls and procedures were
not effective as of December 31, 2020 to provide reasonable assurance that information required to be disclosed by the Company in the reports filed or submitted by it under the
Exchange Act were recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and to provide reasonable assurance that
information required to be disclosed by the Company in such reports was accumulated and communicated to the Company’s management, including, our Chief Executive
Officer and our Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
A “material weakness” is a deficiency, or combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a
material misstatement of our financial statements will not be prevented or detected on a timely basis. Although we are implementing measures to remediate the material
weaknesses, we cannot give any assurances that the identified material weaknesses will be remediated on a timely basis or at all or that additional material weaknesses will not
be identified in the future in connection with our compliance with the provisions of Section 404 of SOX. Our management may be required to devote significant time and
expense to remediate these material weaknesses and any other material weaknesses that may be discovered in the future and may not be able to remediate such material
weaknesses in a timely manner. The existence of any future material weakness in our internal control over financial reporting could also result in errors in our financial
statements that could require us to restate our financial statements, cause us to fail to meet our reporting obligations, and cause investors to lose confidence in our reported
financial information, any of which could lead to a decline in the per share trading price of our common stock.
As described in Item 9A of Part II of this Annual Report on Form 10-K, we are continuing to implement our remediation plan to address the identified material
weaknesses, and our management continues to be actively engaged in the remediation efforts. The material weaknesses will not be considered remediated until the applicable
controls operate for a sufficient period of time and management has concluded, through testing, that these controls are operating effectively.
As previously disclosed, in 2020, we began a multi-year implementation of a new ERP system, which we completed in 2023. The ERP system serves as our existing
core financial system. Concurrently, in 2023, the re-design of the user access roles and permissions in the new ERP system were completed, and new controls were put into
place. Therefore we expect that the previously reported material weaknesses related to ineffective user access controls will be considered remediated in 2024.
Because we are an “emerging growth company” under the JOBS Act, our independent registered public accounting firm is not be required to attest to the effectiveness
of our internal control over financial reporting for so long as we are an emerging growth company. Our independent registered public accounting firm will be engaged to
provide an attestation report on the effectiveness of our internal control over financial reporting at such time as we cease to be an ‘‘emerging growth company,’’ as defined in
the JOBS Act.
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We have not paid dividends in the past and have no current plans to pay dividends in the future, and any return on investment may be limited to the value of our common
stock.
We do not anticipate paying cash dividends in the foreseeable future. The payment of dividends will depend on our earnings, capital requirements, financial condition,
prospects and other factors our Board may deem relevant. If we do not pay dividends, our stock may be less valuable because a return on your investment will only occur if you
sell our Class A common stock after our stock price appreciates above the price at which you acquired such shares.
If securities analysts do not publish research or publish inaccurate or unfavorable research about our business, our stock price and trading volume could decline.
The trading market for our stock depends in part on the research and reports that securities or industry analysts publish about us or our industry. While there are
currently securities analysts covering us, we can provide no assurances that the analysts will continue to publish report or that other securities analysts will initiate coverage. If
no securities analysts cover our company, the trading price for our stock could be negatively impacted. In addition, if one or more of the analysts who cover us downgrade our
stock or publish inaccurate or unfavorable research about our business, our stock price could decline as a result. If one or more of these analysts cease coverage of our company
or fail to publish reports on us regularly, demand for our Class A stock could decrease, which might cause the market price and trading volume of our Class A common stock to
decline.
We have a large number of authorized but unissued shares of stock, which could negatively impact a potential investor if they purchase our Class A common stock.
On August 9, 2022 and June 5, 2023, we effected reverse stock splits. The reverse stock splits did not change the par value of our Class A common stock or the number
of shares of Class A common stock or preferred shares authorized by our amended and restated certificate of incorporation. Because the number of authorized shares of our
Class A common stock was not reduced proportionally, the reverse stock splits increased our Board’s ability to issue authorized and unissued shares without further stockholder
action. As of December 31, 2023, our amended and restated certificate of incorporation provides for 600,000,000 shares of authorized Class A common stock, 30,000,000
shares of authorized Class B common stock and 10,000,000 shares of authorized preferred stock and we have approximately 3,726,926 shares of Class A common stock
outstanding, 11,860,201 shares reserved for exercise or vesting of outstanding warrants and options to purchase shares of Class A common stock and 203,022 shares of Class A
common stock reserved for future grant under the Company’s equity incentive plan. No shares of Class B common stock or preferred stock are outstanding.
With respect to authorized but unissued and unreserved shares, we could also use such shares to oppose a hostile takeover attempt or delay or prevent changes in
control or changes in or removal of management. The issuance of additional shares of Class A common stock or securities convertible into Class A common stock may have a
dilutive effect on earnings per share and relative voting power and may cause a decline in the trading price of our Class A common stock. We could use the shares that are
available for future issuance in dilutive equity financing transactions, or to oppose a hostile takeover attempt or delay or prevent changes in control or changes in or removal of
management, including transactions that are favored by a majority of the stockholders or in which the stockholders might otherwise receive a premium for their shares over
then-current market prices or benefit in some other manner.
Anti-takeover provisions in our certificate of incorporation and amended and restated bylaws and Delaware law could discourage a takeover.
Our amended and restated certificate of incorporation and our amended and restated bylaws contain provisions that might enable our management to resist a takeover.
These provisions include:
● authorizing the issuance of “blank check” preferred stock that could be issued by our Board to increase the number of outstanding shares and thwart a takeover
attempt;
● advance notice requirements applicable to stockholders for matters to be brought before a meeting of stockholders and requirements as to the form and content of a
stockholder’s notice;
● restrictions on the transfer of our outstanding shares of Class B common stock;
● a supermajority stockholder vote requirement for amending certain provisions of our amended and restated certificate of incorporation and amended and restated
bylaws;
● the inability of our stockholders to act by written consent;
● a requirement that the authorized number of directors may be changed only by resolution of the Board;
● allowing all vacancies, including newly created directorships, to be filled by the affirmative vote of a majority of directors then in office, even if less than a quorum,
except as otherwise required by law;
● limiting the forum for certain litigation against us to Delaware; and
● limiting the persons that can call special meetings of our stockholders to our Board or the chairperson of our Board.
These provisions might discourage, delay or prevent a change in control of our company or a change in our Board. The existence of these provisions could adversely
affect the voting power of holders of Class A common stock and limit the price that investors might be willing to pay in the future for shares of our Class A common stock. In
addition, because we are incorporated in Delaware, we are governed by the provisions of Section 203 of the Delaware General Corporation Law, which generally prohibits a
Delaware corporation from engaging in any of a broad range of business combinations with any “interested” stockholder for a period of three years following the date on which
the stockholder became an “interested” stockholder.
We may issue shares of preferred stock in the future, which could make it difficult for another company to acquire us or could otherwise adversely affect holders of our
Class A common stock, which could depress the market price of our Class A common stock.
Our amended and restated certificate of incorporation authorizes us to issue one or more series of preferred stock. Our Board has the authority to determine the
preferences, limitations and relative rights of the shares of preferred stock and to fix the number of shares constituting any series and the designation of such series, without any
further vote or action by our stockholders. Our preferred stock can be issued with voting, liquidation, dividend and other rights superior to the rights of our Class A common
stock. The potential issuance of preferred stock may delay or prevent a change in control of us, discourage bids for our Class A common stock at a premium to the market price,
and materially and adversely affect the market price and the voting and other rights of the holders of our Class A common stock.
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Our amended and restated certificate of incorporation and bylaws provide that the Court of Chancery of the State of Delaware is the sole and exclusive forum for
substantially all disputes between us and our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our
directors, officers or employees.
Our amended and restated certificate of incorporation and our amended and restated bylaws provide that, unless we consent to the selection of an alternative forum, the
Court of Chancery of the State of Delaware is the sole and exclusive forum for (i) any derivative action or proceeding brought on our behalf, other than any action or
proceeding that, under applicable law, may only be commenced or prosecuted in another forum, (ii) any action asserting a claim of breach of fiduciary duty owed by any of our
directors, officers or other employees to us or to our stockholders, (iii) any action asserting a claim arising pursuant to the Delaware General Corporation Law or our amended
and restated certificate of incorporation or bylaws (iv) any action to interpret, apply, enforce or determine the validity of our amended and restated certificate of incorporation.
We are a “smaller reporting company” under federal securities laws and we cannot be certain whether the reduced reporting requirements applicable to such companies
will make our Class A common stock less attractive to investors.
We are a “smaller reporting company” under federal securities laws. For as long as we continue to be a smaller reporting company, we may take advantage of
exemptions from various reporting requirements that are applicable to other public companies, including reduced disclosure obligations regarding executive compensation in
our periodic reports and proxy statements. Generally, we will remain a smaller reporting company so long as our public float remains less than $250 million as of the last
business day of our most recently completed second fiscal quarter. We cannot predict if investors will find our Class A common stock less attractive because we may rely on
these exemptions. If some investors find our Class A common stock less attractive as a result, there may be a less active trading market for our Class A common stock and our
stock price may decline or be more volatile.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 1C. CYBERSECURITY
Cybersecurity Risk Management and Strategy
Greenlane is committed to ensuring the highest standards of cybersecurity to protect our systems, networks, and data from cyber threats. We recognize the critical
importance of safeguarding sensitive information and maintaining the trust of our customers, partners, and stakeholders.
Our cybersecurity strategy is built on a foundation of proactive risk management, continuous monitoring, and adherence to industry best practices. We employ a multi-
layered approach which leverages cutting-edge technologies to defend against evolving cyber threats.
We have made significant investments in modernizing, streamlining, and simplifying our technology footprint to both enhance customer experience and strengthen our
internal security controls.
From time-to-time, we may engage third-party consultants, legal advisors, and audit firms to evaluate and test the Company’s risk management systems and assess and
remediate certain potential cybersecurity incidents, as appropriate. We prioritize the integrity of our data access controls to prevent unauthorized access, data breaches, and
malicious activities. We regularly assess and enhance our cybersecurity posture through comprehensive risk assessments, security audits, and vulnerability assessments.
Governance
Cybersecurity is a shared responsibility requiring collaboration and cooperation across all levels of our organization.
Greenlane recognizes that cybersecurity is not solely a technology issue but also a people and process issue. We invest in ongoing employee training and awareness
programs to empower our staff to recognize and respond to potential security threats effectively.
Cybersecurity threats are monitored and acted upon by the Company’s information technology security group within the Information Technology team. The Vice
President of Information Technology has over 25 years of IT experience including Fortune 100 public companies. The Vice President of Information Technology meets
regularly with senior management to inform and advise them of the status on all cybersecurity initiatives as well as all cybersecurity incidents, if any.
In the event of a cybersecurity incident, we have established incident response plans and protocols to minimize the impact and facilitate swift recovery. The
Company’s Audit Committee oversees cybersecurity risk. The Audit Committee is promptly notified by Information Technology leadership of any potentially serious incidents
including details and recommendations on the detection, mitigation, and remediation of the same. During the calendar year 2023, there have been no known reported
cybersecurity incidents that have materially affected our operations or financial results.
We believe in transparency and open communication, promptly informing affected parties and relevant authorities as required by law. Together, we remain vigilant,
adaptive, and resilient in the face of evolving cyber threats, safeguarding the trust and confidence of those we serve.
ITEM 2. PROPERTIES
We lease our headquarters in Boca Raton, Florida with approximately 1,600 square feet of office space. We have also entered into a lease for our distribution center in
the United States, and an administrative office location in Europe. We believe that our facilities are adequate for our current global operational needs and we are capable of
acquiring or leasing additional space as necessary.
ITEM 3. LEGAL PROCEEDINGS
For information regarding legal proceedings as of December 31, 2023, see “Note 7—Commitments and Contingencies” of the Notes to Consolidated Financial
Statements included in Part II, Item 8 of this Form 10-K.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
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ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY
SECURITIES
PART II
Market Information
Our Class A common stock is listed on the Nasdaq Captial Market under the symbol “GNLN”.
Holders
As of July 18, 2024, there were approximately 78 stockholders of record of our Class A common stock. Since certain of our shares of Class A common stock are held
by brokers and other institutions on behalf of stockholders, we are unable to estimate the total number of stockholders represented by these record holders.
Dividends
We have never declared or paid any cash dividends on our Class A common stock. We intend to retain any future earnings and do not expect to pay cash dividends in
the foreseeable future.
Unregistered Sales of Equity Securities
There were no unregistered sales of equity securities during the year ended December 31, 2023.
On June 29, 2023, we entered into securities purchase agreements with certain investors, pursuant to which we agreed to issue and sell an aggregate of 560,476 shares of our
Class A common stock, pre-funded warrants to purchase up to 3,487,143 shares of our Class A common stock (the “July 2023 Pre-Funded Warrants”) and warrants to purchase
up to 8,095,238 shares of our Class A common stock (the “July 2023 Standard Warrants”). The July 2023 units each consisted of one share of Class A common stock or a July
2023 Pre-Funded Warrant and two July 2023 Standard Warrants to purchase one share of our Class A common stock. The July 2023 units were offered pursuant to an effective
Registration Statement on Form S-1. The July 2023 Standard Warrants are exercisable immediately at an exercise price equal to $1.05 per share of Class A common stock for a
period of five years. Each July 2023 Pre-Funded Warrant is exercisable immediately with no expiration date for one share of Class A common stock at an exercise price of
$0.0001. The July 2023 Offering generated gross proceeds of approximately $4.3 million and net proceeds to the Company of approximately $3.9 million.
As of the date of this Annual Report on Form 10-K, all July 2023 Pre-Funded Warrants have been exercised, based upon which we issued an additional 1,911,000 shares of our
Class A common stock subsequent to year end, for de minimis net proceeds.
In connection with the July 2023 Offering, we entered into privately negotiated agreements with holders participating in the offering to amend existing outstanding warrants to
purchase up to 1,344,367 shares of Class A common stock that were previously issued in connection with the June 2022 and October 2022 Offerings at exercise prices per share
of $50.00 and $9.00, respectively, and expire on December 29, 2027 and November 1, 2029, respectively (collectively, the “Prior Warrants”), effective upon the closing of the
July 2023 Offering to reduce the exercise price of the Prior Warrants to $1.05, the exercise price of the warrants to purchase shares of Class A common stock offered in the July
2023 Offering. All other terms of the Prior Warrants remained unchanged.
ITEM 6. [Reserved]
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
Founded in 2005, Greenlane is the premier global platform for the development and distribution of premium cannabis accessories, vape devices, and lifestyle products.
In 2021, we completed several acquisitions along with a transformative merger with KushCo Holdings, adding a significant industrial line of business to the Greenlane
platform. These acquisitions strengthened our leading position as a consumer ancillary products business and significantly expanded our customer network, bringing strategic
relationships with leading cannabis multi-state-operators (“MSOs”), cannabis single-state operators (“SSOs”), and Canadian licensed-producers (“LPs”). Greenlane is a leading
ancillary cannabis company, providing a wide array of consumer ancillary products and industrial ancillary products to thousands of cannabis producers, processors, brands,
and retailers (“Cannabis Operators”), in addition to specialty retailers, smoke shops and head shops, convenience stores, and consumers directly through our own proprietary
web stores and large online marketplaces such as Amazon.
45
We have been developing a world-class portfolio of our own proprietary brands (the “Greenlane Brands”) and carefully curated third-party products that we believe
will, over time, deliver higher margins and create long-term value for our customers and shareholders. Our wholly-owned Greenlane Brands includes our recently launched
more affordable product line – Groove, innovative silicone pipes and accessories and premium ancillary product brand – Higher Standards. We also have category exclusive
licenses for the premium Marley Natural branded products, as well as the K.Haring Glass Collection.
Since the end of 2021, the Company has invested significantly in technology, including its e-commerce platforms, internal ERP systems, and B2B capabilities. Our
world-class product portfolio is offered to customers through our proprietary, owned and operated e-commerce platforms which include Vapor.com, PuffItUp.com,
HigherStandards.com, MarleyNaturalShop.com and Wholesale.Greenlane.com. These platforms allow us to reach customers directly with helpful resources and a seamless
purchasing experience.
We merchandise vaporizers, packaging, and other ancillary products in the United States, Canada, Europe and Latin America. We distribute products to retailers
through wholesale operations and distribute products to consumers through our e-commerce platforms We operate our own distribution centers in the United States, while also
utilizing third-party logistics (“3PL”) locations in Canada. We have made tremendous progress consolidating and streamlining our warehouse and distribution operations over
the last two years.
We manage our business in two different, but complementary, business segments. The first is the Consumer Goods segment, which focuses on serving consumers
across wholesale, retail, and e-commerce operations—offering both our Greenlane Brands as well as ancillary products and accessories from select leading third-party brands,
such as Storz and Bickel, Grenco Science, PAX, Arizer and more. The Consumer Goods segment forms a central part of our growth strategy, especially as it relates to scaling
our own portfolio of higher-margin proprietary owned brands. In addition to our Consumer Goods segment, we have our Industrial Goods segment, which focuses on serving
Cannabis Operators by providing ancillary products essential to their daily operations and growth, such as packaging and vaporization solutions, including our Greenlane Brand
Pollen Gear. Refer to “Note 12— Segment Reporting” within Item 8 to this Annual Report on Form 10-K for additional information on our reportable segments.
Plan to Accelerate Path to Profitability and Capitalize the Business
In today’s economic landscape, particularly within the cannabis industry, achieving profitability and preserving working capital are paramount. At Greenlane, we are
intensely focused on making our business profitable and well-capitalized for long-term sustainability. Our key initiatives include:
1. Technology Enhancements: We remain fully committed to improving our technology, particularly our B2B and e-commerce platforms, to provide a seamless shopping
experience for our wholesale and retail customers.
2. Facility Footprint Rationalization: In 2023, we optimized our facilities footprint by reducing warehouse and office space while increasing operational efficiency and
improving fulfillment practices. The full benefit of those efforts are expected to be realized in 2024.
3. Headcount Reduction: We have significantly reduced our headcount and associated salary expenses, focusing on maintaining a core group of key employees as we
collectively right-size the business.
4. Cost Structure Optimization: We continue to reduce our overall cost structure while improving margins. In April 2023, we formed two strategic partnerships (described
below in greater detail) to increase margins and significantly reduce working capital requirements in our Industrial Goods segment. Similarly, our Consumer Goods
segment restructured arrangements with several third-party brands in 2022 and 2023 to reduce our working capital needs.
Inventory Management: In 2023, we implemented a new inventory management and lifecycle strategy that is focused on a quarterly turn and a regular review of
inventory to avoid future write-offs.
5.
6. Sales Force Upgrade: We have upgraded and will continue to upgrade our sales force from a solely account management centric team to a skilled and driven sales team
to acquire new customers while maintaining excellent service with our existing customers
7. Product Innovation: In 2023, we launched Groove, an innovative new product line with a value-based price point and in 2024 we have begun to expand our product
offering to further enhance our assortment available to our customers.
8. Capital Investment: We continue to seek opportunities for securing investment capital to leverage our platform, increase availability and reduce stockouts of our high
demand third-party brands, invest in marketing and sales, and improve our product offerings.
Management believes that these initiatives will significantly reduce costs, help accelerate the Company’s path to profitability, support business growth, and allow the
Company to reinvest capital into its highest demand and highest potential product lines.
During 2022 and 2023, the Company received capital from various sources permitting it to right-size the business and position the company for growth. Such sources
are described in greater detail in the Liquidity and Capital Resources Section of this report. During 2022, the Company also monetized several non-core assets to provide
necessary working capital including the sale and lease-back of its headquarters building and the sale of its interest in the Vibes brand.
46
During 2023 and 2024, the Company also entered into certain arrangements to reduce working capital requirements and improve its balance sheet.
In April 2023, we successfully entered into two strategic partnerships which management believes will help significantly reduce our overall cost structure, enhance our
margins and further support our facilities consolidation initiatives while also servicing and providing solutions to our customers. First, we entered into a strategic partnership
(the “MJ Packaging Partnership”) with A&A Global Imports d/b/a MarijuanaPackaging.com (“MJ Pack”), a leading provider of packaging solutions to the cannabis industry.
As part of the MJ Packaging Partnership, we will no longer purchase additional packaging inventory and MJ Pack will become our strategic partner to continue providing and
enhancing packaging solutions for our customers. As a result of the MJ Packaging Partnership, we are no longer seeking a purchaser for our packaging division. Second, we
entered into a strategic partnership with an affiliate of one of our existing vape suppliers (“Vape Partner”) to service certain key customers with vaporizer goods and services
(the “Vape Partnership”). As part of the Vape Partnership, we will introduce our Vape Partner to certain key customers, assist with the promotion and the sale of certain
vaporizer goods and services, and help coordinate the logistics, storage and distribution of such vaporizer products. If our Vape Partner and key customer(s) enter into a direct
relationship, the customers would directly purchase vaporizer goods and services, which we currently sell them, directly from our Vape Partner and we would no longer need to
purchase such vape inventory on behalf of such key customer(s). In exchange we would earn quarterly and annual commission payments from our strategic partners. While the
strategic partnerships may result in a decrease in top line revenue for these packaging and vape products, these partnerships combined with some of our other restructuring
initiatives should allow us to reduce our overall cost-structure and enhance our margins and convert millions of dollars of existing inventory back into cash, thereby improving
our balance sheet.
On May 6, 2024, the Company, Warehouse Goods and Synergy Imports LLC (“Synergy”) entered into an asset purchase agreement, dated May 1, 2024 (the “Asset
Purchase Agreement”) pursuant to which Synergy purchased all of the intellectual property, a specified amount of inventory, and other assets related to the Eyce and DaVinci
brands. In consideration for the acquisition, all parties entered into a loan modification agreement, effective May 1, 2024 (the “Loan Modification Agreement”) and an amended
and restated secured promissory note, effective May 1, 2024 (the Amended and Restated Secured Promissory Note”), an amendment to the original Eyce and Davinci Asset
Purchase Agreements, a distribution agreement, the termination of a license granted by Eyce, and the termination of certain consulting and employment agreements.
USPS PACT Act Exemption
On January 11, 2022, we announced via press release that the United States Postal Service (the “USPS”) had approved our application for a business and regulatory
exemption to the PACT Act (with respect to the business and regulatory exemption granted by the USPS, the “PACT Act Exemption”), allowing us to ship vaporizers and
accessories classified as electronic nicotine delivery systems (“ENDS”) products to other compliant businesses. With this approval, over 97% of our total annual sales became
eligible for shipment by freight, USPS and other major parcel carriers. The PACT Act Exemption also enables us to partner with other businesses that ship ENDS products and
had their supply chains disrupted by PACT Act compliance.
On June 24, 2022, we provided via press release an update on the progress of the PACT Act Exemption, following our successful implementation of the controls,
processes and systems required by the USPS in connection with the shipment of ENDS products. We expect the ability to fulfill ENDS orders with the USPS to allow us to
reduce shipping costs, decrease fulfillment times and enhance the overall customer experience for approved wholesale customers.
Reverse Stock Split
On June 2, 2023, we filed a Certificate of Amendment to the A&R Charter with the SSSD, which effected a one-for-10 reverse stock split (the “2023 Reverse Stock
Split” and together with the 2022 Reverse Stock Split, the “Reverse Stock Splits”) of our issued and outstanding shares of Common Stock at 5:01 PM Eastern Time on June 5,
2023. As a result of the 2023 Reverse Stock Split, every 10 shares of common stock issued and outstanding were converted into one share of common stock. We paid cash in
lieu of fractional shares, and accordingly, no fractional shares were issued in connection with the 2023 Reverse Stock Split.
The Reverse Stock Split did not change the par value of the Common Stock or the authorized number of shares of Common Stock. All outstanding options, restricted
stock awards, warrants and other securities entitling their holders to purchase or otherwise receive shares of our Common Stock have been adjusted as a result of the Reverse
Stock Split, as required by the terms of each security. The number of shares available to be awarded under our Second Amended and Restated 2019 Equity Incentive Plan have
also been appropriately adjusted. See “Note 10 — Compensation Plans” for more information.
47
All share and per share amounts in this Annual Report on Form 10-K for the fiscal year ended December 31, 2023 have been retroactively adjusted for all periods
presented to give effect to the Reverse Stock Split.
Critical Accounting Estimates
We prepare our consolidated financial statements in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”). The
preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reporting period. We evaluate our estimates and
assumptions on an ongoing basis. We base our estimates on historical experience, outside advice from parties believed to be experts in such matters, and on various other
assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and
liabilities that are not readily apparent from other sources. Judgments and uncertainties affecting the application of those policies may result in materially different amounts
being reported under different conditions or using different assumptions. See “Note 2—Summary of Significant Accounting Policies” of the Notes to Consolidated Financial
Statements included in Part II, Item 8 of this Form 10-K for a description the significant accounting policies and methods used in the preparation of our consolidated financial
statements.
Inventories
Inventories, consisting of finished products, are primarily accounted for using the weighted-average method, and are valued at the lower of cost and net realizable
value. This valuation requires us to make judgments, based on currently available information, about the likely method of disposition, such as through sales to customers or
liquidations. Assumptions about the future disposition of inventory are inherently uncertain and changes in our estimates and assumptions may cause us to realize material
write-downs in the future.
Income Taxes and TRA Liability
We are a corporation subject to income taxes in the United States. Certain subsidiaries of the Operating Company are taxable separately from us. Our proportional
share of the Operating Company’s subsidiaries’ provisions are included in our consolidated financial statements.
As of December 31, 2022, we held all the outstanding Common Units in the Operating Company and are the sole member. As a result, in 2023, 100% of the Operating
Company’s US and state income and expenses are now included in our US and state tax returns.
Our deferred income tax assets and liabilities are computed for differences between the tax basis and financial statement amounts that will result in taxable or
deductible amounts in the future. We compute deferred balances based on enacted tax laws and applicable rates for the periods in which the differences are expected to affect
taxable income. A valuation allowance is recognized for deferred tax assets if it is more likely than not that some portion or all of the net deferred tax assets will not be realized.
In making such a determination, we consider all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future
taxable income, tax-planning strategies, and results of recent operations. If we determine we would be able to realize our deferred tax assets for which a valuation allowance
had been recorded, then we would adjust the deferred tax asset valuation allowance, which would reduce our provision for income taxes.
We evaluate the tax positions taken on income tax returns that remain open and positions expected to be taken on the current year tax returns to identify uncertain tax
positions. Unrecognized tax benefits on uncertain tax positions are recorded on the basis of a two-step process in which (1) we determine whether it is more likely than not that
the tax positions will be sustained on the basis of the technical merits of the position and (2) for those tax positions that meet the more-likely-than-not recognition threshold, the
largest amount of tax benefit that is more than 50 percent likely to be realized is recognized. Interest and penalties related to unrecognized tax benefits are recorded in income
tax benefit. We have no uncertain tax positions that qualify for inclusion in our consolidated financial statements.
48
In addition to tax expenses, we may incur expenses related to our operations and may be required to make payments under the Tax Receivable Agreement (the
“TRA”), which could be significant. Pursuant to the Greenlane Operating Agreement, Greenlane Holdings, LLC will generally make pro rata tax distributions to its members in
an amount sufficient to fund all or part of their tax obligations with respect to the taxable income of Greenlane Holdings, LLC that is allocated to them and possibly in excess of
such amount.
Legal Contingencies
In the ordinary course of business, we are involved in legal proceedings involving a variety of matters. Certain of these matters include speculative claims for
substantial or indeterminate amounts of damages. We evaluate the associated developments on a regular basis and accrue a liability when we believe that it is both probable that
a loss has been incurred and the amount can be reasonably estimated. If we determine there is a reasonable possibility that we may incur a loss and the loss or range of loss can
be estimated, we disclose the possible loss in the accompanying notes to the consolidated financial statements to the extent material.
We review the developments in our contingencies that could affect the amount of the provisions that have been previously recorded, and the matters and related
reasonably possible losses disclosed. We make adjustments to our provisions and changes to our disclosures accordingly to reflect the impact of negotiations, settlements,
rulings, advice of legal counsel, and updated information. Significant judgment is required to determine both the probability of loss and the estimated amount of loss.
The outcome of these matters is inherently uncertain. Therefore, if one or more legal proceedings were resolved against us for amounts in excess of management’s
expectations, our results of operations and financial condition, including in a particular reporting period in which any such outcome becomes probable and estimable, could be
materially adversely affected. See “Note 7—Commitments and Contingencies” of the Notes to Consolidated Financial Statements included in Part II, Item 8 of this Form 10-K
for additional information regarding these contingencies.
Recent Accounting Pronouncements
See “Note 2—Summary of Significant Accounting Policies” of the Notes to Consolidated Financial Statements included in Part II, Item 8 of this Form 10-K.
49
Results of Operations
The following table presents operating results for the years ended December 31, 2023 and 2022:
For the Year Ended December 31,
(in thousands)
% of Net sales
Change
2023
2022
2023
2022
$
%
Net sales
Cost of sales
Gross profit
$
$
65,373
47,547
17,826
137,085
112,102
24,983
Operating expenses:
Salaries, benefits and payroll
taxes
General and administrative
Goodwill and indefinite-lived
intangibles impairment charge
Definite-lived intangibles
impairment charge
PP&E impairment charge
Depreciation and amortization
17,454
24,213
31,290
41,000
—
71,360
—
—
2,243
50,694
7,336
7,405
100.0%
72.7%
27.3%
26.7%
37.0%
—%
—%
—%
3.4%
100.0%
81.8%
22.3%
22.8%
29.9%
52.1%
37.0%
5.4%
5.4%
(71.6)
(64.6)
(7.2)
(13.8)
(16.8)
(71.4)
(50.7)
(7.3)
(5.2)
Total operating expenses
43,910
209,085
67.2%
152.5%
(165.2)
Loss from operations
Other income(expense), net:
Interest expense
Employee retention credits
Other expense, net
Total other (expense) income, net
Loss before income taxes
(Benefit from) provision for
income taxes
Net loss
Net (loss) income attributable to
non-control interest
Net loss attributable to Greenlane
Holdings, Inc.
Consolidated Results of Operations
Net Sales
(26,084)
(184,102)
(39.9)%
(134.3)%
158.0
(5,450)
—
(791)
(6,241)
(2,450)
4,854
(541)
1,863
(8.3)%
—%
(1.2)%
(9.5)%
(1.8)%
3.5%
(0.4)%
1.4%
(3.0)
(4.9)
0.3
(8.1)
(32,325)
(182,239)
(49.4)%
(132.9)%
149.9
(82.3)%
—
(13)
—%
—%
—
(100.0)%
(32,325)
(182,226)
(49.4)%
(132.9)%
(150)
(12,717)
(0.2)%
(9.3)%
$
(32,175)
$
(169,509)
(49.2)%
(123.7)%
149.9
12.6
137.3
(81.8)%
(98.8)%
(81.0)%
For the year ended December 31, 2023, total net sales were approximately $65.4 million, compared to approximately $137.1 million for the year ended December 31,
2022, representing a decrease of $71.7 million, or 52.3%. The year-over-year decrease was a result of the Industrial segment transitioning to a commission revenue model
versus gross revenue previously recorded for the largest vaporizer product customers and discontinuing the packaging products business. The Consumer segment sales
decreased due to declining business globally, reduction in sales staff and marketing spend and the company was out of stock for high demand inventory items due to capital
restrictions to invest in inventory purchases.
50
(52.3)%
(57.6)%
(28.6)%
(44.2)%
(40.9)%
(100.0)%
(100.0)%
(100.0)%
(69.7)%
(79.0)%
(85.8)%
122.4%
(100.0)%
(46.3)%
(435.0)%
Cost of Sales and Gross Margin
For the year ended December 31, 2023, cost of sales decreased by $64.6 million, or 57.6%, as compared to the year ended December 31, 2022. The decrease in cost of
sales is aligned with the decrease in revenue of 52.3%.
Gross margin increased by 5% to 27.3% for the year ended December 31, 2023, compared to gross margin of 22.3% for the same period in 2022. The increase in gross
margins is related to transitioning to a commission revenue model for the majority of the vaporizer sales with 100% margin versus gross revenue with lower margins. Also
contributing to the increase in margin is the Company’s continued focus on consumer in-house brands with higher margins and moving away from third-party brands with
lower margins.
Salaries, Benefits and Payroll Taxes
Salaries, benefits and payroll taxes expenses decreased by approximately $13.8 million, or 44.2% , to $17.4 million for the year ended December 31, 2023, compared
to $31.3 million for the same period in 2022. The decrease is related to a major restructuring effort by the company to reduce headcount and cost to align with revenue.
General and Administrative Expenses
General and administrative expenses decreased by approximately $16.8 million, or 40.9%, for the year ended December 31, 2023, compared to the same period in
2022. The decrease is related to a major reduction in expenses across to align with revenue
Goodwill and Indefinite-Lived Intangibles Impairment Charge
We incurred a goodwill and indefinite-lived intangibles impairment charge of approximately $71.4 million and a definite-lived intangibles impairment charge of
approximately $50.7 million during the twelve months ended December 31, 2022, compared to no such impairment charge for the comparable period in 2023. We incurred a
impairment charge of approximately $7.3 million to fixed assets related to the ERP system during the year ended December 31, 2022, compared to no such impairment charge
fore the comparable year in 2023. This impairment charges were due to declining business and declining enterprise value.
Depreciation and Amortization Expense
Depreciation and amortization expense decreased $5.2 million, or 69.7%, for the year ended December 31, 2023, compared to the same period in 2022. The decrease is
primarily related to the intangible and fixed asset impairments recorded as of December 31, 2023, reducing amortization expense.
Other Income (Expense), Net
Interest expense.
Interest expense increased approximately $3.0 million during the fiscal year 2023 versus fiscal year 2022. The increase is primarily related to the exiting ABL facility
which accelerated deferred interest expense as well as the promissory notes for the Eyce and DaVinci acquisition.
Other expense, net.
Other expense, net, increased by approximately $0.3 million for the year ended December 31, 2023, for slight changes to non-recurring costs during the year ended
December 31, 2023.
Segment Operating Performance
Following the completion of the KushCo merger in late August 2021, we reassessed our operating segments based on our new organizational structure. Based on this
assessment, we determined we had two operating segments as of December 31, 2021, which are the same as our reportable segments: (1) Consumer Goods, which largely
comprises Greenlane’s legacy operations across the United States, Canada, and Europe, and (2) Industrial Goods, which largely comprises KushCo’s legacy operations. These
changes in operating segments align with how we manage our business as of the fourth quarter of 2023.
The Consumer Goods segment focuses on serving consumers across wholesale, retail and e-commerce operations—through both our proprietary brands, including
Eyce, DaVinci, Marley Natural, Keith Haring, and Higher Standards, as well as lifestyle products and accessories from leading brands, like Storz and Bickel, Grenco Science,
and many more. The Consumer Goods segment forms a central part of our growth strategy, especially as it relates to scaling our own portfolio of higher-margin proprietary
owned brands.
51
The Industrial Goods segment focuses on serving the premier cannabis brands, operators, and retailers through our wholesale operations by providing ancillary
products essential to their growth, such as customizable packaging and supply products, which includes our Greenlane Brand Pollen Gear and vaporization solutions offering
which includes CCELL branded products.
Our “Chief Operations Decision Marker (“CODM”) allocates resources to and assesses the performance of our two operating segments based on the operating
segments’ net sales and gross profit. The following table sets forth information by reportable segment for the years ended December 31, 2023 and 2022:
Net sales:
Consumer Goods
Industrial Goods
Total net sales
Cost of sales:
Consumer Goods
Industrial Goods
Total cost of sales
Gross profit:
Consumer Goods
Industrial Goods
Total gross profit
Consumer Goods
% of Total Net sales
Change
2023
2022
2023
2022
$
$
$
$
$
$
28,737
36,636
65,373
2023
18,754
28,793
47,547
9,983
7,843
17,826
$
$
$
$
$
$
48,134
88,951
137,085
43.9%
56.0%
35.1%
64.9%
$
2022
2023
2022
% of Segment Net sales
38,531
73,571
112,102
9,603
15,380
24,983
65.3%
78.6%
34.7%
21.4%
80.0%
82.7%
20.0%
17.3%
$
$
$
$
(19,397)
(52,315)
Change
%
%
(40.3)%
(58.8)%
(19,777)
(44,778)
(51.3)%
(60.9)%
380
(7,537)
13.2%
(20.6)%
For the year ended December 31, 2023, our Consumer Goods operating segment reported net sales of approximately $28.7 million compared to approximately $48.1
million for the same period in 2022, representing a decrease of $19.4 million or 40.3%. The 2023 decline in the Consumer Goods segment is due to a major restructuring effort
by the Company during fiscal year 2023 to reduce sales and marketing cost to align with revenue, sale of the Company’s minority interest in Vibes brand and a shift in strategy
to focus on in-house brands that have a higher margin profile and rationalized third-party brand offering generating top line revenue with lower margins.
For the year ended December 31, 2023, cost of sales decreased by $19.8 million, or 51.3%, as compared to the same period in 2022. The decrease in cost of sales was
primarily due to the 40.3% decrease in Consumer Goods net sales.
Gross margin increased to approximately 34.7% for the year ended December 31, 2023, compared to gross margin of approximately 20.0% for the same period in
2022, as the Company has shifted focus on margins versus overall topline revenues in an effort to move to a net positive operating cash flow.
Industrial Goods
For the year ended December 31, 2023, our Industrial Goods operating segment reported net sales of approximately $36.6 million compared to approximately $89.0
million for the same period in 2022, representing an decrease of $52.3 million or (58.8%). The year-over-year decrease was a result of the Industrial segment transitioning to a
commission revenue model versus gross revenue previously recorded for the largest vaporizer product customers and discontinuing the packaging products business.
For the year ended December 31, 2023, cost of sales decreased by $44.8 million, or 60.9%, as compared to the same period in 2022. The decrease is consistent with
our overall decrease in revenues.
Gross margin was approximately 21.4% for the year ended December 31, 2023, compared to gross margin of approximately 17.3% for the same period in 2022,
representing 4.1% year over year increase.
52
Net Sales by Geographic Regions
Net sales:
United States
Canada
Europe
Total net sales
Year Ended December 31,
2023
2022
2023
2022
$
%
% of Net sales
Change
$
$
58,539
1,291
5,072
65,373
$
$
126,333
5,810
4,942
137,085
89.5%
1.9%
7.8%
100.0%
92.2%
4.2%
3.6%
100.0%
$
$
(67,794)
(4,519)
130
(71,712)
(53.7)%
(77.8)%
2.6%
(52.3)%
For the year ended December 31, 2023, our United States net sales to customers in the United States were approximately $58.5 million, compared to approximately
$126.3 million for the same period in 2022, representing a decrease of $67.8 million, or 53.7%. The year-over-year decrease was primarily due to an overall business decline in
the Industrial and Consumer Goods segments as described above.
For the year ended December 31, 2023, our Canadian net sales were approximately $1.3 million, compared to approximately $5.8 million for the same period in 2022,
representing a decrease of $4.5 million, or 77.8%. The year-over-year decrease was primarily due to an overall business decline in the Industrial and Consumer Goods segments
as described above.
For the year ended December 31, 2023, our European net sales were approximately $5.1 million, compared to approximately $4.9 million for the same period in 2022,
representing an increase of $0.11 million, or 2.6%.
Liquidity, Capital Resources and Going Concern
Our primary requirements for liquidity and capital are working capital, debt service related to recent acquisitions and general corporate needs. Our primary sources of
liquidity are our cash on hand and the cash flow that we generate from our operations, as well as proceeds other equity issuances. As of December 31, 2023, we had
approximately $0.5 million of cash, of which none was restricted and $0.1 million was held in foreign bank accounts, and approximately $3.7 million of working capital, which
is calculated as total current assets minus total current liabilities, as compared to approximately $6.5 million of cash, of which $0.8 million was held in foreign bank accounts,
and approximately $41.0 million of working capital as of December 31, 2022. The repatriation of cash balances from our foreign subsidiaries could have adverse tax impacts or
be subject to capital controls; however, these balances are generally available to fund the ordinary business operations of our foreign subsidiaries without legal or other
restrictions.
We believe that our cash on hand and the cash flow that we generate from our operations will not be sufficient to fund our working capital and capital expenditure
requirements, as well as our debt repayments and other liquidity requirements associated with our existing operations, for the next 12 months. Based on our cash on hand and
working capital at December 31, 2023, we may have insufficient cash to fund planned operations into the third quarter of 2024. This is evident from our continued efforts to
raise capital and leverage external funding to fulfill our capital needs as highlighted below.
Our primary requirements for liquidity and capital are working capital, debt service related to recent acquisitions and general corporate needs. Our primary sources of
liquidity are our cash on hand and the cash flow that we generate from our operations, as well as proceeds from equity issuances, such as our June 2022, October 2022 and July
2023 Offerings, each as described and defined below.
ATM Program and Shelf Registration Statement
We formerly used a shelf registration statement on Form S-3 (the “Shelf Registration Statement”) to conduct securities offerings. In August 2021, we filed a prospectus
supplement and established an “at-the-market” equity offering program (the “ATM Program”) that provided for the sale of shares of our Class A common stock having an
aggregate offering price of up to $50 million, from time to time. H
Since the launch of the ATM program in August 2021 and through December 31, 2022, we sold shares of our Class A common stock which generated gross proceeds
of approximately $12.7 million and we paid fees to the sales agent of approximately $0.4 million. Due to the untimely filing of certain of our Quarterly and Annual Reports, we
are unable to issue additional shares of Class A common stock pursuant to the ATM Program or otherwise use the Shelf Registration Statement.
53
Common Stock and Warrant Offerings
On June 27, 2022, we entered into a securities purchase agreement with an accredited investor, pursuant to which we agreed to issue and sell an aggregate of 58,500
shares of our Class A common stock, pre-funded warrants to purchase up to 49,500 shares of our Class A common stock (the “June 2022 Pre-Funded Warrants”) and warrants to
purchase up to 108,000 shares of our Class A common stock (the “June 2022 Standard Warrants” and, together with the June 2022 Pre-Funded Warrants, the “June 2022
Warrants”), in a registered direct offering (the “June 2022 Offering”). The June 2022 Offering generated gross proceeds of approximately $5.4 million and net proceeds to the
Company of approximately $5.0 million. All June 2022 Pre-Funded Warrants were exercised in July 2022, for de minimis net proceeds.
On October 27, 2022, we entered into securities purchase agreements with certain investors, pursuant to which we agreed to issue and sell an aggregate of 695,555
shares of our Class A common stock, pre-funded warrants to purchase up to 137,778 shares of our Class A Common Stock (the “October 2022 Pre-Funded Warrants”) and
warrants to purchase up to 1,666,667 shares of our Class A common stock (the “October 2022 Standard Warrants”). The October 2022 units were offered pursuant to a
Registration Statement on Form S-1 (the “October 2022 Offering”). The October 2022 Offering generated gross proceeds of approximately $7.5 million and net proceeds to the
Company of approximately $6.8 million.
On June 29, 2023, we entered into securities purchase agreements with certain investors, pursuant to which we agreed to issue and sell an aggregate of 560,476 shares
of our Class A common stock, pre-funded warrants to purchase up to 3,487,143 shares of our Class A Common Stock (the “July 2023 Pre-Funded Warrants”) and warrants to
purchase up to 8,095,238 shares of our Class A common stock (the “July 2023 Standard Warrants”). The July 2023 units were offered pursuant to a Registration Statement on
Form S-1 (the “July 2023 Offering”). The July 2023 Offering generated gross proceeds of approximately $4.3 million and net proceeds to the Company of approximately $3.8
million and closed on July 3, 2023.
Asset-Based Loan
On August 9, 2022, we entered into an asset-based loan agreement dated as of August 8, 2022 (the “Loan Agreement”), which made available to the Company a term
loan of up to $15.0 million. On February 9, 2023, we entered into Amendment No. 2 to the Loan Agreement, in which we agreed to, among other things, voluntarily prepay
approximately $6.6 million (inclusive of early termination fees and expenses) under the terms provided for under the Loan Agreement and the lenders under the Loan
Agreement agreed to release $5.7 million in funds held in a blocked account pursuant to the terms of the Loan Agreement.
On August 7, 2023, we repaid the approximately $4.3 million in aggregate principal amount (the “Loan Repayment”) which remained outstanding under the terms of
the Loan Agreement. As a result of the Loan Repayment, the Company has been released from its obligations under the Loan Agreement, in accordance with the terms of the
Loan Agreement. See “Note 6 - Long Term Debt” for more information.
ERC Sale
On February 16, 2023, two of our wholly owned subsidiaries, Warehouse Goods LLC and KIM International LLC, entered into an agreement with a third-party
institutional investor pursuant to which the investor purchased, for approximately $4.85 million in cash, an economic participation interest, at a discount, in our rights to
payment from the United States Internal Revenue Service for certain periods with respect to the employee retention credits filed by us under the Employee Retention Credit
program.
Future Receivables Financings
In July, August, October, and November 2023, the Company received an aggregate of approximately $3.9 million in cash pursuant to the terms of future receivables
financings (collectively, the “Future Receivables Financings”) entered into with two private lenders. See “Note 6 - Long Term Debt” for more information.
54
Management Initiatives
We have completed several initiatives to optimize our working capital requirements. We launched Groove, a new, innovative Greenlane Brands product line, and we
also rationalized our third-party brands product offering, which enables us to reduce inventory carrying costs and working capital requirements.
In April 2023, we entered into two strategic. First, we entered into a strategic partnership (the “MJ Packaging Partnership”) with A&A Global Imports d/b/a
MarijuanaPackaging.com (“MJ Pack”), a provider of packaging solutions to the cannabis industry. Second, we entered into a strategic partnership with an affiliate of one of our
existing vape suppliers (“Vape Partner”) to service certain key customers with vaporizer goods and services (the “Vape Partnership”). As part of the Vape Partnership, we will
introduce our Vape Partner to certain key customers, assist with the promotion and the sale of certain vaporizer goods and services, and help coordinate the logistics, storage
and distribution of such vaporizer products. If our Vape Partner and key customer(s) enter into a direct relationship, the customers would directly purchase vaporizer goods and
services, which we currently sell them, directly from our Vape Partner and we would no longer need to purchase such vape inventory on behalf of such key customer(s). In
exchange we would earn quarterly and annual commission payments from our strategic partners. While the strategic partnerships may result in a decrease in top line revenue for
these packaging and vape products, these partnerships combined with some of our other restructuring initiatives should allow us to reduce our overall cost-structure and
enhance our margins, thereby improving our balance sheet.
We have successfully renegotiated supplier partnership terms and are continuing to improve working capital arrangements with suppliers. We have made progress
consolidating and streamlining our office, warehouse, and distribution operations footprint. We have reduced our workforce by approximately 49% throughout fiscal year 2023
to reduce costs and align with our revenue projections.
We have incurred net losses of $32.3 million and $182.2 million for the years ended December 31, 2023 and 2022, respectively. For the year ended December 31,
2023, cash used in operating activities was $1.8 million and cash used in operating activities for the year ended December 31, 2022 was $26.4 million. The recent
macroeconomic environment has caused weaker demand than contemplated under our business plan, resulting in a reduction in projected revenue and cash flows for the
twelve-month period included in the going concern evaluation.
As a result of our losses and our projected cash needs, combined with our current liquidity level, substantial doubt exists about the Company’s ability to continue as a
going concern. The Company’s ability to continue as a going concern is contingent upon successful execution of management’s intended plan over the next twelve months to
improve the Company’s liquidity and profitability, which includes, without limitation:
■ Further reducing operating costs expense by taking additional restructuring actions to align cost with revenue to achieve profitability.
■ Increasing revenue by introducing new products and acquiring new customers.
■ Execute on strategic partnerships accretive to margins and operating cash
■ Seeking additional capital through the issuance of debt or equity securities.
Our opinions concerning liquidity are based on currently available information. To the extent this information proves to be inaccurate, or if circumstances change,
future availability of trade credit or other sources of financing may be reduced and our liquidity could be adversely affected. Our future capital requirements and the adequacy
of available funds will depend on many factors, including those described in the section titled “Risk Factors” in Item 1A of this Annual Report on Form 10-K for the year ended
December 31, 2023. Depending on the severity and direct impact of these factors on us, we may be unable to secure additional financing to meet our operating requirements on
terms favorable to us, or at all.
As of December 31, 2023, we did not have any off-balance sheet arrangements that are reasonably likely to have a material current or future effect on our financial
condition, results of operations, liquidity, capital expenditures, or capital resources.
55
Cash Flows
The following summary of cash flows for the periods indicated has been derived from our consolidated financial statements included in Part II, Item 8 of this Form 10-
K:
(in thousands)
Net cash provided by (used in) operating activities
Net cash provided by (used in) investing activities
Net cash (used in) provided by financing activities
Net Cash Used in Operating Activities
Year Ended December 31,
2023
2022
$
$
(1,793)
30
(10,140)
(26,426)
12,025
13,930
During 2023, net cash used in operating activities of approximately $1.8 million was a result of a net loss of $32.3 million offset by non-cash adjustments to net loss of
$6.5 million, including a $24.0 million increase in cash provided by working capital primarily driven by decreases in our accrued expenses and accounts payable, and decreases
in inventories offset by higher other current assets.
During 2022, net cash used in operating activities of approximately $26.4 million was a result of a net loss of $182.2 million offset by non-cash adjustments to net loss
of $140.6 million, including an impairment charge related to goodwill and indefinite-lived intangibles of $71.4 million, and a $15.2 million increase in cash provided by
working capital primarily driven by decreases in our accrued expenses and accounts payable, and decreases in inventories offset by higher other current assets..
Net Cash Provided by Investing Activities
During 2023, net cash provided by investing activities of (i) approximately $0.1 million from $1.1 million of cash proceeds from the sale of certain equity securities
investments, offset by approximately $1.0 million of cash used for capital expenditures, including development costs for our new enterprise resource planning system.
During 2022, net cash provided by investing activities of (i) approximately $12.0 million of cash proceeds from the sale of our assets held for sale, (ii) approximately
$4.6 million of cash proceeds from the disposition of our interests in VIBES, and (iii) approximately $0.6 million of cash proceeds from the sale of certain equity securities
investments, offset by approximately $2.8 million of cash used for capital expenditures, including development costs for our new enterprise resource planning system.
Net Cash (Used in) Provided by Financing Activities
During 2023, net cash used in financing activities primarily consisted of (i) approximately $3.9 million of cash proceeds from the issuance of Class A common stock
related to our July 2023 Offering, (ii) approximately $3.9 million of cash proceeds from our future receivables financing, (iii) $2.1 million of cash proceeds from a secured
bridge loan, offset by (iv) approximately $0.3 million of cash used for contingent consideration payments, (v) and approximately $2.1 million of cash used for repayments
related to the Eyce and DaVinci promissory notes, and (vi) the $15.0 million payoff of asset based lending loans.
During 2022, net cash provided by financing activities primarily consisted of (i) approximately $21.1 million of cash proceeds from the issuance of Class A common
stock related to our ATM Program, the June 2022 Offering and the October 2022 Offering, (2) approximately $14.6 million of cash proceeds from our Asset-Based Loan, offset
by debt issuance costs of $1.5 million, and (iii) approximately $0.9 million of cash used for contingent consideration payments, (iv) and approximately $19.4 million of cash
used for repayments related to the Eyce and DaVinci promissory notes, the payoff of the Real Estate Note, and repayment of our bridge loan.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not required.
56
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index to Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm Marcum LLP PCAOB ID: 688
Consolidated Balance Sheets
Consolidated Statements of Operations and Comprehensive Loss
Consolidated Statements of Stockholders’ Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
57
Page
F-1
F-2
F-3
F-4
F-5
F-6
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and Board of Directors of
Greenlane Holdings, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Greenlane Holdings, Inc. (the “Company”) as of December 31, 2023 and 2022, the related consolidated
statements of operations and comprehensive loss, stockholders’ equity and cash flows for each of the two years in the period ended December 31, 2023, and the related notes
(collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of
December 31, 2023 and 2022, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2023, in conformity with
accounting principles generally accepted in the United States of America.
Going Concern
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As more fully described in Note 1, the
Company has incurred significant losses and needs to raise additional funds to meet its obligations and sustain its operations. These conditions raise substantial doubt about the
Company’s ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 2. The consolidated financial statements do not
include any adjustments that might result from the outcome of this uncertainty.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our
audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with
respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the
PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about
whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an
audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the
purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures
that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also
included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We
believe that our audits provide a reasonable basis for our opinion.
/s/ Marcum LLP
Marcum LLP
We have served as the Company’s auditor since 2021.
Costa Mesa, CA
July 18, 2024
F-1
GREENLANE HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except par value per share amounts)
December 31, 2023
December 31, 2022
ASSETS
Current assets
Cash
Restricted cash
Accounts receivable, net of allowance of $2,209 and $4,826 at December 31, 2023 and 2022,
respectively
Inventories, net
Vendor deposits
Other current assets (Note 8)
Total current assets
Property and equipment, net
Operating lease right-of-use assets
Other assets
Total assets
LIABILITIES
Current liabilities
Accounts payable
Accrued expenses and other current liabilities (Note 8)
Customer deposits
Current portion of notes payable
Current portion of operating leases
Current portion of finance leases
Total current liabilities
Notes payable, less current portion and debt issuance costs, net
Operating leases, less current portion
Finance leases, less current portion
Other liabilities
Total long-term liabilities
Total liabilities
Commitments and contingencies (Note 7)
STOCKHOLDERS’ EQUITY*
Preferred stock, $0.0001 par value, 10,000 shares authorized, none issued and outstanding
Class A common stock, $0.01 par value per share, 600,000 shares authorized, 3,726 shares issued and
outstanding as of December 31, 2023; 600,000 shares authorized, and 1,599 shares issued and
outstanding as of December 31, 2022 *
Class B common stock, $0.0001 par value per share, 30,000 shares authorized, and 0 shares issued and
outstanding as of December 31, 2023; 30,000 shares authorized, and 0 shares issued and outstanding as
of December 31, 2022*
Additional paid-in capital*
Accumulated deficit
Accumulated other comprehensive income
Total stockholders’ equity attributable to Greenlane Holdings, Inc.
Non-controlling interest
Total stockholders’ equity
Total liabilities and stockholders’ equity
*After giving effect to the Reverse Stock Splits - See Note 9 - Stockholders’ Equity.
$
$
$
$
463
—
$
$
$
1,693
20,529
3,765
3,319
29,769
2,476
1,936
3,912
38,093
12,103
3,056
2,775
7,283
866
7
26,090
—
1,010
—
1
1,011
27,101
—
36
—
268,132
(257,289)
245
11,124
(132)
10,992
38,093
$
6,458
5,718
6,468
40,643
6,296
11,120
76,703
3,962
3,442
5,578
89,685
14,953
11,882
3,983
3,185
1,528
128
35,659
13,040
1,887
29
79
15,035
50,694
—
15
—
264,017
(225,114)
55
38,973
18
38,991
89,685
The accompanying notes are an integral part of these consolidated financial statements.
F-2
GREENLANE HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(in thousands, except per share amounts)
Net sales
Cost of sales
Gross profit
Operating expenses:
Salaries, benefits and payroll taxes
General and administrative
Goodwill and indefinite-lived intangibles impairment charge
Definite-lived intangibles impairment charge
Property and equipment impairment charge
Depreciation and amortization
Total operating expenses
Loss from operations
Other (expense) income, net:
Interest expense
Employee retention credits
Other expense, net
Total other (expense) income, net
Loss before income taxes
Provision for (benefit from) income taxes
Net loss
Less: Net loss attributable to non-controlling interest
Net loss attributable to Greenlane Holdings, Inc.
Net loss attributable to Class A common stock per share - basic and diluted (Note 9)*
Weighted-average shares of Class A common stock outstanding - basic and diluted (Note 9)*
Other comprehensive income (loss):
Foreign currency translation adjustments
Unrealized gain (loss) on derivative instrument
Comprehensive loss
Less: comprehensive loss attributable to non-controlling interest
Comprehensive loss attributable to Greenlane Holdings, Inc.
*After giving effect to the Reverse Stock Splits - See Note 9 - Stockholders’ Equity.
$
$
$
$
For the for the year ended
December 31,
2023
2022
$
65,373
47,547
17,826
17,454
24,213
—
—
—
2,243
43,910
(26,084)
(5,450)
—
(791)
(6,241)
(32,325)
—
(32,325)
(150)
(32,175)
(8.16)
3,993
190
—
(32,135)
(150)
(31,985)
$
$
$
137,085
112,102
24,983
31,290
41,000
71,360
50,694
7,336
7,405
209,085
(184,102)
(2,450)
4,854
(541)
1,863
(182,239)
(13)
(182,226)
(12,717)
(169,509)
(22.51)
753
(211)
26
(182,411)
(12,633)
(169,778)
The accompanying notes are an integral part of these consolidated financial statements.
F-3
GREENLANE HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(in thousands)
Class A
Class B
Additional
Common Stock
Common Stock
Paid-In Accumulated
Shares* Amount* Shares* Amount* Capital*
Deficit
Accumulated
Other
Comprehensive
Income (Loss)
Non-
Controlling
Total
Stockholders’
Interest
Equity
Balance December 31, 2021
Net loss
Equity-based compensation
Issuance of Class A shares, net of
costs - ATM Program
Issuance of Class A shares -
contingent consideration
Issuance of Class A shares, net of
costs - June 2022 Offering
Issuance of Class A shares, net of
costs - October 2022 Offering
Issuance of Class A shares -
Amended Eyce APA (Note 3)
Issuance of Class A common stock
and pre-funded warrants, net of
costs
Reclassification adjustment for gain
included in net loss (Note 4)
VIBES disposition / deconsolidation
(Note 3)
Exchanges of noncontrolling interest
for Class A common stock
Other comprehensive income
Other
Balance December 31, 2022
Net loss
Equity-based compensation
Issuance of Class A shares -
Amended Eyce APA (Note 3)
Issuance of Class A shares (Note 9)
Other comprehensive income
Balance December 31, 2023
426 $
—
11
85
19
59
833
4
—
—
1
—
1
8
7
—
50
—
—
109
—
—
1,599 $
—
(1)
—
2,128
—
3,726 $
—
—
—
1
—
—
15
—
—
—
22
—
36
109 $
—
—
— $ 229,744 $
—
—
—
1,411
(55,544) $
(169,509)
—
324 $
—
—
21,836 $
(12,717)
259
196,364
(182,226)
1,670
—
—
—
—
—
—
—
—
(109)
—
—
— $
—
—
—
—
—
— $
—
—
—
—
—
—
—
—
9,024
3,486
5,039
7,002
657
—
—
—
7,654
—
—
—
—
—
— $ 264,017 $
—
—
—
60
—
—
—
—
—
—
—
—
—
—
(61)
(225,114) $
(32,175)
—
—
—
—
— $ 268,132 $
225
3,831
—
—
—
—
(257,289) $
—
—
—
—
—
—
(332)
—
—
—
—
—
—
—
9,025
3,486
5,040
7,010
657
—
(332)
—
(1,789)
(1,789)
—
63
—
55 $
—
—
—
—
190
245 $
(7,655)
84
—
18 $
(150)
—
—
—
—
(132) $
—
147
(61)
38,991
(32,325)
60
225
3,852
190
10,992
*After giving effect to the Reverse Stock Splits - See Note 9 - Stockholders’ Equity.
The accompanying notes are an integral part of these consolidated financial statements.
F-4
GREENLANE HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Cash flows from operating activities:
Net loss (including amounts attributable to non-controlling interest)
Adjustments to reconcile net loss to net cash (used in) provided by operating activities:
Depreciation and amortization
Equity-based compensation expense
Goodwill and indefinite lived intangibles impairment charge
Definite-lived intangibles impairment charge
Property and equipment impairment charge
Change in fair value of contingent consideration
Write-off of Eyce 2022 Contingent Payment in conjunction with the Amended Eyce APA
Change in provision for credit losses
Gain related to indemnification asset
Loss on disposal of fixed assets
Gain on disposal of held-for-sale assets
Gain related to VIBES disposition / deconsolidation (Note 3)
Unrealized loss on equity investments
Realized gain on interest rate swap contract
Amortization of deferred financing costs and debt discount
Other
Changes in operating assets and liabilities, net of the effects of acquisitions:
Decrease in accounts receivable
Decrease in inventories
Decrease in vendor deposits
Decrease (increase) in other current assets
Decrease in accounts payable
Decrease in accrued expenses and other liabilities
Decrease in customer deposits
Net cash provided by (used in) operating activities
Cash flows from investing activities:
Proceeds from VIBES disposition (Note 3)
Purchase of property and equipment, net
Proceeds from sale of assets held for sale
Proceeds from sale of equity investments
Net cash provided by investing activities
Cash flows from financing activities:
Proceeds from issuance of Class A common stock, net of issuance costs
Proceeds from (repayment of) Asset-Based Loan
Proceeds from Secured Bridge Loan, net of costs
Debt issuance costs
Repayment of loan against future accounts receivable
Proceeds from future receivables financing
Payments on Eyce and DaVinci promissory notes
Payments on Real Estate Note
Repayment of Bridge Loan
Proceeds from termination of interest rate swap
Purchase consideration paid for Eyce and DaVinci acquisition
Other
Net cash (used in) provided by financing activities
Effects of exchange rate changes on cash
Net decrease in cash and cash equivalents
Cash and cash equivalents, as of beginning of the year
Cash and cash equivalents, as of end of year
For the year ended December 31,
2023
2022
$
(32,325)
$
(182,226)
2,243
284
—
—
—
262
—
188
—
118
—
—
629
—
2,820
—
4,586
20,113
2,531
7,769
(2,770)
(7,032)
(1,208)
(1,793)
—
(1,007)
—
1,037
30
3,852
(15,000)
2,090
(751)
(1,721)
3,894
(2,133)
—
—
—
(350)
(21)
(10,140)
190
(11,713)
12,176
463
$
7,405
2,298
71,360
50,694
7,336
509
(267)
3,311
(2,018)
1,398
(705)
(2,062)
1,214
(408)
644
(124)
4,910
26,345
7,899
(2,595)
(6,459)
(10,944)
(3,941)
(26,426)
4,567
(2,784)
9,593
649
12,025
21,075
14,550
—
(1,472)
—
—
(3,407)
(7,958)
(8,000)
145
(875)
(128)
13,930
(210)
(681)
12,857
12,176
$
The accompanying notes are an integral part of these consolidated financial statements.
F-5
GREENLANE HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(in thousands)
Reconciliation of cash and restricted cash to condensed consolidated balance sheets:
Beginning of the period
Cash
Restricted cash
Total cash and restricted cash, beginning of period
End of the period
Cash
Restricted cash
Total cash and restricted cash, end of period
Supplemental disclosures of cash flow information
Cash paid during the period for interest
Cash paid during the period for income taxes
Cash paid for amounts included in the measurement of lease liabilities
Non-cash investing activities and financing activities:
Issuance of Class A common stock, warrants, and stock options for business acquisitions
Non-cash purchases of property and equipment
Decrease in non-controlling interest as a result of exchanges for Class A common stock
Decrease in non-controlling interest as a result of VIBES disposition
Transfer from contingent consideration to notes payable
Transfer from accrued expenses to notes payable
For the year ended December 31,
2023
2022
6,458
5,718
12,176
463
—
463
4,495
—
1,353
—
133
—
—
1,650
437
$
$
$
$
$
$
$
$
$
$
$
$
$
12,857
—
12,857
6,458
5,718
12,176
2,251
76
2,659
3,486
909
(7,655)
(1,789)
—
—
$
$
$
$
$
$
$
$
$
$
$
$
$
The accompanying notes are an integral part of these consolidated financial statements.
F-6
GREENLANE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. BUSINESS OPERATIONS AND ORGANIZATION
Organization
Greenlane Holdings, Inc. (“Greenlane” and, collectively with the Operating Company (as defined below) and its consolidated subsidiaries, the “Company”, “we”, “us”, and
“our”) was formed as a Delaware corporation on May 2, 2018. We are a holding company that was formed for the purpose of completing an underwritten initial public offering
(“IPO”) of shares of our Class A common stock, $0.01 par value per share (“Class A common stock”), in order to carry on the business of Greenlane Holdings, LLC (the
“Operating Company”). The Operating Company was organized under the laws of the state of Delaware on September 1, 2015, and is based in Boca Raton, Florida. Unless the
context otherwise requires, references to the “Company” refer to us, and our consolidated subsidiaries, including the Operating Company.
We merchandise premium cannabis accessories, child-resistant packaging, specialty vaporization solutions and lifestyle products in the United States, Canada, Europe and Latin
America, serving a diverse and expansive customer base with thousands of retail locations, licensed cannabis dispensaries, smoke shops, multi-state operators (“MSOs”),
specialty retailers, and retail consumers through both our e-commerce platforms and our flagship Higher Standards store in New York City’s famed Chelsea Market.
We have been developing a portfolio of our own proprietary brands (the “Greenlane Brands”) that we believe will, over time, deliver higher margins and create long-term value
for our customers and shareholders. Our wholly-owned Greenlane Brands includes Groove – our recently launched more affordable product line and Higher Standards – our
premium smoke shop and ancillary product brand, and our award winning Vapor.com website and brand. We also have category exclusive licenses for the premium Marley
Natural branded products, as well as the K.Haring branded products.
We are the sole manager of the Operating Company and our principal asset is Common Units of the Operating Company (“Common Units”). As the sole manager of the
Operating Company, we operate and control all of the business and affairs of the Operating Company, and we conduct our business through the Operating Company and its
subsidiaries. We have a board of directors and executive officers, but no employees. All of our assets are held and all of the employees are employed by wholly owned
subsidiaries of the Operating Company.
We have the sole voting interest in, and control the management of, the Operating Company, and we have the obligation to absorb losses of, and receive benefits from, the
Operating Company, that could be significant. We determined that the Operating Company is a variable interest entity (“VIE”) and that we are the primary beneficiary of the
Operating Company. Accordingly, pursuant to the VIE accounting model, beginning in the fiscal quarter ended June 30, 2019, we consolidated the Operating Company in our
consolidated financial statements and reported a non-controlling interest related to the Common Units held by the members of the Operating Company (other than the Common
Units held by us) on our consolidated financial statements.
On August 31, 2021, we completed our previously announced merger with KushCo Holdings, Inc. (“KushCo”) and have included the results of operations of KushCo in our
consolidated statements of operations and comprehensive loss from that date forward. In connection with the merger with KushCo, the Greenlane Certificate of Incorporation
was amended and restated (the “A&R Charter”) in order to (i) increase the number of authorized shares of Greenlane Class B common stock, $0.0001 par value per share (the
“Class B Common stock”), from 10 million shares to 30 million shares in order to effect the conversion of each outstanding share of Class C common stock, $0.0001 par value
per share (the “Class C common stock”), into one-third of one share of Class B common stock, (ii) increase the number of authorized shares of Class A common stock from 125
million shares to 600 million shares, and (iii) eliminate references to the Class C common stock. Pursuant to the terms of an Agreement and Plan of Merger, dated as of March
31, 2021 (the “Merger Agreement”) with KushCo, immediately prior to the consummation of the business combination, holders of Class C common stock received one-third of
one share of Class B common stock for each share of Class C common stock held immediately prior to the closing of the merger.
Our corporate structure is commonly referred to as an “Up-C” structure. The Up-C structure allows the Operating Company to continue to realize tax benefits associated with
owning interests in an entity that is treated as a partnership, or “pass-through” entity. One of these benefits is that future taxable income of the Operating Company that is
allocated to its members will be taxed on a flow-through basis and therefore will not be subject to corporate taxes at the Operating Company entity level. Additionally, because
a member may redeem their Common Units for shares of Class A common stock on a one-for-one basis or, at our option, for cash, the Up-C structure also provides the member
with potential liquidity that holders of non-publicly traded limited liability companies are not typically afforded.
F-7
In connection with the IPO, we entered into a Tax Receivable Agreement (the “TRA”) with the Operating Company and the Operating Company’s members and a Registration
Rights Agreement (the “Registration Rights Agreement”) with the Operating Company’s members. The TRA provides for the payment by us to the Operating Company’s
member(s) of 85.0% of the amount of tax benefits, if any, that we may actually realize (or in some cases, are deemed to realize) as a result of (i) the step-up in tax basis in our
share of the Operating Company’s assets resulting from the redemption of Common Units under the mechanism described above and (ii) certain other tax benefits attributable
to payments made under the TRA. Pursuant to the Registration Rights Agreement, we have agreed to register the resale of shares of Class A common stock that are issuable to
the Operating Company’s members upon redemption or exchange of their Common Units.
The A&R Charter and the Fourth Amended and Restated Operating Agreement of the Operating Company (the “Operating Agreement”) require that (a) we at all times maintain
a ratio of one Common Unit owned by us for each share of our Class A common stock issued by us (subject to certain exceptions), and (b) the Operating Company at all times
maintains (i) a one-to-one ratio between the number of shares of our Class A common stock issued by us and the number of Common Units owned by us, and (ii) a one-to-one
ratio between the number of shares of our Class B common stock owned by the non-founder members of the Operating Company and the number of Common Units owned by
the non-founder members of the Operating Company.
As of December 31, 2022, all Common Units of the Operating Company and Class B common stock had been exchanged for Class A common stock, and we owned 100% of
the voting and economic interests in Greenlane through the holders’ ownership of Class A common stock. See “Note 9 - Stockholder’s Equity.”
Reverse Stock Splits
On August 4, 2022, we filed a Certificate of Amendment (the “Certificate of Amendment”) to the A&R Charter with the Secretary of State of the State for Delaware (the
“SSSD”), which effected a one-for-twenty reverse stock split (the “2022 Reverse Stock Split”) of our issued and outstanding shares of Class A common stock and Class B
common stock (collectively, the “Common Stock”) at 5:01 PM Eastern Time on August 9, 2022. As a result of the 2022 Reverse Stock Split, every 20 shares of Common Stock
issued and outstanding were converted into one share of Common Stock. We paid cash in lieu of fractional shares, and accordingly, no fractional shares were issued in
connection with the 2022 Reverse Stock Split.
On June 2, 2023, we filed a Certificate of Amendment to the A&R Charter with the SSSD, which effected a one-for-ten reverse stock split (the “2023 Reverse Stock Split” and
together with the 2022 Reverse Stock Split, the “Reverse Stock Splits”) of our issued and outstanding shares of Common Stock at 5:01 PM Eastern Time on June 5, 2023. As a
result of the 2023 Reverse Stock Split, every ten shares of common stock issued and outstanding were converted into one share of common stock. We paid cash in lieu of
fractional shares, and accordingly, no fractional shares were issued in connection with the 2023 Reverse Stock Split.
The Reverse Stock Splits did not change the par value of the Common Stock or the authorized number of shares of Common Stock. All outstanding options, restricted stock
awards, warrants and other securities entitling their holders to purchase or otherwise receive shares of our Common Stock have been adjusted as a result of the Reverse Stock
Splits, as required by the terms of each security. The number of shares available to be awarded under our Amended and Restated 2019 Equity Incentive Plan have also been
appropriately adjusted. See “Note 10 — Compensation Plans” for more information.
All share and per share amounts in these consolidated financial statements and notes thereto have been retroactively adjusted for all periods presented to give effect to the
Reverse Stock Splits, including reclassifying an amount equal to the reduction in par value of Common Stock to additional paid-in capital.
Liquidity and Going Concern
Pursuant to ASC 205-40, Presentation of Financial Statements — Going Concern (“ASC 205-40”), management must evaluate whether there are conditions and events,
considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern for one year after the date that these condensed consolidated
financial statements are issued. In accordance with ASC 205-40, management’s analysis can only include the potential mitigating impact of management’s plans that have not
been fully implemented as of the issuance date if (a) it is probable that management’s plans will be effectively implemented on a timely basis, and (b) it is probable that the
plans, when implemented, will alleviate the relevant conditions or events that raise substantial doubt about the Company’s ability to continue as a going concern.
Our primary requirements for liquidity and capital are working capital, debt service related to recent acquisitions and general corporate needs. Our primary sources of liquidity
are our cash on hand and the cash flow that we generate from our operations, as well as proceeds from equity issuances, such as our June 2022, October 2022, and July 2023
offerings, each as described and defined below.
F-8
ATM Program and Shelf Registration Statement
We formerly used a shelf registration statement on Form S-3 (the “Shelf Registration Statement”) to conduct securities offerings from time to time in order to meet our liquidity
needs. In August 2021, we filed a prospectus supplement and established an “at-the-market” equity offering program (the “ATM Program”) that provided for the sale of shares
of our Class A common stock having an aggregate offering price of up to $50 million, from time to time.
Since the launch of the ATM program in August 2021 and through December 31, 2022, we sold shares of our Class A common stock which generated gross proceeds of
approximately $12.7 million and we paid fees to the sales agent of approximately $0.4 million. Due to the untimely filing of certain of our Quarterly and Annual Reports 3, we
are unable to issue additional shares of Class A common stock pursuant to the ATM Program or otherwise use the Shelf Registration Statement, which will limit our liquidity
options in the capital markets
Common Stock and Warrant Offerings.
On June 27, 2022, we entered into a securities purchase agreement with an accredited investor, pursuant to which we agreed to issue and sell an aggregate of 585,000 shares of
our Class A common stock, pre-funded warrants to purchase up to 495,000 shares of our Class A common stock (the “June 2022 Pre-Funded Warrants”) and warrants to
purchase up to 1,080,000 shares of our Class A common stock (the “June 2022 Standard Warrants” and, together with the June 2022 Pre-Funded Warrants, the “June 2022
Warrants”), in a registered direct offering (the “June 2022 Offering”). The June 2022 Offering generated gross proceeds of approximately $5.4 million and net proceeds to the
Company of approximately $5.0 million. All June 2022 Pre-Funded Warrants were exercised in July 2022, for de minimis net proceeds.
On October 27, 2022, we entered into securities purchase agreements with certain investors, pursuant to which we agreed to issue and sell an aggregate of 695,555 shares of our
Class A common stock, pre-funded warrants to purchase up to 137,778 shares of our Class A Common Stock (the “October 2022 Pre-Funded Warrants”) and warrants to
purchase up to 1,666,667 shares of our Class A common stock(the “October 2022 Standard Warrants”). The October 2022 units were offered pursuant to a Registration
Statement on Form S-1 (the “October 2022 Offering”). The October 2022 Offering generated gross proceeds of approximately $7.5 million and net proceeds to the Company of
approximately $6.8 million.
On June 29, 2023, we entered into securities purchase agreements with certain investors, pursuant to which we agreed to issue and sell an aggregate of 560,476 shares of our
Class A common stock, pre-funded warrants to purchase up to 3,487,143 shares of our Class A Common Stock (the “July 2023 Pre-Funded Warrants”) and warrants to purchase
up to 8,095,238 shares of our Class A common stock (the“July 2023 Standard Warrants”). The July 2023 units were offered pursuant to a Registration Statement on Form S-1
(the “July 2023 Offering”). The July 2023 Offering generated gross proceeds of approximately $4.3 million and net proceeds to the Company of approximately $3.8 million and
closed on July 3, 2023.
Asset-Based Loan
On August 9, 2022, we entered into an asset-based loan agreement dated as of August 8, 2022 (the “Loan Agreement”), which made available to the Company a term loan of up
to $15.0 million. On February 9, 2023, we entered into Amendment No. 2 to the Loan Agreement, in which we agreed to, among other things, voluntarily prepay approximately
$6.6 million (inclusive of early termination fees and expenses) under the terms provided for under the Loan Agreement and the lenders under the Loan Agreement agreed to
release $5.7 million in funds held in a blocked account pursuant to the terms of the Loan Agreement.
On August 7, 2023, we repaid the approximately $4.3 million in aggregate principal amount (the “Loan Repayment”) which remained outstanding under the terms of the Loan
Agreement. As a result of the Loan Repayment, the Company has been released from its obligations under the Loan Agreement, in accordance with the terms of the Loan
Agreement. See “Note 6 - Long Term Debt” for more information.
F-9
ERC Sale
On February 16, 2023, two of our wholly owned subsidiaries, Warehouse Goods LLC and Kim International LLC, entered into an agreement with a third-party institutional
investor pursuant to which the investor purchased, for approximately $4.9 million in cash, an economic participation interest, at a discount, in our rights to payment from the
United States Internal Revenue Service for certain periods with respect to the employee retention credits filed by us under the Employee Retention Credit program.
Future Receivables Financing
In July, August, October, and November 2023, the Company received an aggregate of approximately $3.9 million in cash pursuant to the terms of future receivables financings
(collectively, the “Future Receivables Financings”) entered into with two private lenders. See “Note 6 - Long Term Debt” for more information.
Management Initiatives
We have completed several initiatives to optimize our working capital requirements. We launched Groove, a new, innovative Greenlane Brands product line, and we also
rationalized and improved our third-party brands product offering, which enabled us to reduce inventory carrying costs and working capital requirements while increasing our
offerings.
In April 2023, we entered into two strategic partnership. First, we entered into a strategic partnership (the “MJ Packaging Partnership”) with A&A Global Imports d/b/a
MarijuanaPackaging.com (“MJ Pack”), a leading provider of packaging solutions to the cannabis industry. Second, we entered into a strategic partnership with an affiliate of
one of our existing vape suppliers (“Vape Partner”) to service certain key customers with vaporizer goods and services (the “Vape Partnership”). As part of the Vape
Partnership, we will introduce our Vape Partner to certain key customers, assist with the promotion and the sale of certain vaporizer goods and services, and help coordinate the
logistics, storage and distribution of such vaporizer products. If our Vape Partner and key customer(s) enter into a direct relationship, the customers would directly purchase
vaporizer goods and services, which we currently sell them, directly from our Vape Partner and we would no longer need to purchase such vape inventory on behalf of such key
customer(s). In exchange we would earn quarterly and annual commission payments from our strategic partners. While the strategic partnerships may result in a decrease in top
line revenue for these packaging and vape products, these partnerships combined with some of our other restructuring initiatives should allow us to reduce our overall cost-
structure and enhance our margins, thereby improving our balance sheet.
We have successfully renegotiated supplier partnership terms and are continuing to improve working capital arrangements with suppliers. We have made progress consolidating
and streamlining our office, warehouse, and distribution operations footprint. We have reduced our workforce significantly to reduce costs and align with our revenue
projections.
The Company has incurred net losses of $32.3 million and $182.2 million for the years ended December 31, 2023 and 2022, respectively. For the years ended December 31,
2023 and 2022, cash used in operating activities were $1.8 million and $26.4 million, respectively. The recent macroeconomic environment has caused weaker demand than
contemplated under the Company’s business plan, resulting in a reduction in projected revenue and cash flows for the twelve-month period included in the going concern
evaluation.
As a result of our losses and our projected cash needs, combined with our current liquidity level, substantial doubt exists about the Company’s ability to continue as a going
concern. The Company’s ability to continue as a going concern is contingent upon successful execution of management’s intended plan over the next twelve months to improve
the Company’s liquidity and profitability, which includes, without limitation:
■Further reducing operating costs expense by taking additional restructuring actions to align cost with revenue to achieve profitability.
■Increasing revenue by introducing new products and acquiring new customers.
■Execute on strategic partnerships accretive to margins and operating cash
■Seeking additional capital through the issuance of debt or equity securities.
The consolidated financial statements do not include any adjustments that may result from the outcome of this going concern uncertainty.
F-10
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
Our audited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”)
and with the instructions to Form 10-K and Article 8 of Regulation S-X.
Principles of Consolidation
Our consolidated financial statements include our accounts, the accounts of the Operating Company, and the accounts of the Operating Company’s consolidated subsidiaries.
All significant intercompany balances and transactions have been eliminated in consolidation.
Use of Estimates
Conformity with U.S. GAAP requires the use of estimates and judgments that affect the reported amounts in our consolidated financial statements and accompanying notes.
These estimates form the basis for judgments we make about the carrying values of our assets and liabilities, which are not readily apparent from other sources. We base our
estimates and judgments on historical information and on various other assumptions that we believe are reasonable under the circumstances. U.S. GAAP requires us to make
estimates and judgments in several areas. Such areas include, but are not limited to the following: the collectability of accounts receivable; the allowance for slow-moving or
obsolete inventory; the realizability of deferred tax assets; the fair value of contingent consideration arrangements; the useful lives property and equipment; the calculation of
our VAT taxes receivable and VAT taxes, fines, and penalties payable; our loss contingencies, including our TRA liability; and the valuation and assumptions underlying equity-
based compensation. These estimates are based on management’s knowledge about current events and expectations about actions we may undertake in the future. The actual
results could differ materially from those estimates.
Segment Reporting
We manage our global business operations through our operating and reportable business segments. As of December 31, 2023, we had two reportable operating business
segments: Industrial Goods and Consumer Goods. Our reportable segments have been identified based on how our chief operating decision maker (“CODM”), which is a
committee comprised of our Chief Executive Officer (“CEO”) and our Chief Financial and Legal Officer (“CFO”), manages our business, makes resource allocation and
evaluates operating decisions, and evaluate operating performance. See “Note 12—Segment Reporting.”
Business Combinations
Our business combinations are accounted for under the acquisition method of accounting in accordance with ASC Topic 805, Business Combinations (“ASC 805”). Under the
acquisition method, we recognize 100% of the assets we acquire and liabilities we assume, regardless of the percentage we own, at their estimated fair values as of the date of
acquisition. Any excess of the purchase price over the fair value of the net assets and other identifiable intangible assets we acquire is recorded as goodwill. To the extent the
fair value of the net assets we acquire, including other identifiable assets, exceeds the purchase price, a bargain purchase gain is recognized. The assets we acquire, and
liabilities we assume from contingencies, are recognized at fair value if we can readily determine the fair value during the measurement period. The operating results of
businesses we acquire are included in our consolidated statement of operations from the date of acquisition. Acquisition-related costs are expensed as incurred. See “Note 3—
Business Acquisitions.”
Equity-Based Compensation
We account for equity-based compensation grants of equity awards to employees in accordance with ASC Topic 718, Compensation — Stock Compensation. This standard
requires us to measure compensation expense based on the estimated fair value of share-based awards on the grant date and recognize as expense over the requisite service
period, which is generally the vesting period. We estimate the fair value of stock options using the Black-Scholes model on the grant date. The Black-Scholes model requires us
to use several variables to estimate the grant-date fair value of our equity-based compensation awards including expected term, expected volatility and risk-free interest rates.
Our equity-based compensation costs are recognized using a graded vesting schedule. For liability-classified awards, we record fair value adjustments up to and including the
settlement date. Changes in the fair value of our equity-based compensation liability that occur during the requisite service period are recognized as compensation cost over the
vesting period. Changes in the fair value of the equity-based compensation liability that occur after the end of the requisite service period but before settlement, are recognized
as compensation cost of the period in which the change occurs. We account for forfeitures as they occur. See “Note 10—Compensation Plans.”
F-11
Loss Contingencies
Certain conditions may exist which may result in a loss to us, but which will only be resolved when one or more future events occur or fail to occur. Management assesses such
contingent liabilities and such assessment inherently involves an exercise of judgment. In assessing loss contingencies related to legal proceedings that are pending against us,
or unasserted claims that may result in such proceedings, we evaluate the perceived merits of any legal proceedings or unasserted claims as well as the perceived merits of the
amount of relief sought or expected to be sought therein.
If the assessment of a contingency indicates that it is probable that a material loss has been incurred and the amount of the liability is estimable, the liability would be accrued in
our consolidated financial statements. If the assessment indicates that a potentially material loss contingency is not probable but is reasonably possible, or is probable but
cannot be estimated, the nature of the contingent liability, together with an estimate of the range of possible loss, if determinable and material, would be disclosed.
Loss contingencies considered remote are generally not disclosed. Unasserted claims that are not considered probable of being asserted and those for which an unfavorable
outcome is not reasonably possible have not been disclosed.
Fair Value Measurements
We apply the provisions of ASC Topic 820, Fair Value Measurements, which defines fair value, establishes a framework for its measurement and expands disclosures about fair
value measurements. Fair value is defined as the exchange price we would receive for an asset or an exit price we would pay to transfer a liability in the principal, or most
advantageous, market for our asset or liability in an orderly transaction with a market participant on the measurement date. We determine the fair market values of our financial
instruments based on the fair value hierarchy, which requires us to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair
value. The following three levels of inputs may be used to measure fair value:
Level 1 — Observable inputs such as unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date.
Level 2 — Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other
inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3 — Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.
The carrying amounts of our financial instruments, including cash, accounts receivable, accounts payable, accrued expenses and short-term debt, are carried at historical cost
basis, which approximates their fair values because of their short-term nature. The fair value of our long-term debt is the estimated amount we would have to pay to repurchase
the debt, inclusive of any premium or discount attributable to the difference between the stated interest rate and market rate of interest at each balance sheet date. On a recurring
basis, we measure and record contingent consideration using fair value measurements in the accompanying consolidated financial statements. See “Note 4—Fair Value of
Financial Instruments.”
We also own equity securities of private entities, which do not have readily determinable fair values. We elected to measure these equity securities at cost minus impairment, if
any. At each reporting period, we make a qualitative assessment considering impairment indicators to evaluate whether our investment is impaired. The equity securities are
adjusted to fair value when an observable price change can be identified. See “Note 4—Fair Value of Financial Instruments.”
Cash
For purposes of reporting cash flows, we consider cash on hand, checking accounts, and savings accounts to be cash. We also consider all highly-liquid investments with
original maturities of three months or less from the date of purchase to be cash equivalents. We place our cash with high credit quality financial institutions, which provide
insurance through the Federal Deposit Insurance Company. At times, the balance in our accounts may exceed federally insured limits. We perform periodic evaluations of the
relative credit standing of these institutions and do not expect any losses related to such concentrations. As of December 31, 2023, and 2022, approximately $0.1 million and
$0.8 million, respectively, of our cash balances were in foreign bank accounts and uninsured. As of December 31, 2023, and 2022, we had no cash equivalents.
Restricted Cash
Restricted cash represents principally cash reserves that are maintained pursuant to the governing agreement of the Asset-Based Loan discussed in “Note 6 - Debt.”
F-12
Accounts Receivable, net
Accounts receivable represent amounts due from customers for merchandise sales and are recorded when revenue is earned and are carried at the original invoiced amount less
an allowance for any expected credit loss. An account is considered past due when payment has not been rendered by its due date based upon the terms of the sale. Generally,
accounts receivable are due thirty days after the billing date. We maintain an allowance for credit losses to reserve for potentially uncollectible receivable amounts. In
evaluating our ability to collect outstanding receivable balances, we consider various factors including the age of the balance, the creditworthiness of the customer, the
customer’s current financial condition, current economic conditions, and other factors that may affect our ability to collect from customers. We write off accounts as
uncollectible on a case-by-case basis. We pledge accounts receivable as collateral for our long-term debt, see “Note 6—Debt.”
Inventories, net
Inventories consist of finished goods that we value at the lower of cost or net realizable value on a weighted average cost basis for the majority of the inventory. We established
an allowance for slow-moving or obsolete inventory based upon assumptions about future demands and market conditions. At December 31, 2023, and 2022, the reserve for
obsolescence was approximately $9.5 million and $21.4 million, respectively. We pledge inventory as collateral for our long-term debt, see “Note 6— Debt.”
Vendor Deposits
Vendor deposits represent prepayments we make to vendors for inventory purchases. A significant number of vendors require us to prepay for inventory purchases.
Customs Bonds
The Company is required to obtain customs bonds to import goods into the United States to provide security for payment of duties, taxes and other fees incurred as a result of
importing goods. Customs bonds are included in “Other current assets” in our consolidated balance sheets, see “Note 8 - Supplemental Financial Statement Information.”
Assets Held for Sale
We generally consider assets to be held for sale when (i) we commit to a plan to sell the assets, (ii) the assets are available for immediate sale in their present condition, (iii) we
have initiated an active program to locate a buyer and other actions required to complete the plan to sell the assets, (iv) consummation of the planned sale transaction is
probable, (v) the assets are being actively marketed for sale at a price that is reasonable in relation to their current fair value, (vi) the transaction is expected to qualify for
recognition as a completed sale, within one year, and (vii) significant changes to or withdrawal of the plan is unlikely. Following the classification of any depreciable assets
within a disposal group as held for sale, we discontinue depreciating the asset and write down the asset to the lower of carrying value or fair market value less cost to sell, if
needed.
Property and Equipment, net
We state property and equipment at cost or, if acquired through a business combination, fair value at the date of acquisition. We calculate depreciation and amortization using
the straight-line method over the estimated useful lives of the assets, except for our leasehold improvements, which are depreciated over the shorter of their estimated useful
lives or their related lease term. Upon the sale or retirement of assets, the cost and related accumulated depreciation are removed from our accounts and the resulting gain or
loss is credited or charged to income. We expense costs for repairs and maintenance when incurred. Property and equipment includes assets recorded under finance leases, see
“Note 5—Leases.” We pledge property and equipment as collateral for our long-term debt, see “Note 6—Long Term Debt.”
Impairment of Long-Lived Assets
We assess the recoverability of the carrying amount of our long lived-assets, including property and equipment and finite-lived intangibles, whenever events or changes in
circumstances indicate that the carrying amount of an asset or asset group may not be recoverable. An impairment loss would be assessed when estimated undiscounted future
cash flows from the operation and disposition of the asset group are less than the carrying amount of the asset group. Asset groups have identifiable cash flows and are largely
independent of other asset groups. Measurement of an impairment loss is based on the excess of the carrying amount of the asset group over its fair value.
Changes in our future operations and business lines could affect the estimated undiscounted future cash flows from the operation of certain long-lived assets, such as customer
relationships, and may give rise to impairment losses in future periods.
Investments in Equity Securities
Our investments in equity securities without readily determinable fair value consist of ownership interests in Airgraft Inc., Sun Grown Packaging, LLC (“Sun Grown”) and
Vapor Dosing Technologies, Inc. (“VIVA”). We determined that our ownership interests do not provide us with significant influence over the operations of these investments.
Accordingly, we account for our investments in these entities as equity securities. Airgraft Inc., Sun Grown, and VIVA are private entities and their equity securities do not have
a readily determinable fair value. We elected to measure these securities under the measurement alternative election at cost minus impairment, if any, with adjustments through
earnings for observable price changes in orderly transactions for the identical or similar investment of the same issuer. Investments in equity securities are included within
“Other assets” in our consolidated balance sheets. See “Note 4—Fair Value of Financial Instruments.”
F-13
Vendor Incentives and Rebates
Sales incentives we receive in the form of payments from vendors solely to reimburse us for acting as the vendors’ agent in redeeming a sales incentive that is between our
vendor and our customers and end consumers are included in net sales in the consolidated statements of operations and comprehensive loss.
We also have agreements with certain vendors to receive volume rebates which are dependent upon reaching minimum purchase thresholds. When volume rebates can be
reasonably estimated and it is probable that minimum purchase thresholds will be met, we record a portion of the rebate when or as we make progress towards the purchase
threshold. Amounts received from vendors relating to volume rebates are considered a reduction of the carrying value of our inventory and, therefore, such amounts are
ultimately recorded as a reduction of cost of goods sold in the consolidated statements of operations and comprehensive loss.
Foreign Currency Translation
Our consolidated financial statements are presented in United States (U.S.) dollars. The functional currency of one of the Operating Company’s wholly-owned, Canada-based,
subsidiaries is the Canadian dollar. The functional currency of the Operating Company’s wholly-owned, Netherlands-based subsidiary is the Euro. The assets and liabilities of
these subsidiaries are translated into U.S. dollars at current exchange rate at each balance sheet date for assets and liabilities and an appropriate average exchange rate for each
applicable period within our consolidated statements of operations and comprehensive loss. Capital accounts are translated at their historical exchange rates when the capital
transactions occurred. The foreign currency translation adjustments are included in accumulated other comprehensive loss, a separate component of stockholders’ deficit in our
consolidated balance sheets. Other exchange gains and losses are reported within our consolidated statements of operations and comprehensive loss.
Comprehensive (Loss) Income
Comprehensive (loss) income includes net (loss) income as currently reported by us, adjusted for other comprehensive items. Other comprehensive items consist of foreign
currency translation gains and losses and unrealized gains and losses on derivative financial instruments that qualify as hedges.
Advertising
We expense advertising costs as incurred and include them in general and administrative expenses in our consolidated statements of operations and comprehensive loss.
Advertising costs were approximately $1.2 million and $2.8 million for the years ended December 31, 2023, and 2022, respectively.
Income Taxes
We are a corporation subject to income taxes in the United States. Certain subsidiaries of the Operating Company are taxable separately from us. Our proportional share of the
Operating Company’s subsidiaries’ provisions are included in our consolidated financial statements.
As of December 31, 2023 and 2022, we hold all the outstanding Common Units in the Operating Company and are the sole member. As a result, starting in 2023, 100% of the
Operating Company’s US and state income and expenses will be included in our US and state tax returns.
Our deferred income tax assets and liabilities are computed for differences between the tax basis and financial statement amounts that will result in taxable or deductible
amounts in the future. We compute deferred balances based on enacted tax laws and applicable rates for the periods in which the differences are expected to affect taxable
income. A valuation allowance is recognized for deferred tax assets if it is more likely than not that some portion or all of the net deferred tax assets will not be realized. In
making such a determination, we consider all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future
taxable income, tax-planning strategies, and results of recent
operations. If we determine we would be able to realize our deferred tax assets for which a valuation allowance had been recorded, then we would adjust the deferred tax asset
valuation allowance, which would reduce our provision for income taxes.
We evaluate the tax positions taken on income tax returns that remain open and positions expected to be taken on the current year tax returns to identify uncertain tax positions.
Unrecognized tax benefits on uncertain tax positions are recorded on the basis of a two-step process in which (1) we determine whether it is more likely than not that the tax
positions will be sustained on the basis of the technical merits of the position and (2) for those tax positions that meet the more-likely-than-not recognition threshold, the largest
amount of tax benefit that is more than 50 percent likely to be realized is recognized. Interest and penalties related to unrecognized tax benefits are recorded in income tax
benefit. We have no uncertain tax positions that qualify for inclusion in our consolidated financial statements. See “Note 11—Income Taxes.”
F-14
Tax Receivable Agreement (TRA)
We entered into the TRA with the Operating Company and each of the members of the Operating Company that provides for the payment by the Operating Company to the
members of 85% of the amount of tax benefits, if any, that we may actually realize (or in some circumstances are deemed to realize) as a result of (i) increases in tax basis
resulting from any future redemptions that are funded by us or exchanges of Common Units as described above in “Note 1—Business Operations and Organization” and (ii)
certain other tax benefits attributable to payments made under the TRA.
We compute annual tax benefits by calculating the income taxes due, including such tax benefits, and the income taxes due without such benefits. The Operating Company
expects to benefit from the remaining 15% of any tax benefits that it may actually realize. The TRA payments are not conditioned upon any continued ownership interest in the
Operating Company. The rights of each noncontrolling interest holder under the TRA are assignable to transferees of its interest in the Operating Company. The timing and
amount of aggregate payments due under the TRA may vary based on a number of factors, including the amount and timing of the taxable income the Operating Company
generates each year and the applicable tax rate.
We periodically evaluate the realizability of the deferred tax assets resulting from the exchange of Common Units for our Class A common stock. If the deferred tax assets are
determined to be realizable, we then assess whether payment of amounts under the TRA have become probable. If so, we record a TRA liability equal to 85% of such deferred
tax assets. In subsequent periods, we assess the realizability of all of deferred tax assets subject to the TRA. If we determine that a deferred tax asset with a valuation allowance
is realizable in a subsequent period, the related valuation allowance will be released and consideration of a corresponding TRA liability will be assessed. The realizability of
deferred tax assets, including those subject to the TRA, is dependent upon the generation of future taxable income during the periods in which those deferred tax assets become
deductible and consideration of prudent and feasible tax-planning strategies.
The measurement of the TRA is accounted for as a contingent liability. Therefore, once we determine that a payment to a member of the Operating Company has become
probable and can be estimated, the estimated payment will be accrued. See “Note 11—Income Taxes.”
Revenue Recognition
Revenue is recognized when customers obtain control of goods and services promised by us. Revenue is measured based on the amount of consideration that we expect to
receive in exchange for those goods or services, reduced by promotional discounts and estimates for return allowances and refunds. Taxes collected from customers for
remittance to governmental authorities are excluded from net sales.
We generate revenue primarily from the sale of finished products to customers, whereby each product unit represents a single performance obligation. We recognize revenue
from product sales when the customer has obtained control of the products, which is either at point of sale or delivery to the customer, depending upon the specific terms and
conditions of the arrangement, or at the point of sale for our retail store sales. We provide no warranty on products sold. Product warranty is provided by the manufacturers. For
certain product offerings such as child-resistant packaging, closed-system vaporization solutions and custom-branded retail products, we may receive a deposit from the
customer (generally 25% - 50% of the total order cost, but the amount can vary by customer contract) when an order is placed by a customer. We typically complete these
orders within one to six months from the date of order, depending on the complexity of the customization and the size of the order, but the completion timeline can vary by
product type and terms of sales with each customer. See “Note 8—Supplemental Financial Statement Information” for a summary of changes to our customer deposits liability
balance during the years ended December 31, 2023 and 2022.
We estimate product returns based on historical experience and record them as a refund liability that reduces the net sales for the period. We analyze actual historical returns,
current economic trends and changes in order volume when evaluating the adequacy of our sales returns allowance in any reporting period. Our liability for returns, which is
included within “Accrued expenses and other current liabilities” in our consolidated balance sheets, was approximately $0.1 million and $0.3 million as of December 31, 2023
and 2022, respectively.
We elected to account for shipping and handling expenses that occur after the customer has obtained control of products as a fulfillment activity in cost of sales. Shipping and
handling fees charged to customers are included in net sales upon completion of our performance obligations. We apply the practical expedient provided for by the applicable
revenue recognition guidance by not adjusting the transaction price for significant financing components for periods less than one year. We also apply the practical expedient
provided by the applicable revenue recognition guidance based upon which we generally expense sales commissions when incurred because the amortization period is one year
or less. Sales commissions are recorded within “Salaries, benefits and payroll tax expenses” in the consolidated statements of operations and comprehensive loss.
F-15
The Company transitioned to a commission revenue model for the majority of the sales for the Industrial segment. The company operates as a sales agent servicing vape
customers and receives a commission for these services. The company was previously working directly with these customers and recognizing gross revenue versus straight
commission revenue. The Company recognizes this fee on a periodic basis when the products have been shipped for the end consumer. In working with their partner, the
Company is not responsible for fulfilling a promise to provide the specified goods, does not establish the pricing with its partners customers, and does not have control over the
goods that will be shipped. As such, the Company is an agent and recognizes its revenue on a net basis for its service. The partner company pays Greenlane a negotiated
percentage-based fee on a quarterly basis.
One customer represented approximately 21% and 22% of our net sales for the years ended December 31, 2023 and 2022, respectively. As of December 31, 2023 the Company
has a concentration of credit risk with its accounts receivable balance as one customer represented approximately 11% of accounts receivable. As of December 31, 2022, the
Company had three customers who individually represented approximately 31%, 17% and 15% of accounts receivable, respectively.
Value Added Taxes
During the third quarter of 2020, as part of a global tax strategy review, we determined that our European subsidiaries based in the Netherlands, which we acquired on
September 30, 2019, had historically collected and remitted value added tax (“VAT”) payments, which related to direct-to-consumer sales to other European Union (“EU”)
member states, directly to the Dutch tax authorities. In connection with our subsidiaries’ payment of VAT to Dutch tax authorities rather than other EU member states, we may
become subject to civil or criminal enforcement actions in certain EU jurisdictions, which could result in penalties.
We performed an analysis of the VAT overpayments to the Dutch tax authorities, which we expected to be refunded to us, and VAT payable to other EU member states,
including potential fines and penalties. Based on this analysis, we recorded VAT payable of approximately $0.4 million and $0.4 million relating to this matter within “Accrued
expenses and other current liabilities” in our consolidated balance sheet as of December 31, 2023 and 2022, respectively.
Pursuant to the purchase and sale agreement by which we acquired our European subsidiaries, the sellers are required to indemnify us against certain specified matters and
losses, including any and all liabilities, claims, penalties and costs incurred or sustained by us in connection with non-compliance with tax laws in relation to activities of the
sellers. The indemnity (or indemnification receivable) is limited to an amount equal to the purchase price under the purchase and sale agreement. During the year ended
December 31, 2022, we recognized a gain of approximately $2.0 million, respectively, within “general and administrative expenses” in our consolidated statements of
operations and comprehensive loss, which represented the partial reversal of a charge previously recognized based on the difference between the VAT payable and the VAT
receivable and indemnification asset, as the indemnification asset became probable of recovery based on the reduction in our previously estimated VAT liability for penalties
and interest based on our voluntary disclosure to, and ongoing settlement with, the relevant tax authorities in the EU member states.
As noted above, we have voluntarily disclosed VAT owed to several relevant tax authorities in the EU member states, and believe in doing so we will reduce our liability for
penalties and interest. Nonetheless, we may incur expenses in future periods related to such matters, including litigation costs and other expenses to defend our position. The
outcome of such matters is inherently unpredictable and subject to significant uncertainties. Refer to “Note 7—Commitments and Contingencies” for additional discussion
regarding our contingencies.
Net Loss Per Share
Basic net loss per share of Class A common stock is computed by dividing net loss attributable to Greenlane by the weighted-average number of shares of Class A common
stock outstanding during the period. Diluted net loss per share of Class A common stock is computed by dividing net loss attributable to Greenlane by the weighted-average
number of shares of Class A common stock outstanding adjusted to give effect to potentially dilutive elements. See “Note 9—Stockholders’ Equity - Net Loss Per Share.”
Recently Issued Accounting Guidance
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses. The standard requires the use of an “expected loss” model on certain types of financial
instruments. The standard also amends the impairment model for available-for-sale securities and requires estimated credit losses to be recorded as allowances rather than as
reductions to the amortized cost of the securities. This standard was effective for fiscal years, and interim periods within those years, beginning after December 15, 2022 for
filers that are eligible to be smaller reporting companies under the SEC’s definition, with early adoption permitted. We adopted this standard beginning January 1, 2023.
Adoption of this standard did not have a material impact on our consolidated financial statements.
In October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers,
which requires that an acquirer recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with Topic 606, as if it had
originated the contracts. Prior to this ASU, an acquirer generally recognizes contract assets acquired and contract liabilities assumed that arose from contracts with customers at
fair value on the acquisition date. The ASU was effective for fiscal years beginning after December 15, 2022, with early adoption permitted. The ASU is to be applied
prospectively to business combinations occurring on or after the effective date of the amendment (or if adopted early as of an interim period, as of the beginning of the fiscal
year that includes the interim period of early application). We adopted this new standard beginning January 1, 2023. Adoption of this standard did not impact our consolidated
financial statements, as we did not complete any transactions to which this standard was applicable during the current reporting period.
F-16
Recently Issued Accounting Guidance Not Yet Adopted
In June 2022, the FASB issued ASU No. 2022-03, Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions, which clarifies that a contractual sale
restriction prohibiting the sale of an equity security is a characteristic of the reporting entity holding the equity security and is not included in the equity security’s unit of
account. This standard is effective for fiscal years beginning after December 15, 2023, with early adoption permitted. The Company is currently evaluating the impact of
adopting the standard.
In November 2023, the FASB issued ASU No. 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, which improves reportable segment
disclosure requirements, primarily through enhanced disclosures about significant segment expenses. The amendments in this update require public companies to disclose on an
annual and interim basis, significant segment expenses that are regularly provided to the chief operating decision maker (CODM) and require that a public entity disclose, on an
annual and interim basis, an amount for other segment items by reportable segment and a description of its composition. In addition, the amendment requires that a public entity
provide all annual disclosures about a reportable segment’s profit or loss and assets currently required in interim periods and require that a public entity disclose the title and
position of the CODM and an explanation of how the CODM uses the reported measure(s) of segment profit or loss in assessing segment performance and deciding how to
allocate resources. Early adoption is permitted. The Company is currently evaluating the impact of ASU 2023-07 on its consolidated financial statements and related
disclosures. This amendment will go into effect for the fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15,
2024.
In December 2023, the FASB issued ASU No. 2023-09, Income Taxes (Topic 740): Improvements To Income Tax Disclosures, to enhance the transparency and decision
usefulness of income tax disclosures. The amendments in this Update address investor requests for more transparency about income tax information through improvements to
income tax disclosures primarily related to the rate reconciliation and income taxes paid information.
The amendments in this Update require that entities on an annual basis (1) disclose specific categories in the rate reconciliation and (2) provide additional information for
reconciling items that meet a quantitative threshold (if the effect of those reconciling items is equal to or greater than 5 percent of the amount computed by multiplying pretax
income (or loss) by the applicable statutory income tax rate). In addition, public business entities are required to provide certain qualitative disclosure about the rate
reconciliation.
The amendments in this Update require that all entities disclose on an annual basis the amount of income taxes paid (net of refunds received) disaggregated (1) by federal
(national), state, and foreign taxes and (2) by individual jurisdictions in which income taxes paid (net of refunds received) is equal to or greater than 5 percent of total income
taxes paid (net of refunds received).
This Update also includes certain other amendments to improve the effectiveness of income tax disclosures, such as requiring that all entities disclose the following
information:
1.
2.
Income (or loss) from continuing operations before income tax expense (or benefit) disaggregated between domestic and foreign.
Income tax expense (or benefit) from continuing operations disaggregated by federal (national), state, and foreign.
The amendments in this ASU require a cumulative-effect adjustment to the opening balance of retained earnings (or other appropriate components of equity or net assets) as of
the beginning of the annual reporting period in which an entity adopts the amendments. Early adoption is permitted. The Company is currently evaluating the impact of ASU
2023-09 on its consolidated financial statements and related disclosures. This amendment will go into effect for annual periods beginning after December 15, 2024.
NOTE 3. BUSINESS ACQUISITIONS AND DISPOSITIONS
Amended Eyce APA
On April 7, 2022, we entered into an amendment to that certain Asset Purchase Agreement dated March 2, 2021 (the “Amended Eyce APA”), by and between Eyce and
Warehouse Goods to accelerate the issuance of shares of Class A common stock issuable to Eyce under the agreement upon the attainment of certain EBITDA and revenue
benchmarks (the “Amended 2022 Contingent Payment”), in an amount equal to $0.9 million. We issued 71,721 shares of Class A common stock to Eyce under the Amended
2022 Contingent Payment, which vest ratably in seven quarterly tranches starting on July 1, 2022, such that on January 1, 2024 (the “Vesting Date”), all shares issued to Eyce
under the Amended 2022 Contingent Payment will have vested. The shares of Class A common stock issued under the Amended 2022 Contingent Payment are subject to
certain forfeiture restrictions tied to the continued employment of certain Eyce personnel with the Company through the Vesting Date.
The Amended Eyce APA also provided for the payment of $0.9 million in cash in four equal installments on April 1, 2023, July 1, 2023, October 1, 2023 and January 1, 2024,
contingent on the achievement of certain deliverables outlined in the Amended Eyce APA and the continued employment of certain Eyce personnel.
The transaction was accounted for separately from acquisition accounting for the Eyce business combination. Specifically, we recorded a gain of approximately $0.3 million,
respectively, within “other income (expense), net” in our consolidated statement of operations and comprehensive income for the year ended December 31, 2022 to write-off
the balance of the Eyce 2022 Contingent Payment. Also, we recorded approximately $1.3 million in compensation expense related to the Amended 2022 Contingent Payment
within “salaries, benefits and payroll taxes” in our consolidated statement of operations and comprehensive income for the year ended December 31, 2022.
The April 2, 2023 and July 1, 2023 payments were paid timely, the remaining payments which were not paid timely have rolled into the Synergy Imports, LLC Bridge Loan and
is included in the additionally deferred amounts under that Loan.
VIBES Sale
On July 19, 2022, Warehouse Goods entered into the Sale Agreement with Portofino to sell the Company’s 50% stake in VIBES Holdings LLC for total consideration of $4.6
million in cash. The transactions contemplated by the Sale Agreement were completed on July 19, 2022, immediately following the signing of the Sale Agreement. In
conjunction with and as a result of the disposition of and deconsolidation of our interest in VIBES Holdings LLC, we recorded a gain of $2.0 million for the year ended
December 31, 2022, which is included as an offset in “general and administrative expenses” in our consolidated statements of operations and comprehensive loss, as well as a
reduction to non-controlling interest on our consolidated balance sheet as of December 31, 2022 of $1.8 million. In conjunction with the Sale Agreement, we returned inventory
to VIBES with a carrying value of approximately $2.4 million.
F-17
NOTE 4. FAIR VALUE OF FINANCIAL INSTRUMENTS
Assets and Liabilities that are Measured at Fair Value on a Recurring Basis
The carrying amounts for certain of our financial instruments, including cash, accounts receivable, accounts payable and certain accrued expenses and other assets and
liabilities, approximate fair value due to the short-term nature of these instruments.
As of December 31, 2023 and 2022, we had contingent consideration that is required to be measured at fair value on a recurring basis.
Our financial instruments measured at fair value on a recurring basis were as follows at the dates indicated:
(in thousands)
Liabilities:
Consolidated
Balance Sheet
Caption
Level 1
Fair Value at December 31, 2023
Level 3
Level 2
Total
Contingent consideration -
current
Accrued expenses and other
current liabilities
Total Liabilities
(in thousands)
Liabilities:
Consolidated
Balance Sheet
Caption
Contingent consideration -
current
Accrued expenses and other
current liabilities
Total Liabilities
$
$
$
$
—
—
$
$
—
—
$
$
1,000
1,000
$
$
1,000
1,000
Level 1
Fair Value at December 31, 2022
Level 3
Level 2
Total
—
—
$
$
—
—
$
$
2,738
2,738
$
$
2,738
2,738
There were no transfers between Level 1 and Level 2 and no transfers to or from Level 3 of the fair value hierarchy during the years ended December 31, 2023 and 2022.
Derivative Instrument and Hedging Activity
On July 11, 2019, we entered into an interest rate swap contract to manage our risk associated with the interest rate fluctuations on the Company’s floating rate Real Estate Note
described in “Note 6 - Debt.” The counterparty to this instrument was a reputable financial institution. Our interest rate swap contract was designated as a cash flow hedge at
the inception date, and was previously reflected at its fair value in our consolidated balance sheets. The fair value of our interest rate swap liability was determined based on the
present value of expected future cash flows. Since our interest rate swap value was based on the LIBOR forward curve and credit default swap rates, which were observable at
commonly quoted intervals for the full term of the swap, it was considered a Level 2 measurement.
Beginning with the second quarter of 2022, we discontinued hedge accounting for the interest rate swap contract. During the year ended December 31, 2022, we recorded a
gain of approximately $0.1 million based on the change in fair value of the interest rate swap contract within “interest expense” in our consolidated statement of income and
comprehensive loss. During the second quarter of 2022, we also reclassified the related accumulated other comprehensive income balance of $0.3 million to “interest expense”
in our consolidated statement of income and comprehensive loss. Refer to “Note 8 - Supplemental Financial Information” for further details on the components of accumulated
other comprehensive income (loss) for the year ended December 31, 2022, respectively.
The unrealized loss on the derivative instrument prior to the discontinuation of hedge accounting was included within “Other comprehensive income (loss)” in our consolidated
statement of operations and comprehensive loss. There was no measure of hedge ineffectiveness and no reclassifications from other comprehensive loss into interest expense
for the year ended December 31, 2022, respectively. In August 2022, we terminated the interest swap contract.
Contingent Consideration
Each period we revalue our contingent consideration obligations associated with business acquisitions to their fair value. The estimate of the fair value of contingent
consideration is determined by applying a risk-neutral framework using a Monte Carlo Simulation, which includes inputs not observable in the market, such as the risk-free
rate, risk-adjusted discount rate, the volatility of the underlying financial metrics and projected financial forecast of the acquired business over the earn-out period, and
therefore represents a Level 3 measurement. Significant increases or decreases in these inputs could result in a significantly lower or higher fair value measurement of the
contingent consideration liability. Changes in the fair value of contingent consideration are included within “Other income (expense), net” in our consolidated statements of
operations and comprehensive loss.
F-18
A reconciliation of our liabilities that are measured and recorded at fair value on a recurring basis using significant unobservable inputs (Level 3) for the years ended December
31, 2023 and 2022 is as follows:
(in thousands)
Balance, December 31, 2021
Eyce 2021 Contingent Payment settlement in Class A common stock
Eyce 2021 Contingent Payment settlement in cash
DaVinci 2021 Contingent Payment settlement in Class A common stock
Write-off of Eyce 2022 Contingent Payment in conjunction with the Amended Eyce APA
Loss from fair value adjustments included in results of operations
Balance, December 31, 2022
Cash payments for earn contingent consideration
Transfer to notes payable
Loss from fair value adjustments included in results of operations
Balance, December 31, 2023
Equity Securities Without a Readily Determinable Fair Value
Contingent Consideration
6,857
$
(875)
(875)
(2,611)
(267)
509
2,738
(350)
(1,650)
262
1,000
$
$
Our investment in equity securities without readily determinable fair value consist of ownership interests in Airgraft Inc., Sun Grown Packaging, LLC (“Sun Grown”) and
VIVA. We determined that our ownership interests do not provide us with significant influence over the operations of these investments. Accordingly, we account for our
investments in these entities as equity securities.
Airgraft Inc., Sun Grown, and VIVA are private entities and their equity securities do not have a readily determinable fair value. We elected to measure these security under the
measurement alternative election at cost minus impairment, if any, with adjustments through earnings for observable price changes in orderly transactions for the identical or
similar investment of the same issuer. We acquired our investments in Sun Grown and VIVA as part of our merger with KushCo, which we completed in August 2021. We did
not identify any fair value adjustments related to these equity securities during the years ended December 31, 2023 and 2022.
As of December 31, 2023 and 2022, the carrying value of our investment in equity securities without a readily determinable fair value was approximately $1.9 million, included
within “Other assets” in our consolidated balance sheets. The carrying value included a fair value adjustment of $1.5 million based on an observable price change recognized
during the year ended December 31, 2019.
NOTE 5. LEASES
Greenlane as a Lessee
As of December 31, 2023, we had facilities financed under operating leases consisting of warehouses, offices, and a retail store, with lease term expirations between 2023 and
2027. Lease terms are generally three to seven years for warehouses, office space and our retail store location. Our lease agreements do not contain any material residual value
guarantees or material restrictive covenants.
During the year ended December 31, 2022, we took steps to reduce our operational footprint and we continue to optimize our distribution network, transitioning to a more
streamlined network with fewer, centrally-located, highly automated facilities. We successfully transferred, subleased or terminated our office leases for our Cypress, CA,
Hermosa Beach, CA, France and China locations. We also successfully transferred, subleased or terminated our retail leases for our Amsterdam, Netherlands, Barcelona, Spain,
and Malibu, California locations.
On November 3, 2022, we entered into that certain Lease Termination Agreement, dated as of October 31, 2022 solely for reference purposes (the “Lease Termination
Agreement”), by and between us and Warland Investments Company (the “Landlord”), which provided for the termination of our lease at 6261 Katella Avenue in Cypress,
California (collectively, the “Lease Termination”). Pursuant to the terms of the Lease Termination Agreement, we agreed to pay a fee of approximately $0.5 million as an early
termination fee in consideration for the Landlord agreeing to terminate all of our remaining obligations under the Cypress lease.
F-19
The following table provides details of our future minimum lease payments under operating lease liabilities recorded in our consolidated balance sheet as of December 31,
2023. The table below does not include commitments that are contingent on events or other factors that are currently uncertain or unknown.
(in thousands)
2024
2025
2026
2027
2028 and thereafter
Total minimum lease payments
Less: imputed interest
Present value of minimum lease payments
Less: current portion
Long-term portion
Operating Leases
914
942
81
—
—
1,937
61
1,876
866
1,010
$
$
$
Rent expense under operating leases was approximately $1.4 million and $3.6 million for the years ended December 31, 2023 and 2022, respectively.
The following expenses related to our operating leases were included in “general and administrative expenses” within our consolidated statements of operations and
comprehensive loss:
(in thousands)
Operating lease cost
Variable lease cost
Total lease cost
The table below presents the terms and discount rates of the Company’s operating leases as of December 31:
Weighted average remaining lease terms
Weighted average discount rate
NOTE 6. DEBT
For the year ended December 31,
2023
2022
$
$
1,613
461
2,074
$
$
2,735
837
3,572
2023
2022
1.9 years
2.2%
2.5 years
2.2%
Our debt balance, excluding operating lease liabilities and finance lease liabilities, consisted of the following amounts at the dates indicated:
(in thousands)
Asset-Based Loan
DaVinci Promissory Note
Eyce Promissory Note
Future Receivables Financing
Secured Bridge Loan
Less unamortized debt issuance costs
Less current portion of debt
Debt, net, excluding operating and finance leases and liabilities
F-20
As of December 31,
2023
2022
—
—
—
2,174
5,109
7,283
—
(7,283)
—
$
$
15,000
2,538
647
—
—
18,185
(1,960)
(3,185)
13,040
$
$
Bridge Loan
In December 2021, we entered into a Secured Promissory Note with Aaron LoCascio, our co-founder, former Chief Executive Officer and President, and a current director of
the Company, in which Mr. LoCascio provided us with a bridge loan in the principal amount of $8.0 million (the “December 2021 Note”). The December 2021 Note accrued
interest at a rate of 15.0% is due monthly, and the principal amount was originally due in full on June 30, 2022. We incurred $0.3 million of debt issuance costs related to the
December 2021 Note, which were recorded as a direct deduction from the carrying amount of the December 2021 Note, and which were amortized over the term of the
December 2021 Note through interest expense. The December 2021 Note was secured by a continuing security interest in all of our assets and properties whether then or
thereafter existing or required, including our inventory and receivables (as defined under the Universal Commercial Code) and included negative covenants restricting our
ability to incur further indebtedness and engage in certain asset dispositions until the earlier of the maturity date or the December 2021 Note being fully repaid.
On June 30, 2022, we entered into the First Amendment to the December 2021 Note (the “First Amendment”), which extended the maturity date of the December 2021 Note to
July 14, 2022. On July 14, 2022, we entered into the Second Amendment to the December 2021 Note (the “Second Amendment” and together with the December 2021 Note,
the “Bridge Loan”), which provided for the extension of the maturity date of the Bridge Loan from July 14, 2022 to July 19, 2022. In connection with the entry into the Second
Amendment, we repaid $4.0 million of the aggregate principal amount due under the Bridge Loan on July 14, 2022, with the remainder due at maturity. On July 19, 2022, we
repaid the remaining balance on the Bridge Loan in full, and, as a result, all obligations under the Bridge Loan have been satisfied.
Real Estate Note
On October 1, 2018, one of the Operating Company’s wholly-owned subsidiaries financed the purchase of a building, which served as our corporate headquarters, through a
real estate term note (the “Real Estate Note”) in the principal amount of $8.5 million. Our obligations under the Real Estate Note were secured by a mortgage on the property.
On August 8, 2022, we entered into a note, mortgage and loan modification agreement (the “Real Estate Note Amendment”), which amended the maturity date of the Real
Estate Note to reflect a maturity date of December 1, 2022, whereupon all principal and accrued interest were to become due and payable, in full.
In September 2022, 1095 Broken Sound consummated the previously disclosed transactions contemplated by that certain Purchase and Sale Agreement, dated as of August 16,
2022, by and between 1095 Broken Sound and ACS 1095 LLC (“the HQ Purchaser”) whereby 1095 Broken Sound agreed to sell a certain parcel of real estate including the our
headquarters building to the HQ Purchaser for total proceeds of $9.6 million in cash. On the Closing Date, the Company used a portion of the proceeds from the HQ
Transaction to repay the remainder of the Real Estate Note in full. There was no remaining balance related to the Real Estate Note on our consolidated balance sheet as of
December 31, 2023 or 2022.
Asset-Based Loan
On August 9, 2022, we entered into an asset-based loan pursuant to that certain Loan and Security Agreement (the “Asset-Based Loan Agreement”), dated as of August 8, 2022,
by and among the Company, certain subsidiaries of the Company (the “Guarantors”), the parties thereto from time to time as lenders (the “Lenders”), and WhiteHawk Capital
Partners LP, as the agent for the Lenders (the “Asset Based Loan” or “Line of Credit”).
Pursuant to the Asset-Based Loan Agreement, the Lenders agreed to make available to us a term loan of up to $15.0 million on the terms and conditions set forth therein and the
other Financing Agreements (as defined therein). As of December 31, 2022, of the total term loan amount, $5.7 million was located in a blocked account, which was classified
as “restricted cash” on our consolidated balance sheet, and which released the funds when permitted by the borrowing base certificate. Subject to certain exceptions described
in the Asset-Based Loan Agreement, the Company and the Guarantors agreed to pledge all of their assets as collateral. The maturity date of the Asset-Based Loan is the third
anniversary of the Closing Date (the “Maturity Date”).
We incurred $1.5 million of debt issuance costs related to the Asset-Based Loan, as well as an original issue discount of $0.5 million, which were recorded as a direct deduction
from the carrying amount of the Asset-Based Loan, and which were amortized through interest expense over the term of the Asset-Based Loan. The Asset-Based Loan
contained customary covenants and restrictions, including, without limitation, covenants that required us to comply with applicable laws, restrictions on our ability to incur
additional indebtedness, and various customary remedies for the lender following an event of default, including the acceleration of repayment of outstanding amounts under the
Asset-Based Loan and execution upon the collateral securing obligations under the Asset-Based Loan.
The Asset-Based Loan accrued interest at the prime rate plus 8.0%, and interest payments were due monthly. Based on the original terms, beginning with the fiscal quarter
ending September 30, 2023, and for each fiscal quarter thereafter until the Maturity Date, quarterly payments of $0.3 million would be due, with a final payment of all
remaining outstanding principal and accrued interest due on the Maturity Date.
On February 9, 2023, we entered into Amendment No. 2 to the Asset-Based Loan Agreement, pursuant to which we agreed to, among other things, to voluntarily prepay
approximately $6.6 million (inclusive of early termination fees and expenses) under the terms provided for under the Asset-Based Loan Agreement and the lenders under the
Asset-Based Loan Agreement agreed to release $5.7 million in funds held in a blocked account pursuant to the terms of the Asset-Based Loan Agreement. Amendment No.2 to
the Asset-Based Loan Agreement also provided that we would make additional prepayments upon the occurrence of certain specified asset sales by the Company.
F-21
On August 7, 2023, we repaid the approximately $4.3 million in aggregate principal amount (the “Loan Repayment”) which remained outstanding under the terms of the Asset-
Based Loan Agreement. As a result of the Loan Repayment, the Company has been released from its obligations under the Asset-Based Loan Agreement, in accordance with
the terms of the Asset-Based Loan Agreement.
DaVinci Promissory Note
In November 2021, one of the Operating Company’s wholly-owned subsidiaries financed the acquisition of DaVinci through the issuance of an unsecured promissory note (the
“DaVinci Promissory Note”) in the principal amount of $5.0 million. Principal payments plus accrued interest at a rate of 4.0% were due quarterly through October 2023.
Eyce Promissory Note
In March 2021, one of the Operating Company’s wholly-owned subsidiaries financed a portion of the consideration of the acquisition of Eyce through the issuance of an
unsecured promissory note (the “Eyce Promissory Note”) in the principal amount of $2.5 million. Principal payments plus accrued interest at a rate of 4.5% are due quarterly
through April 2023. As of December 31, 2023, the Eyce Promissory Note was repaid in full, and there was no remaining balance on our condensed consolidated balance sheet.
Future Receivables Financings
On July 31, 2023 and August 3, 2023, the Company received an aggregate of approximately $3.0 million in cash pursuant to the terms of future receivables financings
(collectively, the “Future Receivables Financings”) entered into with two private lenders. The Company will make weekly payments under the Future Receivables Financings
and is scheduled to repay the amounts due under the Future Receivables Financings in full in approximately six to eight months. The total amount to be repaid under the initial
Future Receivables Financings was approximately $4.5 million. In connection with the Future Receivables Financings, the Company granted the lenders security interests in
Company’s accounts receivable equal to the amounts due thereunder, and in connection with any event of default, the lenders may file financing statements evidencing the
security interests.
Secured Bridge Loan
On September 22, 2023, the Company entered into a secured loan pursuant to a Loan and Security Agreement (the “September 2023 Loan Agreement”), dated as of September
22, 2023 with Synergy Imports, LLC (the “Secured Bridge Loan Lender”).
Pursuant to the September 2023 Loan Agreement, the Secured Bridge Loan Lender agreed to make available to the Company a six-month bridge loan of $2.2 million in new
funds. Additionally, the Secured Bridge Loan Lender agreed to defer payments totaling $2,028,604 already owed by the Company under existing payment obligations and
potentially defer up to an additional $2,655,778 which may become due pursuant to existing agreements during the term of the September 2023 Loan Agreement.
Subject to certain exceptions, the Company agreed to pledge all of its assets, with the exception of deposit accounts and accounts receivable, as collateral. Additionally, the
Company agreed to transfer one US patent and two related foreign patents and a related trademark in exchange for an exclusive license back of such assets in the area of
smoking products and accessories in connection with the September 2023 Loan Agreement.
Future Minimum Principal Payments
The following table summarizes future scheduled minimum principal payments of debt at December 31, 2023. Future debt principal payments are presented based upon the
stated maturity dates in the respective debt agreement.
(in thousands)
Asset-Based Loan
DaVinci Promissory Note
Eyce Promissory Note
Future Receivables Financing
Secured Bridge Loan
Total
NOTE 7. COMMITMENTS AND CONTINGENCIES
Legal Proceedings
Year Ending December 31,
2024
2025
2026
2027
2028
Total
$
$
—
—
—
2,174
5,109
7,283
$
$
—
—
—
—
—
—
$
$
—
—
—
—
—
—
$
$
—
—
—
—
—
—
$
$
—
—
—
—
—
—
$
$
—
—
—
2,174
5,109
7,283
In the ordinary course of business, we are involved in various legal proceedings involving a variety of matters. We do not believe there are any pending legal proceedings that
will have a material adverse effect on our business, consolidated financial position, results of operations, or cash flows. However, the outcome of such legal matters is
inherently unpredictable and subject to significant uncertainties. We have not taken any reserves for litigation for the year ended December 31, 2023.
F-22
Other Contingencies
We are potentially subject to claims related to various non-income taxes (such as sales, value added, consumption, and similar taxes) from various tax authorities, including in
jurisdictions in which we already collect and remit such taxes. If the relevant taxing authorities were successfully to pursue these claims, we could be subject to significant
additional tax liabilities.]
See “Note 5—Leases” for details of our future minimum lease payments under operating lease liabilities. See “Note 11—Incomes Taxes” for information regarding income tax
contingencies.
NOTE 8. SUPPLEMENTAL FINANCIAL STATEMENT INFORMATION
ERC Sale
As of December 31, 2022, we had recorded an Employee Retention Credit (“ERC”) receivable of $4.9 million within “Other current assets” on our consolidated balance sheets,
and a corresponding amount was included in “Other income (expense), net” in our consolidated statement of operations and comprehensive loss for the year ended December
31, 2022. On February 16, 2023, two of Greenlane Holdings, Inc.’s subsidiaries, Warehouse Goods LLC and Kim International LLC (collectively, the “Company”), entered into
an agreement with a third-party institutional investor pursuant to which the investor purchased, for approximately $4.9 million in cash, an economic participation interest, at a
discount, in all of the Company’s rights to payment from the United States Internal Revenue Service with respect to the employee retention credits filed by the Company under
the ERC program.
Property and Equipment, net
The following is a summary of our property and equipment, at costs less accumulated depreciation and amortization:
(in thousands)
Furniture, equipment and software
Personal property
Leasehold improvements
Building
Land
Land improvements
Work in process
Less: accumulated depreciation
Property and equipment, net
Estimated useful life
3 - 7 years
5 years
Lesser of lease term or 5 years
39 years
15 years
$
$
As of December 31,
2023
2022
8,570
—
51
—
—
—
411
9,032
6,556
2,476
$
$
7,492
—
104
—
—
—
679
8,275
4,313
3,962
Depreciation expense for property and equipment for the years ended December 31, 2023 and 2022 was approximately $2.2 million and $3.3 million, respectively.
F-23
Intangible Assets, Net
Identified intangible assets consisted of the following at the dates indicated below:
Gross carrying
amount
Accumulated
amortization
Impairment Charge
Carrying value
Estimated useful life
As of December 31, 2022
Design libraries
Trademarks and
tradenames
Customer relationships
Other intangibles
Total finite-lived
intangibles
Trademarks
Total indefinite-lived
intangibles
$
$
8,710
$
6,915
43,628
753
60,006
29,500
(in thousands)
$
(1,010)
(7,700)
$
(3,361)
(4,666)
(275)
(9,312)
—
(3,554)
(38,962)
(478)
(50,694)
(29,500)
29,500
89,506
$
—
(9,312)
$
(29,500)
(80,194)
$
7-15 years
5-15 years
5-15 years
5-15 years
Indefinite
—
—
—
—
—
—
—
—
We evaluated goodwill and indefinite-lived intangible assets for impairment annually during the fourth quarter of each year and at interim dates if indicators of impairment
exist. Due to declines in the Company’s stock price as well as changes to our estimates and assumptions of the expected future cash flows, management concluded that a
triggering event occurred in the third quarter of 2022, based upon which we recorded an impairment charge related to our indefinite-lived intangible assets of $24.9 million.
During the fourth quarter of 2022, we further concluded that the remaining $4.6 million balance of indefinite-lived intangibles was impaired. Based upon these assessments, we
recorded a total impairment charge related to indefinite-lived intangibles of $29.5 million for the year ended December 31, 2022. We also recorded an impairment charge
related to our goodwill balance, as described further below.
We did not acquire any additional intangible assets during the years ended December 31, 2023 and 2022. .
Amortization expense for intangible assets was approximately $0 million and $4.4 million for the years ended December 31, 2023 and 2022, respectively.
Goodwill
We evaluated goodwill and indefinite-lived intangible assets for impairment annually during the fourth quarter of each year and at interim dates if indicators of impairment
exist. Goodwill was assessed for impairment at the reporting unit level. Due to declines in the Company’s stock price as well as changes to our estimates and assumptions of the
expected future cash flows of our Consumer Goods and Industrial Goods reporting units, management concluded that a triggering event occurred in the third quarter of 2022,
requiring a quantitative impairment test of our goodwill for both of our reporting units. Based on this assessment, we concluded that the fair value of each of our two reporting
units was below their respective carrying value, and goodwill was fully impaired for both reporting units during the year ended December 31, 2022.
Other Current Assets
The following table summarizes the composition of other current assets as of the dates indicated:
(in thousands)
Other current assets:
Employee retention credit (ERC) receivable
VAT refund receivable (Note 2)
Prepaid expenses
Indemnification receivable, net
Customs bonds
Other
As of December 31,
2023
2022
$
$
—
78
1,207
7
1,229
798
3,319
$
$
4,854
143
1,293
736
1,378
2,716
11,120
F-24
Accrued Expenses and Other Current Liabilities
The following table summarizes the composition of accrued expenses and other current liabilities as of the dates indicated:
(in thousands)
Accrued expenses and other current liabilities:
VAT payable (including amounts related to VAT matter described in Note 2)
Contingent consideration
Accrued employee compensation
Amended Eyce APA
Accrued expenses
Refund liability (including accounts receivable credit balances)
Accrued construction in progress (ERP)
Sales tax payable
Other
Customer Deposits
As of December 31,
2023
2022
313
1,000
861
—
499
68
—
315
—
3,056
$
$
2,809
2,738
3,812
430
818
329
170
578
198
11,882
$
$
For certain product offerings, we may receive a deposit from the customer (generally 25% - 50% of the total order cost, but the amount can vary by customer contract), when an
order is placed by a customer. We typically complete orders related to customer deposits within one to six months from the date of order, depending on the complexity of the
customization and the size of the order, but the order completion timeline can vary by product type and terms of sale with each customer. Changes in our customer deposits
liability balance during the year ended December 31, 2023 and 2022, respectively, were as follows:
(in thousands)
Balance as of December 31, 2021
Increases due to deposits received, net of other adjustments
Revenue recognized
Balance as of December 31, 2022
Increases due to deposits received, net of other adjustments
Customer Overpayments
Revenue recognized
Balance as of December 31, 2023
Accumulated Other Comprehensive Income (Loss)
The components of accumulated other comprehensive income (loss) for the periods presented were as follows:
(in thousands)
Balance at December 31, 2021
Other comprehensive income (loss)
Less: Reclassification adjustment for (gain) loss included in net loss (Note 4)
Less: Other comprehensive (income) loss attributable to non-controlling
interest
Balance at December 31, 2022
Other comprehensive income (loss)
Less: Other comprehensive (income) loss attributable to non-controlling
interest
Balance at December 31, 2023
Supplier Concentration
$
$
$
Foreign Currency
Translation
Unrealized Gain or
(Loss) on Derivative
Instrument
282
(211)
—
(16)
55
190
—
245
$
$
$
42
358
(332)
(68)
—
—
—
—
Customer Deposits
7,924
12,016
(15,957)
3,983
4,191
220
(5,619)
2,775
324
147
(332)
139
55
190
—
245
Total
$
$
$
$
$
$
Our four largest vendors accounted for an aggregate of approximately 25.3% and 57.4% of our total purchases for the years ended December 31, 2023 and 2022, respectively
We expect to maintain our relationships with these vendors.
F-25
Related Party Transactions
Nicholas Kovacevich, our former Chief Corporate Development Officer owns capital stock of Blum Holdings Inc. (“Blum”) and serves on the Blum board of directors. Net
sales to Blum totaled approximately $0.4 million for the ended December 31, 2022. Total accounts receivable due from Blum were approximately $0.4 million as of December
31, 2023 and 2022, respectively. On February 8, 2023, we filed a lawsuit against Blum in Superior Court of California, Orange County, seeking to compel the repayment of
Blum’s open balance due to us. As of the date of these financial statements were available to be issued, there has been a judgement received in favor of the Company.
Three individuals who were employees of the Company at the time are principals in Synergy Imports, LLC the Lender on the Secured Bridge Loan taken out on September 22,
2023, however, none are executive officers or directors of the Company.
Adam Schoenfeld, co-founder and a former director of the Company, has a significant ownership interest in one of our customers, Universal Growing. Net sales to Universal
Growing were approximately less than $0.1 million for the year ended December 31, 2022. Total gross accounts receivable due from Universal Growing as of December 31,
2023 and 2022 were de minimis.
In December 2021, we entered into a Secured Promissory Note with Aaron LoCascio, our co-founder, former Chief Executive Officer and President, and a current director of
the Company, with respect to the $8.0 million Bridge Loan. On June 30, 2022, we entered into the First Amendment to the Secured Promissory Note, which provided for the
extension of the maturity date of the Secured Promissory Note from June 30, 2022 to July 14, 2022. On July 19, 2022, we fully repaid the Bridge Loan and as a result, all
obligations under the Bridge Loan have been satisfied.
On July 19, 2022, Warehouse Goods entered into a Membership Interest Purchase Agreement and supporting documents (collectively, the “Sale Agreement”) with Portofino
Partners LLC (“Portofino”) to sell the Company’s 50% stake in VIBES Holdings LLC for total consideration of $4.6 million in cash. The transactions contemplated by the Sale
Agreement were completed on July 19, 2022, immediately following the signing of the Sale Agreement. Portofino is an entity partially controlled by Adam Schoenfeld. The
Sale Agreement was approved by the affirmative vote of a majority of the disinterested members of the Board and the audit committee of the Board in accordance with the
Company’s related party transactions policy. In addition, $2.4 million was transferred to Portofino.
Renah Persofsky, a director of the Company, is a member of the board of directors of Tilray Brands, Inc. (“Tilray”). Net sales to Tilray totaled approximately $2.2 million, for
the year ended December 31, 2022, respectively.
NOTE 9. STOCKHOLDERS’ EQUITY
Shares of our Class A common stock have both voting interests and economic interests (i.e., the right to receive distributions or dividends, whether cash or stock, and proceeds
upon dissolution, winding up or liquidation), while shares of our Class B common stock have voting interests but no economic interests. Each share of our Class A common
stock and Class B common stock entitles the record holder thereof to one vote on all matters on which stockholders generally are entitled to vote, and except as otherwise
required in the A&R Charter, the holders of Common Stock will vote together as a single class on all matters (or, if any holders of our preferred stock are entitled to vote
together with the holders of Common Stock, as a single class with such holders of preferred stock).
Effective August 9, 2022, we completed a one-for-twenty reverse stock split (the “2022 Reverse Stock Split”) of our issued and outstanding shares of Class A common stock
and Class B common stock (collectively, the “Common Stock”), as further described in “Note 2 - Summary of Significant Accounting Policies.” As a result of the 2022 Reverse
Stock Split, every 20 shares of Common Stock issued and outstanding were converted into one share of Common Stock. We paid cash in lieu of fractional shares, and
accordingly, no fractional shares were issued in connection with the 2022 Reverse Stock Split.
Effective June 5, 2023, we completed a one-for-10 reverse stock split (the “2023 Reverse Stock Split” and together with the 2022 Reverse Stock Split, the “Reverse Stock
Splits”) of our issued and outstanding shares of Common Stock, as further described in “Note 2 - Summary of Significant Accounting Policies.” As a result of the 2023 Reverse
Stock Split, every 10 shares of Common Stock issued and outstanding were converted into one share of Common Stock. We paid cash in lieu of fractional shares, and
accordingly, no fractional shares were issued in connection with the 2023 Reverse Stock Split.
The Reverse Stock Splits did not change the par value of the Common Stock or the authorized number of shares of Common Stock. All share and per share amounts in these
unaudited condensed consolidated financial statements and notes thereto have been retroactively adjusted for all periods presented to give effect to the Reverse Stock Split,
including reclassifying an amount equal to the reduction in par value of Common Stock to additional paid-in capital.
F-26
Non-Controlling Interest
As discussed in “Note 1—Business Operations and Organization,” we consolidate the financial results of the Operating Company in our consolidated financial statements and
report a non-controlling interest related to the Common Units held by non-controlling interest holders. As of December 31, 2022, all Common Units of the Operating Company
and Class B common stock had been exchanged for Class A common stock, and we owned 100.0% of the economic interests in the Operating Company. The non-controlling
interest in the accompanying consolidated statements of operations and comprehensive loss represents the portion of the net loss attributable to the economic interest in the
Operating Company previously held by the non-controlling holders of Common Units calculated based on the weighted average non-controlling interests’ ownership during the
periods presented.
At-the-Market Equity Offering
In August 2021, we established an “at-the-market” equity offering program (the “ATM Program”) that provided for the sale of shares of our Class A common stock having an
aggregate offering price of up to $50 million, from time to time, through Cowen and Company, LLC (“Cowen”), as the sales agent.
Sales of our Class A common stock under the ATM Program were made by means of transactions that are deemed to be an “at the market offering” as defined in Rule 415(a)(4)
under the Securities Act, including sales made directly on the Nasdaq Capital Market or sales made to or through a market maker or through an electronic communications
network.
Shares of our Class A common stock were issued pursuant to our shelf registration statement on Form S-3 (File No. 333-257654), and a prospectus supplement relating to the
Class A common stock that was filed with the Securities and Exchange Commission on April 18, 2022.
On April 18, 2022, we entered into Amendment No. 1 (the “ATM Amendment”) to the sales agreement dated August 2, 2022 with Cowen. The purpose of the Amendment was
to add the limitations imposed on the ATM Program by Instruction I.B.6 to the sales agreement. At the time of our entry into the ATM Amendment, approximately $37.3 million
in shares remained available for issuance under the ATM Program.
Due to the untimely filing of certain of our Quarterly and Annual Reports, we are unable to issue additional shares of Class A common stock pursuant to the ATM Program or
otherwise use the Shelf Registration Statement, which will limit our liquidity options in the capital markets.
The table below summarizes sales of our Class A common stock under the ATM program:
($ in thousands)
Class A shares sold*
Gross proceeds
Fees paid to sales agent
Net proceeds
*After giving effect to the Reverse Stock Splits.
Common Stock and Warrant Offerings
June 2022 Offering
August 2021 (Inception)
through
December 31, 2023
$
$
$
97,262
12,684
381
12,303
On June 27, 2022, we entered into a securities purchase agreement with an accredited investor, pursuant to which we agreed to issue and sell an aggregate of 585,000 shares of
our Class A common stock, pre-funded warrants to purchase up to 495,000 shares of our Class A common stock (the “June 2022 Pre-Funded Warrants”) and warrants to
purchase up to 1,080,000 shares of our Class A common stock (the “June 2022 Standard Warrants” and, together with the June 2022 Pre-Funded Warrants, the “June 2022
Warrants”), in a registered direct offering (the “June 2022 Offering”). The shares of Class A common stock and June 2022 Warrants were sold in Units (the “June 2022 Units”),
with each unit consisting of one share of Class A common stock or a June 2022 Pre-Funded Warrant and a June 2022 Standard Warrant to purchase one share of our Class A
common stock. The June 2022 Units were offered pursuant to the Shelf Registration Statement. The June 2022 Standard Warrants are exercisable six months from the date of
issuance at an exercise price equal to $5.00 per share of Class A common stock for a period of five years. Each June 2022 Pre-Funded Warrant was exercisable immediately
with no expiration date for one share of Class A common stock at an exercise price of $0.002. The June 2022 Offering generated gross proceeds of approximately $5.4 million
and net proceeds to the Company of approximately $5.0 million.
F-27
All June 2022 Pre-Funded Warrants were exercised in July 2022, based upon which we issued an additional 495,000 shares of our Class A common stock, for de minimis net
proceeds.
October 2022 Offering
On October 27, 2022, we entered into securities purchase agreements with certain investors, pursuant to which we agreed to issue and sell an aggregate of 695,555 shares of our
Class A common stock, pre-funded warrants to purchase up to 137,778 shares of our Class A common stock (the “October 2022 Pre-Funded Warrants”) and warrants to
purchase up to 1,666,667 shares of our Class A common stock (the “October 2022 Standard Warrants”). The October 2022 units each consisted of one share of Class A common
stock or a October 2022 Pre-Funded Warrant and two October 2022 Standard Warrants to purchase one share of our Class A common stock. The October 2022 units were
offered pursuant to the S-1 Registration Statement. The October 2022 Standard Warrants are exercisable immediately at an exercise price equal to $0.90 per share of Class A
common stock for a period of seven years. Each October 2022 Pre-Funded Warrant is exercisable immediately with no expiration date for one share of Class A common stock
at an exercise price of $0.0001. The October 2022 Offering generated gross proceeds of approximately $7.5 million and net proceeds to the Company of approximately $6.8
million.
All October 2022 Pre-Funded Warrants were exercised in November 2022, based upon which we issued an additional 137,778 shares of our Class A common stock, for de
minimis net proceeds.
July 2023 Offering
On June 29, 2023, we entered into securities purchase agreements with certain investors, pursuant to which we agreed to issue and sell an aggregate of 560,476 shares of our
Class A common stock, pre-funded warrants to purchase up to 3,487,143 shares of our Class A common stock (the “July 2023 Pre-Funded Warrants”) and warrants to purchase
up to 8,095,238 shares of our Class A common stock (the “July 2023 Standard Warrants”). The July 2023 units each consisted of one share of Class A common stock or a July
2023 Pre-Funded Warrant and two July 2023 Standard Warrants to purchase one share of our Class A common stock. The July 2023 units were offered pursuant to an effective
Registration Statement on Form S-1. The July 2023 Standard Warrants are exercisable immediately at an exercise price equal to $1.05 per share of Class A common stock for a
period of five years. Each July 2023 Pre-Funded Warrant is exercisable immediately with no expiration date for one share of Class A common stock at an exercise price of
$0.0001. The July 2023 Offering generated gross proceeds of approximately $4.3 million and net proceeds to the Company of approximately $3.9 million.
As of the date of this Annual Report on Form 10-K, all July 2023 Pre-Funded Warrants have been exercised, based upon which we issued an additional 1,911,000 shares of our
Class A common stock subsequent to year end, for de minimis net proceeds.
In connection with the July 2023 Offering, the Company entered into privately negotiated agreements with holders participating in the offering to amend existing outstanding
warrants to purchase up to 1,344,367 shares of Class A common stock that were previously issued in connection with the June 2022 and October 2022 Offerings at exercise
prices per share of $50.00 and $9.00, respectively, and expire on December 29, 2027 and November 1, 2029, respectively (collectively, the “Prior Warrants”), effective upon the
closing of the July 2023 Offering to reduce the exercise price of the Prior Warrants to $1.05, the exercise price of the warrants to purchase shares of Class A common stock
offered in the July 2023 Offering. All other terms of the Prior Warrants remained unchanged.
Net Loss Per Share
Basic net loss per share of Class A common stock is computed by dividing net loss attributable to Greenlane by the weighted-average number of shares of Class A common
stock outstanding during the period. Diluted net loss per share of Class A common stock is computed by dividing net loss attributable to Greenlane by the weighted-average
number of shares of Class A common stock outstanding adjusted to give effect to potentially dilutive elements.
F-28
A reconciliation of the numerator and denominator used in the calculation of basic and diluted net loss per share of our Class A common stock is as follows (in thousands,
except per share amounts):
(in thousands, except per share data)
Numerator:
Net loss
Less: Net loss attributable to non-controlling interests
Plus: Deemed Dividend on “October 2022 Standard Warrants”
Net loss attributable to Class A common stockholders
Denominator:
Weighted average shares of Class A common stock outstanding*
Net loss per share of Class A common stock - basic and diluted*
*After giving effect to the Reverse Stock Splits.
For the year ended December 31,
2022
2023
$
$
$
(32,325)
150
(388)
(32,563)
3,993
(8.16)
$
$
$
(182,226)
(12,717)
-
(169,509)
753
(22.51)
The July 2023 Pre-Funded Warrants were included in the weighted-average in the computation of basic net loss per share of Class A common stock for the year ended
December 31, 2023, beginning with their issuance date, as their stated exercise price of $0.001 was non-substantive and their exercise was virtually assured.
On June 29, 2023 in connection with the July 2023 Offering, the Company entered into agreements with holders participating in the offering to amend existing outstanding
warrants to purchase up to 1,344,367 shares of Class A common stock that were previously issued in November 2022 at an exercise price per share of $9.00. The warrants
expire on November 1, 2029. In connection with the amendment, the exercise price of the warrants was reduced to $1.05. The impact of the amendment resulted in a deemed
dividend in the amount of $0.4 million. The deemed dividend was calculated by the change in fair value.
For the years ended December 31, 2023 and 2022, respectively, shares of Class B common stock and stock options and warrants to purchase Class A common stock were
excluded from the weighted-average in the computation of diluted net loss per share of Class A common stock because the effect would have been anti-dilutive.
Shares of our Class B common stock do not share in our earnings or losses and are therefore not participating securities. As such, separate calculations of basic and diluted net
loss per share for each of our Class B common stock under the two-class method have not been presented for the years ended December 31, 2023 and 2022, all Common Units
of the Operating Company and Class B common stock had been exchanged for Class A common stock, and we owned 100.0% of the economic interests in the Operating
Company as of December 31, 2023 and 2022.
NOTE 10. COMPENSATION PLANS
Amended and Restated 2019 Equity Incentive Plan
In April 2019, we adopted the 2019 Equity Incentive Plan (the “2019 Plan”). In August 2021, we adopted, and our shareholders approved, the Amended and Restated 2019
Equity Incentive Plan (the “Amended 2019 Plan”), which amends and restates the 2019 Plan in its entirety. At our 2022 Annual Meeting of Stockholders on August 4, 2022,
stockholders approved the Second Amended and Restated 2019 Equity Incentive Plan (the “Second Amended 2019 Plan”) which, among other things, increased the number of
shares of Class A common stock authorized for issuance under the Amended 2019 Plan. Following the effect of the Reverse Stock Splits, the total number of shares of Class A
common stock authorized for issuance is 110,000 shares as of December 31, 2023.
The Second Amended 2019 Plan provides eligible participants with compensation opportunities in the form of cash and equity incentive awards. The Second Amended 2019
Plan is designed to enhance our ability to attract, retain and motivate our employees, directors, and executive officers, and incentivizes them to increase our long-term growth
and equity value in alignment with the interests of our stockholders.
On June 2, 2023, the Company’s stockholders approved a third amendment and restatement of the 2019 Plan (the “Third Amended Plan”). The Third Amended Plan, among
other things, increases the number of shares of Class A common stock authorized for issuance under the Second Amended 2019 Plan by 209,862 shares to an aggregate of
319,862 shares. As of the date of this Annual Report on Form 10-K, we have not filed a Registration Statement on Form S-8 with the Securities and Exchange Commission to
register the additional shares authorized under the Third Amended Plan.
F-29
Equity-Based Compensation Expense
Equity-based compensation expense is included within “salaries, benefits and payroll taxes” in our consolidated statements of operations and comprehensive loss. We
recognized equity-based compensation expense as follows:
(in thousands)
Stock options - Class A common stock
Restricted shares - Class A common stock
Restricted stock units (RSUs) - Class A common stock
Total equity-based compensation expense
For the year ended December 31,
2022
2023
36
37
—
73
$
$
1,098
517
11
1,626
$
$
During the year ended December 31, 2022, we granted an aggregate of 129,106 options to our directors and certain employees. The stock options were granted with exercise
prices ranging from $2.52 per share to $20.00 per share, and vesting periods ranging from three months to four years. There were no options granted during the year ended
December 31, 2023.
Total remaining unrecognized compensation expense as of December 31, 2023 was as follows:
Stock options - Class A common stock
Restricted shares - Class A common stock
Total remaining unrecognized compensation expense
Weighted Average
Period over which
Remaining
Unrecognized
Compensation Expense
is Expected to be
Recognized
(in years)
0
0.85
Remaining
Unrecognized
Compensation Expense
December 31, 2023
(in thousands)
$
$
—
19
19
The fair value of the stock option awards granted during the year ended December 31, 2022 was determined on the grant date using the Black-Scholes valuation model based
on the following ranges of weighted-average assumptions:
Expected volatility (1)
Expected dividend yield (2)
Expected term (3)
Risk-free interest rate (4)
100% - 100%
—
5.88 - 6.05 years
1.62% - 3.31%
(1)Expected volatility is based on the historical volatility of a selected peer group over a period equivalent to the expected term.
(2)We assumed a dividend yield of zero as management has no plans to declare dividends in the foreseeable future.
(3)Expected term represents the estimated period of time until an award is exercised and was determined using the simplified method.
(4)The risk-free rate is an interpolation of yields on U.S. Treasury securities with maturities equivalent to the expected term.
A summary of stock option activity for the years ended December 31, 2023 and 2022 is as follows:
Outstanding as of December 31, 2021
Granted
Exercised
Forfeited
Outstanding as of December 31, 2022
Granted
Exercised
Forfeited
Outstanding as of December 31, 2023
Stock Options
Number of Options
Weighted-Average
Exercise Price
265,947
129,106
—
(167,201)
227,852
—
—
(83,044)
144,808
$
$
$
71.80
9.34
—
17.59
58.88
—
—
—
57.64
The weighted-average grant date fair value of options granted for the year ended December 31, 2022 was $9.34. The total fair value of stock options vested during the years
ended December 31, 2023 and 2022 was approximately $0.1 million and $2.1 million, respectively.
F-30
401(k) Plan
Our 401(k) Plan is a deferred salary arrangement under Section 401(k) of the Internal Revenue Code. Under the 401(k) Plan, participating U.S. employees may defer a portion
of their pre-tax earnings, up to the U.S. Internal Revenue Service annual contribution limit ($23,000 for calendar year 2023). Participants are eligible to receive a matching
contribution from us of 100% of the first 3% and 50% of the next 2% of contributions. Matching contributions, other than safe-harbor contributions, vest 33% per year and are
100% vested after three years of service. Safe-harbor matching contributions are 100% vested as of the date of the contribution.
NOTE 11. INCOME TAXES
As a result of the IPO and the related transactions completed in April 2019, we owned a portion of the Common Units of the Operating Company, which is treated as a
partnership for U.S. federal and most applicable state and local income tax purposes. As a partnership, the Operating Company was generally not subject to U.S. federal and
certain state and local income taxes. Any taxable income or loss generated by the Operating Company was passed through to and included in the taxable income or loss of its
members, including Greenlane, on a pro-rata basis, in accordance with the terms of the Operating Agreement. The Operating Company was also subject to taxes in foreign
jurisdictions. We are a corporation subject to U.S. federal income taxes, in addition to state and local income taxes, based on our share of the Operating Company’s pass-
through taxable income.
Effective on December 31, 2022, the Operating Company became wholly owned by us. As a result, the Operating Company’s tax status was converted from a partnership to a
disregarded entity. Starting in 2023, 100% of the Operating Company’s U.S. income and expenses will be included in our US and state tax returns.
The Company’s United States and foreign operations components of income (loss) from continuing operations before income taxes are as follows:
(in thousands)
United States
Foreign
Total
Income Tax Expense
For the year ended December 31,
2022
2023
$
$
$
(30,325)
(2,000)
(32,325)
$
$
$
(172,997)
(9,242)
(182,239)
The income tax (benefit) expense for the years ended December 31, 2023 and 2022 consisted of the following:
(in thousands)
Current tax (benefit) expense
Current year
Total current year
Deferred tax (benefit) expense
Current year
Change in valuation allowance
Change in tax rate
Tax conversion of Operating Company
Up-C consolidation
KushCo merger or true ups
Total deferred tax (benefit) expense
Income tax (benefit) expense
For the year ended December 31, 2023
For the year ended December 31, 2022
Federal
Foreign
State
Total
Federal
Foreign
State
Total
$
$
$
—
—
$
—
—
$
—
—
$
—
—
$
—
—
$
(13)
(13)
$
—
—
(13)
(13)
(5,991)
5,743
—
—
—
248
—
—
$
(500)
500
—
—
—
—
—
—
(1,798)
1,219
780
—
—
(201)
—
—
(8,289)
7,462
780
—
—
47
—
—
(31,475)
36,867
72
2,990
(10,097)
1,643
—
—
$
$
$
$
(2,311)
2,311
—
—
—
—
—
(13)
(10,368)
13,523
(344)
1,022
(3,440)
(393)
—
—
$
(44,154)
52,701
(272)
4,012
(13,537)
1,250
—
(13)
$
F-31
A reconciliation of the income tax (benefit) expense computed at the U.S. federal statutory income tax rate to the income tax expense recognized is as follows:
(in thousands)
Expected federal income tax (benefit) expense at statutory rate
State tax expense, net of federal benefit
Loss attributable to non-controlling interests
Change in valuation allowance
Tax conversion of Operating Company
Up-C consolidation
KushCo merger
Change in tax rates
Prior year true-ups
Other, net
Income tax (benefit) expense
Deferred Tax Assets and Liabilities
The components of deferred tax assets and liabilities were as follows:
(in thousands)
Deferred tax assets:
Goodwill and other intangible assets
Fixed assets
Inventory
Allowance for doubtful accounts
Operating lease liability
Equity-based compensation
Business interest carryforward
Net operating loss carryforwards
Other
Total deferred tax assets
Valuation allowance
Net deferred tax assets
Deferred tax liability:
Right of use assets
Basis difference in investment in the Operating Company
Total deferred tax liabilities
Net deferred tax assets and liabilities
For the year ended December 31,
2022
2023
$
(6,788)
(1,605)
4
7,462
—
—
—
227
700
—
$
As of December 31,
2023
2022
$
36,018
943
2,854
833
164
2,576
6,897
67,667
411
118,363
(118,262)
101
(101)
—
(101)
—
$
(38,270)
(8,688)
2,121
52,701
4,012
(13,537)
1,250
—
—
398
(13)
36,841
1,590
5,858
833
862
2,576
5,342
57,136
576
111,614
(110,799)
815
(815)
—
(815)
—
$
$
$
$
We had approximately $240.2 million of Federal net operating loss carryforwards, of which approximately $9.8 million expire in 2038, and the remainder are not subject to
expiration. Their utilization is limited to 80% of our future taxable income. We also had approximately $235.0 of State net operating loss carryforwards that begin expiring in
2038, $14.9 million of Dutch net operating loss carryforwards that begin expiring in 2029, and $0.2 million Canadian net operating loss carryforwards that begin expiring in
2026. Their utilization is limited to our future taxable income. We have not completed our evaluation of NOL utilization limitations under Internal Revenue Code, as amended
(the “Code”) Section 382, change in ownership rules. Due to the fact that there is a full valuation allowance and losses being generated in the current year, any limitation based
on the code would not have a material impact on the net deferred tax asset balance. In addition, the deduction for business interest is limited to 30 percent of taxable income
(the “Section 163(j) limitation”). The interest that is not deductible due this limitation is carried forward to subsequent years and subject to the next years Section 163(j)
limitation. At December 31, 2023 we had $26.2 million of business interest carryforwards, which includes $17.6 million from the KushCo merger. The utilization of the
business interest carryforward from the KushCo merger may be further limited by the application of the Section 382 rules.
F-32
During the years ended December 31, 2023 and 2022, respectively, management performed an assessment of the realizability of our deferred tax assets based upon which
management determined that it is not more likely than not that the results of operations will generate sufficient taxable income to realize portions of the net operating loss
benefits. Consequently, we established a full valuation allowance against our deferred tax assets and reflected a carrying balance of $0 as of December 31, 2023 and 2022,
respectively. In the event that management determines that we would be able to realize our deferred tax assets in the future in excess of their net recorded amount, an
adjustment to the valuation allowance will be made, which would reduce the provision for income taxes.
We do not record U.S. income taxes on the undistributed earnings of our foreign subsidiaries, except for the Canadian subsidiary, based upon our intention to permanently
reinvest undistributed earnings into working capital and further expansion of existing operations outside the United States. In the event we are required to repatriate funds from
outside of the United States, such repatriation would be subject to local laws, customs, and tax consequences.
Uncertain Tax Positions
For the year ended December 31, 2023 and 2022, we did not have any unrecognized tax benefits as a result of tax positions taken during a prior period or during the current
period. No interest or penalties have been recorded as a result of tax uncertainties. The Company is subject to audit examination for federal and state purposes for the years
2019 – 2023. As of the date these financial statements were issued, there were not any ongoing income tax audits.
Tax Receivable Agreement (TRA)
We entered into the TRA with the Operating Company and each of the members that provides for the payment by the Operating Company to the members of 85% of the
amount of tax benefits, if any, that we may actually realize (or in some circumstances are deemed to realize) as a result of (i) increases in tax basis resulting from any future
redemptions of Common Units as described in “Note 1—Business Operations and Organization” and (ii) certain other tax benefits attributable to payments made under the
TRA.
The annual tax benefits are computed by calculating the income taxes due, including such tax benefits, and the income taxes due without such benefits. The Operating
Company expects to benefit from the remaining 15% of any tax benefits that it may actually realize. The TRA payments are not conditioned upon any continued ownership
interest in the Operating Company. The rights of each noncontrolling interest holder under the TRA are assignable to transferees of its interest in the Operating Company. The
timing and amount of aggregate payments due under the TRA may vary based on a number of factors, including the amount and timing of the taxable income the Operating
Company generates each year and the applicable tax rate.
As noted above, we evaluated the realizability of the deferred tax assets resulting from the IPO and the related transactions completed in April 2019 and established a full
valuation allowance against those benefits. As a result, we determined that the amount or timing of payments to noncontrolling interest holders under the TRA are no longer
probable or reasonably estimable. Based on this assessment, our TRA liability was $0 as of December 31, 2023 and 2022.
If utilization of the deferred tax assets subject to the TRA becomes more likely than not in the future, we will record a liability related to the TRA, which would be recognized
as expense within our consolidated statements of operations and comprehensive (loss) income.
During the years ended December 31, 2023 and 2022, we did not make any payments, inclusive of interest, to members of the Operating Company pursuant to the TRA.
NOTE 12. SEGMENT REPORTING
We define our segments as those operations whose results are regularly reviewed by our CODM to analyze performance and allocate resources. Therefore, segment information
is prepared on the same basis that management reviews financial information for operational decision-making purposes. Our CODM is a committee comprised of our CEO and
our CFO.
We determined we had two operating segments as of December 31, 2023, which are the same as our reportable segments: (1) Consumer Goods, and (2) Industrial Goods. These
operating segments align with how we manage our business as of the fourth quarter of 2023. The accounting policies of the reportable segments are the same as those described
in “Note 2 - Summary of Significant Accounting Policies.”
The Consumer Goods segment focuses on serving consumers across wholesale, retail and e-commerce operations—through both our proprietary Greenlane Brands, including
Eyce, DaVinci, Groove, Marley Natural, Keith Haring, and Higher Standards, as well as lifestyle products and accessories from leading brands, such as Storz and Bickel, PAX,
and many more. The Consumer Goods segment forms a central part of our growth strategy, especially as it relates to scaling our own portfolio of higher-margin Greenlane
Brands.
The Industrial Goods segment focuses on serving the premier brands, operators, and retailers through our wholesale operations by providing ancillary products essential to their
growth, such as customizable packaging and supply products, which includes our vaporization solutions offering including CCELL branded products.
F-33
Our CODM allocates resources to and assesses the performance of our two operating segments based on the operating segments’ net sales and gross profit. The following table
sets forth information by reportable segment for the years ended December 31, 2023 and 2022. There were no material intersegment sales during the years ended December 31,
2023 and 2022.
(in thousands)
Net sales
Cost of sales
Gross profit
For the Year Ended December 31, 2023
Industrial
Goods
Consumer
Goods
Total
For the Year Ended December 31, 2022
Industrial
Goods
Consumer
Goods
$
$
28,737
18,754
9,983
$
$
36,636
28,793
7,843
$
$
65,373
47,547
17,826
$
$
48,134
38,531
9,603
$
$
88,951
73,571
15,380
$
$
Total
137,085
112,102
24,983
The following table sets forth specific asset categories which are reviewed by our CODM in the evaluation of operating segments:
As of December 31, 2023
Industrial
Goods
Consumer
Goods
Total
As of December 31, 2022
Industrial
Goods
Consumer
Goods
$
$
$
642
8,881
1,958
$
$
$
1,051
11,648
1,807
$
$
$
1,693
20,529
3,765
$
$
$
967
19,259
3,269
$
$
$
5,501
21,384
3,027
$
$
$
Total
6,468
40,643
6,296
(in thousands)
Accounts receivable, net
Inventories, net
Vendor deposits
The following table sets forth our net sales by major product category:
(in thousands)
Industrial Vape Products
Other Industrial Products
Consumer Products - Greenlane Brands
Consumer Products - 3rd Party Brands
Total net sales
The following table sets forth net sales disaggregated by geography:
(in thousands)
United States
Canada
Europe
Total net sales
For the year ended December 31,
2022
2023
26,803
8,733
5,072
24,765
65,373
$
$
For the year ended December 31,
2022
2023
58,539
1,291
5,543
65,373
$
$
$
$
$
$
53,664
35,287
15,063
33,071
137,085
126,333
5,810
4,942
137,085
7,077
48
279
7,404
The following table sets forth our long-lived assets by geographic area, which consist of property and equipment, net, and operating lease right-of-use assets:
(in thousands)
United States
Canada
Europe
Total long-lived assets
As of December 31,
2023
2022
$
$
4,255
4
153
4,412
$
$
See “Note 8—Supplemental Financial Statement Information” for goodwill by reportable segment.
NOTE 13. SUBSEQUENT EVENTS
On May 6, 2024, the Company, Warehouse Goods and Synergy Imports LLC (“Synergy”) entered into an asset purchase agreement, dated May 1, 2024 (the “Asset Purchase
Agreement”) pursuant to which Synergy purchased all of the intellectual property, a specified amount of inventory, and other assets related to the Eyce and DaVinci brands. In
consideration for the acquisition, all parties entered into a loan modification agreement, effective May 1, 2024 (the “Loan Modification Agreement”) and an amended and
restated secured promissory note, effective May 1, 2024 (the Amended and Restated Secured Promissory Note”), an amendment to the original Eyce and Davinci Asset
Purchase Agreements, a distribution agreement, the termination of a license granted by Eyce, and the termination of certain consulting and employment agreements. The
updated date of maturity will be through July 2024.
From January 1, 2024 through July 18, 2024, the Company issued 1,911,000 shares of Class A common shares in connection with the exercise of the remaining penny warrants
as discussed in Note 9 of these consolidated financial statements.
On January 16, 2024, the Company issued 184,000 shares of Class A common shares in connection with a consulting agreement which had a market value of approximately
$88,000 on the date of issuance.
In May 2024, the Company entered into an agreement with a group of individuals to sell 100% equity interests of one of the Company’s wholly-owned subsidiaries, Shavita
B.V. and substantially all of the assets of ARI Logistics B.V. As of the date that these financial statements were available to be issued, the transaction was not officially closed
as there was pending consideration to be transferred to the Company.
F-34
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an
evaluation (pursuant to Rule 13a-15(b) of the Exchange Act) of the effectiveness of our disclosure controls and procedures, as defined in Rule 13a-15(e) under the Exchange
Act as of December 31, 2023.
Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our reports filed or
submitted under the Exchange Act is recorded, processed, summarized, and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and
procedures include controls and procedures designed to ensure that information required to be disclosed in our company’s reports filed under the Exchange Act is accumulated
and communicated to management, including our Chief Executive Officer and Chief Financial and Legal Officer, to allow timely decisions regarding required disclosure.
Based on the evaluation of our disclosure controls and procedures, our Chief Executive Officer and Chief Financial and Legal Officer concluded that our disclosure
controls and procedures were ineffective as of December 31, 2023 due to the material weaknesses identified and described below.
Management’s Report on Internal Control Over Financial Reporting
Our management, including our Chief Executive Officer and Chief Financial and Legal Officer, is responsible for establishing and maintaining adequate internal
control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act). Internal control over financial reporting is a process designed to provide
reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. GAAP. Our
internal control over financial reporting includes those policies and procedures that: (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of our assets; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements
in accordance with U.S. GAAP, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and (iii)
provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of our assets that could have a material effect on the
financial statements.
Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial and Legal Officer, we conducted an
evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2023, based on the framework in Internal Control—Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) (2013 framework). Based on this evaluation, our Chief Executive Officer and
Chief Financial and Legal Officer have concluded that as of December 31, 2023, the Company has not maintained effective internal control over financial reporting due to the
material weaknesses identified and described below.
Because we are an “emerging growth company” under the JOBS Act, our independent registered public accounting firm will not be required to attest to the
effectiveness of our internal control over financial reporting for so long as we are an emerging growth company.
58
Material Weaknesses
As previously described in Item 9A of our Annual Report on Form 10-K for the year ended December 31, 2021, we began implementing a remediation plan to address
the material weaknesses identified in the prior year, and our management continues to be actively engaged in the remediation efforts.
Among the previously reported design and operating deficiencies which contributed to material weaknesses in our control activities, management noted ineffective
user access controls over certain IT systems to appropriately segregate duties and adequately restrict user access to financial applications and data to the appropriate personnel.
While certain compensating control activities have been designed and implemented to mitigate the risks related to ineffective user access controls, these compensating control
activities are not expected to operate at a level of precision that would prevent or detect a misstatement that could be material.
Control Environment
We did not maintain an effective control environment to enable the identification and mitigation of risks of material accounting errors and ensure corrective activities
were appropriately applied, prioritized, and implemented in a timely manner.
Risk Assessment
As part of our remediation efforts related to the material weaknesses identified in the prior year, we continued our efforts during 2023 to design an effective risk
assessment, which was not completed or fully implemented in order to identify and mitigate key business and financial reporting risks to the organization. Control deficiencies
were identified which constitute material weaknesses relating to: (i) identifying, assessing, and communicating appropriate objectives, (ii) identifying and analyzing risks to
achieve these objectives, (iii) considering the potential for fraud in assessing risks to the achievement of objectives, and (iv) identifying and assessing changes that could
significantly impact the system of internal controls.
Control Activities
As part of our remediation efforts related to the material weaknesses identified in the prior year, we continued our efforts during 2023 to design and implement control
activities, however, design efforts relating to control activities were not fully implemented. Control deficiencies were identified associated with control activities. Specifically,
these control deficiencies constitute material weaknesses, either individually or in the aggregate, relating to: (i) selecting and developing control activities that contribute to the
mitigation of risks and support achievement of objectives, (ii) selecting and developing general control activities over technology to support the achievement of objectives, and
(iii) deploying control activities through policies that establish what is expected and procedures that put policies into action.
The following design and operating deficiencies, individually and in the aggregate, contributed to material weaknesses in our control activities, including:
● Lack of direct and precise journal entry review
● Ineffective user access controls over certain IT systems to appropriately segregate duties and adequately restrict user access to financial applications and data to the
appropriate personnel, including systems and data used in financial close and reporting
Information and Communication
We did not implement effective information and communication control activities. A control deficiency was identified which constitutes a material weakness relating
to information technology controls, which includes information security, systems change management and computer operations for systems and applications that are critical to
processing financial transactions and capturing and reporting information in the financial reporting process. These ineffective information technology controls contributed to
ineffective data validation of spreadsheets and system-generated reports utilized in the preparation of the financial statements and disclosures.
Monitoring
We did not implement effective monitoring activities. Control deficiencies were identified which constitute material weaknesses, individually and in the aggregate,
relating to: (i) selecting, developing, and performing ongoing evaluation to ascertain whether the components of internal controls are present and functioning, and (ii)
evaluating and communicating internal control deficiencies in a timely manner to those parties responsible for taking corrective action.
59
Remediation Plan and Status
Changes in Internal Control Over Financial Reporting
As discussed above, in 2021 we began a multi-year implementation of a new ERP system which fully replaced our legacy financial systems in 2024. The ERP system
is designed to accurately maintain the Company’s financial records, enhance the flow of financial information, improve data management and provide timely information to our
management team.
There were no other changes to our internal control over financial reporting that occurred during the quarter ended December 31, 2023 that have materially affected, or
are reasonably likely to materially affect, our internal control over financial reporting.
Inherent Limitations on Effectiveness of Controls
Management recognizes that a control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of
the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered
relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of
fraud or error, if any, have been detected. These inherent limitations include the realities that judgments in decision making can be faulty, and that breakdowns can occur
because of a simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management
override of the controls. The design of any system of controls is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that
any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the
degree of compliance with policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud
may occur and not be detected.
ITEM 9B. OTHER INFORMATION
None.
ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
Not applicable.
60
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Directors and Officers
As of the date of this Report, our directors and executive officers are as follows:
PART III
Name
Barbara Sher
Lana Reeve
Donald Hunter
Renah Persofsky
Aaron LoCascio
(1) Age as of July 18, 2024.
Age(1)
56
57
67
66
39
Title
Chief Executive Officer
Chief Legal and Finance Officer
Chairman of the Board of Directors
Independent Director
Director
Director Since
—
—
2021
2022
2018
Barbara Sher: Ms. Sher has previously served as our Chief Operations Officer beginning in November 2023 and was appointed Chief Executive Officer in May 2024. She
brings over 20 years of experience in senior executive roles at both large and small and public and private companies. Ms. Sher has served as SVP of Customer Experience at
the Company since June 2022, and previously served as Senior Vice President of Retail Sales at Newfold Digital, Inc., Vice President of Business Development at Newfold
Digital, Inc., and as Vice President of Business Development at Web.com. Ms. Sher received her MBA from Seton Hall University and her B.A. in communications from The
College of New Jersey.
Lana Reeve: Ms. Reeve has served as our Chief Financial and Legal Officer since December 2022. Ms. Reeve brings over 25 years of experience in senior legal and
finance roles at both large and small and public and private companies. Prior to her current role, Ms. Reeve previously served as President and Chief Legal Officer at
Authentys, Inc., Senior Vice President, Legal M&A at RealPage, Inc., and Executive Vice President, Finance and Legal, and Chief Legal Officer at NWP Services Corporation.
Ms. Reeve received her J.D. from Santa Clara University School of Law and her B.S. in business and finance from San Jose State University.
Donald Hunter: Mr. Hunter has served as a director since the merger with KushCo in August 2021 and previously served as a director of KushCo from February 2018 until
the closing of the merger. Since 2007, Mr. Hunter has served as principal at Donald Hunter, LLC, a consulting practice that assists private equity firms and entrepreneurs to
enhance the value of their technology companies. He previously served as Chief Operating Officer and Chief Financial Officer of Harbor Global Company Limited, a publicly
traded investment management, natural resources, and real-estate company from 2000 through 2006, and as a senior executive at The Pioneer Group, Inc. from 1988 through
2000, with responsibility for international start-up companies. Mr. Hunter began his career at the General Electric Company, where he was a member of the corporate audit staff
and a graduate of its Financial Management Training Program. Since 2013, Mr. Hunter has served as a member of the board of directors of The LGL Group, Inc. (“LGL”), an
NYSE-listed frequency and spectrum control engineering and manufacturing company, and also serves as the Chairman of the LGL Audit Committee and a member of its
Nominating Committee, and formerly served on its Compensation Committee. Previously, Mr. Hunter served as a member of the board of directors, Chairman of the Audit
Committee and member of the Nominating Committee of Juniper Pharmaceuticals, a Nasdaq-listed specialty pharmaceuticals company, from March 2014 through March 2016,
and a member of the board of directors of LICT Corporation, a holding company with subsidiaries in telecommunications and multimedia, from June 2014 through June 2015.
Mr. Hunter qualifies as a financial expert under the applicable rules of the SEC and is an active member of the National Association of Corporate Directors. He holds a
Bachelor of Science, magna cum laude, and an MBA with high honors from Boston University. Mr. Hunter’s more than 25 years of public company experience and knowledge
of corporate governance, SEC reporting, internal controls, international operations and mergers and acquisitions matters led to his appointment as director.
Renah Persofsky: Ms. Persofsky has served as a director since April 2022. Ms. Persofsky has served as the Chief Executive Officer of Strajectory Corp. since 2010 and was
an Executive Consultant of Canadian Imperial Bank of Commerce from 2011 to 2021. Since October 2017 Ms. Persofsky has served as the Vice Chairwoman and Lead
Director of Tilray Inc. (Nasdaq: TLRY) (previously Aphria Inc.) and has served as the Executive Chairwoman of Green Gruff Inc. since July 2019. Ms. Persofsky is also
currently a Board Member of K.B. Recycling Ltd., (Alkemy) and Hydrofarm Holdings Group (Nasdaq: HYFM). Ms. Persofsky has also previously served as an Executive
Consultant to many iconic brands including Tim Hortons, Canadian Tire, Canada Post and Interac, and was an Executive Officer of the Bank of Montreal. She previously co-
chaired the Canadian Minister’s Advisory Committee on Electronic Commerce, as well as served as a Special Advisor to the Minister of Foreign Affairs and Trade. Ms.
Persofsky’s extensive public company board experience and governance and management experience led to her appointment to the Board.
Aaron LoCascio: Mr. LoCascio, our co-founder, has served as a director since May 2018, served as our President from August 2021 until December 2021, served as our
Chief Executive Officer from May 2018 until August 2021 and served as the Chief Executive Officer of Greenlane Holdings, LLC from its inception in 2007 until August 2021.
He received his Associate’s degree in Accounting from Valencia Community College. Mr. LoCascio brings to the board extensive executive leadership experience, industry
relationships and knowledge, and, through his position as our co-founder and as our former Chief Executive Officer and President, he will use his full range of skills and
perspective to further our success.
Family relationships
There are no family relationships among any of our executive officers or directors.
Audit Committee
The Audit Committee is comprised of Ms. Persofsky and Mr. Hunter. Mr. Hunter is the chair of the Audit Committee, and Mr. Hunter qualifies as an “audit committee
financial expert” as that term is defined by the applicable regulations of the Securities and Exchange Commission (the “SEC”). The Board as determined that each of the
directors serving on our Audit Committee is “independent” within the meaning of the applicable rules of the SEC and the Nasdaq listing standards.
61
Code of Conduct and Ethics
Our Board has established a code of conduct and ethics that applies to our officers, directors and employees. Among other matters, our code of business conduct and ethics
is designed to deter wrongdoing and to promote:
● honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships;
● full, fair, accurate, timely and understandable disclosure in our SEC reports and other public communications;
● compliance with applicable laws, rules and regulations;
● prompt internal reporting of violations of the code to appropriate persons identified in the code; and
● accountability for adherence to the code of business conduct and ethics.
Any waiver of the code of conduct and ethics for our executive officers or directors must be approved by our Board or a committee of our Board, and any such waiver shall
be promptly disclosed to stockholders as required by law and Nasdaq regulations.
Stockholder Nomination Procedures
As of the date of this Report, there have been no material changes to the procedures by which stockholders may recommend nominees to our Board of Directors.
Delinquent Section 16(a) Reports
Section 16(a) of the Exchange Act requires that our executive officers and directors, and persons who own more than 10% of a registered class of our equity securities, file
reports of ownership and changes in ownership on Forms 3, 4 and 5 with the SEC. Executive officers, directors and greater than 10% stockholders are required by the SEC to
furnish us with copies of all Forms 3, 4 and 5 that they file.
Based on our review of the copies of such forms, and/or on written representations from the reporting persons that they were not required to file a Form 5 for the fiscal
year, we believe that these filing requirements were satisfied by the reporting persons during the fiscal year ended December 31, 2023; except for one Form 4 filed with the
SEC on May 30, 2023, by Craig Snyder, our former Chief Executive Officer, related to Class A Common Stock acquired by Mr. Snyder on May 22, 2023.
ITEM 11. EXECUTIVE COMPENSATION
COMPENSATION OF NAMED EXECUTIVE OFFICERS
The following provides compensation information pursuant to the scaled disclosure rules applicable to emerging growth companies and smaller reporting companies under SEC
rules. Our named executive officers (“NEOs”) for the year ended December 31, 2023 were Barbara Sher, our current Chief Executive officer, Nicholas Kovacevich, our former
Chief Corporate Development Officer, Craig Snyder, our former Chief Executive Officer, Lana Reeve, our Chief Financial and Legal Officer, William Mote, our former Chief
Financial Officer, and Darshan Dahya, our former Chief Accounting Officer.
The compensation of our NEOs generally consists of a combination of base salary, bonuses and equity-based compensation. Bonus awards for 2023 and 2022 were determined
at the sole discretion of the Compensation Committee based on an assessment of the performance of the NEOs.
62
The following tables contain certain compensation information for our NEOs in the fiscal years ended December 31, 2023 and 2022.
Name and Principal Position
Nicholas Kovacevich (2) Former Chief Corporate
Development Officer
Barbara Sher (7) Chief Operating Officer
Craig Snyder (3) Former Chief Executive Officer
Darshan Dahya (4) Former Chief Accounting Officer
William Mote (5) Former Chief Financial Officer
Lana Reeve (6) Chief Financial and Legal Officer
Summary Compensation Table
Year
Salary
Bonus
Option
Awards(1)
Stock
Awards(1)
All Other
Compensation
Total
2023
2022
2023
2022
2023
2022
2023
2022
2023
2022
2023
2022
$
$
$
$
$
97,692
392,308
21,290
—
341,442
214,904
—
219,675
—
$
132,671
$ 270,899.65
13,462
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
260,000
92,000
—
—
97500
10,000
—
—
—
113,057
—
—
—
240,000
—
—
—
100,000
—
120,000
—
136,000
—
—
$
$
$
$
$
$
$
$
$
—
240,000
—
—
—
150,000
—
145,000
—
136,000
—
$
$
$
219,700
32,143
—
—
—
—
—
—
—
181,228
—
—
$
$
$
$
$
577,392
996,451
21,290
0
438,942
474,904
—
484,675
—
$
698,956
$ 270,899.65
13,462
$
$
(1) Represents the grant date fair value determined in accordance with FASB ASC Topic 718.
(2) Mr. Kovacevich stepped down from his position as Chief Executive Officer of the Company effective December 31, 2022 and was appointed Chief Corporate Development
Officer of the Company effective January 1, 2023.
(3) Mr. Snyder was appointed Chief Executive Officer of the Company effective January 1, 2023 and subsequently stepped down in May 2024.
(4) Mr. Dahya stepped down from his position as Chief Accounting Officer of the Company effective December 31, 2022. Mr. Dahya did not join the Company until April
2022. At the time of his resignation, $12,500 of Mr. Dahya’s stock awards reflected in the table above had vested and none of his option awards had vested. All of Mr. Dahya’s
unvested awards were forfeited in connection with his resignation.
(5) Mr. Mote stepped down from his position as Chief Financial Officer of the Company effective May 17, 2022. In connection with his resignation, Mr. Mote entered into a
Separation and General Release Agreement with Warehouse Goods (as defined below) on May 16, 2023, which provided for a cash severance payment totaling $218,418.87,
representing six months’ salary, fifty percent of Mr. Mote’s pro-rated bonus eligibility for 2022, and COBRA payments for six months. None of Mr. Mote’s equity awards
granted in 2022 and reflected in the table above had vested prior to his resignation. All of Mr. Mote’s unvested awards were forfeited in connection with his resignation.
(6) Ms. Reeve was appointed Chief Financial and Legal Officer of the Company effective December 6, 2022.
(7) Ms. Sher was appointed Chief Operations Officer of the Company effective November 14, 2023 and subsequently named Chief Executive Offering in May 2024.
63
Outstanding Equity Awards at Fiscal Year-End December 31, 2023
The following table presents information about our NEO’s outstanding equity awards as of December 31, 2023.
Name
Barbara Sher(1) Chief Executive Officer
Lana Reeve (2) Chief Financial and Legal
Officer
Craig Snyder (3) Former Chief Executive
Officer
Number of
Securities
Underlying
Unexercised
Options
Exercisable
100
Number of
Securities
Underlying
Unexercised
Options
Unexercisable
—
Option
Exercise Price
39
$
Option
Expiration
Date
7/1/2032
—
—
—
—
Number of
Shares That
Have Not
Vested
Market Value
of Shares That
Have Not
Vested(1)
—
—
—
—
10,658
10,658
$
11.50
3/28/2032
5,797
$
1,639
Market value of shares reflects the number of shares multiplied by $0.2828 per share, which was the closing price of our Class A Common Stock on the Nasdaq Capital Market
on July 17, 2024.
(1) Ms. Sher was previously Chief Operating Officer and appointed Chief Executive Officer effective May 25, 2024.
(2) Ms. Reeve was appointed Chief Financial and Legal Officer of the Company effective December 6, 2022.
(3) Mr. Snyder was appointed Chief Executive Officer of the Company effective January 1, 2023 and resigned in May 2024.
Employment Agreements
On December 6, 2022, Warehouse Goods LLC, our wholly owned subsidiary (“Warehouse Goods”) entered into an employment agreement with Lana Reeve, our Chief
Financial and Legal Officer. On November 14, 2023, Warehouse Goods entered into an Executive Employment Agreement with Barbara Sher, our Chief Operations Officer.
Pursuant to these employment agreements, Ms. Reeve and Ms. Sher currently are entitled to following compensation:
Name and Principal Position
Barbara Sher
Chief Executive Officer (1)
Lana Reeve
Chief Financial and Legal Officer (3)
Annual Base Salary
$
$
300,000
300,000
Annual Bonus
Up to 60% of base salary based upon the attainment of one or more
performance goals
Up to 60% of base salary based upon the attainment of one or more
performance goals
(1) Ms. Sher was formerly the Chief Operating Officer and appointed Chief Executive Officer of the Company effective May 25, 2024
(2) Ms. Reeve was appointed Chief Financial and Legal Officer of the Company effective December 6, 2022.
Ms. Reeve and Ms. Sher’s employment agreements provides for an original term of up to one year. Each of Ms. Reeve and Ms. Sher’s employment agreements also provide for
automatic one-year extensions unless either party gives written notice of termination not less than 60 days prior to the termination of the then-current term. Ms. Reeve and Ms.
Sher are entitled to the annual compensation described above and are eligible to receive an annual incentive bonus. Ms. Reeve and Ms. Sher’s performance against this bonus
are determined by company performance and individual performance. For Ms. Reeve and Ms. Sher, the weighting is 60% company and 30% individual calculated upon the
base salary as shown above. During the term of employment, Ms. Reeve and Ms. Sher are entitled to participate in all employee benefit plans and programs made available to
our employees generally, subject to the eligibility and participation restrictions of each such plan or program and entitled to reimbursement for all reasonable business expenses
incurred in connection with carrying out their respective duties.
Pursuant to their employment agreements, Ms. Reeve and Ms. Sher may terminate their employment at any time without cause. Ms. Reeve and Ms. Sher are terminable by us at
any time: (i) without cause; (ii) for cause (as defined in each of Ms. Reeve and Ms. Sher’s employment agreements); (iii) in the event of death; or (iv) in the event of disability
that cannot be accommodated under the requirements of law. Upon termination of Ms. Reeve’s or Ms. Sher’s employment agreements, neither party shall have any further
obligation except for obligations accruing prior to the date of termination. If terminated without cause, Ms. Reeve and Ms. Sher are entitled to receive his or her base salary to
the date of termination, any bonus that has accrued but is unpaid as of the date of termination and any reimbursable expenses not yet reimbursed as of such date. If terminated
without cause, Ms. Reeve and Ms. Sher are also entitled to severance equal nine months of their base salary in effect on the date of termination. In addition, if terminated
without cause, Ms. Reeve and Ms. Sher are entitled to a cash payment equal to the applicable COBRA premium payments that would be payable by Ms. Reeve and Ms. Sher to
continue their Company-provided healthcare services for themselves and any dependents (the “Company Healthcare Plan”) covered at the time of termination (collectively, the
“COBRA Payment”). If terminated without cause, Ms. Reeve and Ms. Sher are entitled a COBRA Payment equal to four months of coverage under the Company Healthcare
Plan.
Pursuant to their employment agreements, Ms. Reeve and Ms. Sher are subject to customary confidentiality restrictions and work-product provisions, and Ms. Reeve and Ms.
Sher are subject to customary non-competition covenants and non-solicitation covenants with respect to our employees, consultants and customers.
We do not currently maintain any retirement plans, other than matching 401(k) plans, for our executives or other employees.
Director Compensation
For the fiscal year ended December 31, 2023, each of our independent directors received a base annual fee of $60,000, paid in quarterly installments. In consideration for their
attendance at meetings of the Board exceeding the 10 designated Board meetings, Messrs. Hunter, Uttz and Taney received an additional fee of $10,000 and Messrs. LoCasio
and Schoenfeld and Ms. Persofsky received an additional fee of $5,000. Additionally, as compensation for serving as the chair of the Board or the chair of a Board committee,
Messrs, Taney and Hunter and Ms. Persofsky received a base annual fee of $16,000, paid in quarterly installments. As compensation for serving on our Board, each
independent director then serving also received an award of 53,996 restricted shares of Class A Common Stock and 69,450 options to buy shares of Class A Common Stock on
January 5, 2022. Upon her appointment to the Board, Ms. Persofsky received 113,636 restricted shares of Class A Common Stock and 145,079 options to buy shares of Class A
Common Stock on April 11, 2022. In addition, we reimburse our directors for their reasonable out-of-pocket expenses incurred in attending Board and committee meetings. Mr.
Snyder does not receive any additional compensation for his service on the Board.
The following provides compensation information pursuant to the scaled disclosure rules applicable to emerging growth companies under SEC rules and the JOBS Act.
Director Compensation Table
The following table provides information on the compensation of our directors for the fiscal year ended December 31, 2023, other than Mr. Snyder, who received no separate
compensation for his service as a director. For information related to the compensation of Mr.Snyder, please refer to “Executive Officer Compensation — Summary
Compensation Table.”
Name
Donald Hunter
Aaron LoCascio
Renah Persofsky
Adam Schoenfeld(2)
Richard Taney(3)
Gina Collins
Jeff Uttz
Fees Paid in
Cash
Awards(1)
Total
$
$
$
$
$
$
$
86,000 $
65,000 $
62,000 $
65,000 $
86,000 $
— $
86,000 $
100,000 $
100,000 $
100,000 $
100,000 $
100,000 $
— $
100,000 $
186,000
165,000
162,000
165,000
186,000
—
186,000
(1) Represents the aggregate grant date fair value of restricted shares of Class A Common Stock and options to buy shares of Class A Common Stock granted on January 5,
2022 (April 11, 2022 with respect to Ms. Persofsky) computed in accordance with FASB ASC Topic 718.
(2) Mr. Schoenfeld resigned from the Board effective January 6, 2023.
(3) Mr. Taney resigned from the Board effective January 6, 2023.
(4) Mr. Uttz resigned from the Board effective October 13, 2023.
64
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information as of July 18, 2024, regarding the beneficial ownership of shares of our Class A Common Stock (including shares
issuable upon the exercise or conversion of securities that entitle the holders thereof to obtain Class A Common Stock upon exercise or conversion in accordance with the terms
thereof) by (a) each of our directors, (b) each of our executive officers, (c) all of our directors and executive officers as a group, and (d) each person known to us to be the
beneficial owner of more than five percent of our Class A Common Stock. Unless otherwise indicated, all shares are owned directly and the indicated person has sole voting
and dispositive power with respect to such shares. The SEC has defined “beneficial ownership” of a security to mean the possession, directly or indirectly, of voting power
and/or dispositive power with respect to such security. A stockholder is also deemed to be, as of any date, the beneficial owner of all securities that such stockholder has the
right to acquire within 60 days after that date through (a) the exercise of any option, warrant or right, (b) the conversion of a security, (c) the power to revoke a trust,
discretionary account or similar arrangement, or (d) the automatic termination of a trust, discretionary account or similar arrangement.
Unless otherwise indicated, the address of each person listed below is c/o Greenlane Holdings, Inc. 1095 Broken Sound Parkway, Suite 100, Boca Raton, Florida 33487.
Name
Donald Hunter(2)
Renah Persofsky(3)
Aaron LoCascio (4)
Barbara Sher(5)
Lana Reeve
All executive officers, directors and director nominees as a group (5 people)
Greater than 5% Beneficial Owners
Armistice Capital, LLC (6)
Hudson Bay Capital Management LP (7)
Number of
Shares of
Class A
Common
Stock
Beneficially
Owned
% of All
Class A
Common
Stock
Shares(1)
899
725
422
100
0
2,146
381,044
294,806
1,041
*
*
*
*
*
6.5%
5.0%
(1) Based on an aggregate of 5,821,359 shares of our Class A Common Stock outstanding as of July 18, 2024.
(2) Includes 899 shares of Class A Common Stock issuable upon exercise of stock options within 60 days after July 18, 2024.
(3) Includes 725 shares of Class A Common Stock issuable upon exercise of stock options within 60 days after July 18, 2024.
(4) Includes 422 shares of Class A Common Stock issuable upon exercise of stock options within 60 days after July 18, 2024.
(5 ) Includes 100 shares of Class A Common Stock issuable upon exercise of stock options within 60 days after July 18, 2024
(6) Based solely upon the Schedule 13G filed with the SEC by the beneficial owner on February 14, 2024 reporting beneficial ownership as of December 31, 2023, Armistice
Capital, LLC possess shared voting shared dispositive power over 381,044 shares. Armistice Capital, LLC is the investment manager of Armistice Capital Master Fund
Ltd. (the “Master Fund”), the direct holder of the shares, and pursuant to an Investment Management Agreement, Armistice Capital, LLC exercises voting and investment
power over the securities of held by the Master Fund and thus may be deemed to beneficially own the securities held by the Master Fund. Steven Boyd, as the managing
member of Armistice Capital, LLC, may be deemed to beneficially own the securities held by the Master Fund. The Master Fund specifically disclaims beneficial
ownership of the securities directly held by it by virtue of its inability to vote or dispose of such securities as a result of its Investment Management Agreement with
Armistice Capital, LLC.
(7) Based solely upon the Schedule 13G filed with the SEC by the beneficial owner on February 5, 2024 reporting beneficial ownership as of December 31, 2023, Hudson Bay
Capital Management LP (the “Investment Manager”) and Sander Gerber possess shared voting shared dispositive power over 294,806 shares. Includes 294,806 shares of
Class A Common Stock issuable upon exercise of warrants. The Investment Manager serves as the investment manager to Hudson Bay Master Fund Ltd. and Hudson Bay
Fund LP, in whose name the securities are held. As such, the Investment Manager may be deemed to be the beneficial owner of all shares of Class A Common Stock,
subject to a 9.99% ownership blocker, if any, underlying the securities held by Hudson Bay Master Fund Ltd. and Hudson Bay Fund LP. Mr. Gerber serves as the managing
member of Hudson Bay Capital GP LLC, which is the general partner of the Investment Manager. Mr. Gerber disclaims beneficial ownership of these securities.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
Related Party Transaction Policy
Our Board recognizes the fact that transactions with related persons present a heightened risk of conflicts of interests and/or improper valuation (or the perception thereof). Our
Board has adopted a written policy on transactions with related persons under which:
●any related-person transaction must be reviewed and approved or ratified by the Audit Committee, or the chair of the Audit Committee in the event management decides it is
not practicable or desirable to wait until the next committee meeting; and
●management must periodically inquire of directors and officers with respect to any potential related-person transaction of which they may be a party or of which they may be
aware.
●any employment relationship or transaction involving an executive officer and any related compensation must be approved by the compensation committee of the Board or
recommended by the compensation committee to the Board for its approval.
In connection with the review and approval or ratification of a related-person transaction:
●management must disclose to the Audit Committee or the chair of the Audit Committee, (i) the basis on which the person is a related person; (ii) the material facts of the
related-party transaction, including the proposed aggregate value of such transaction or, in the case of indebtedness, the amount of principal and interest that would be involved
and other principal terms of such indebtedness; (iii) the benefits to the Company of the proposed related-party transaction; (iv) if applicable, the availability of other sources of
comparable products or services; and (v) an assessment of whether the proposed related-party transaction is on terms that are comparable to the terms available to an unrelated
third party or to employees unrelated third parties or to employees generally. The Audit Committee may seek bids, quotes or independent valuations from third parties in
connection with assessing any related-person transaction; and
●to the extent required to be disclosed in our applicable filings under the Securities Act or the Exchange Act, and related rules, management must ensure that the related-person
transaction is disclosed in accordance with such acts and related rules.
In addition, the related-person transaction policy provides that from time-to-time Audit Committee shall review any previously approved or ratified related-party transactions
that remain ongoing and have a remaining term of more than six months or remaining amounts payable to or receivable from the Company of more than $75,000. Based on all
relevant facts and circumstances, taking into consideration the Company’s contractual obligations, the Audit Committee shall determine if it is in the best interests of the
Company and its stockholders to continue, modify or terminate the related-person transaction.
65
Related Party Transactions
Operating Agreement
We operate our business through Greenlane Holdings, LLC and its subsidiaries. The operations of Greenlane Holdings, LLC, are set forth in the Greenlane Holdings, LLC’s
Fourth Amended and Restated Operating Agreement, which we refer to as the “Operating Agreement.” As of December 31, 2023, we are the sole member of Greenlane
Holdings, LLC and hold all of the outstanding common units in Greenlane Holdings, LLC.
Appointment as Manager
We are the sole manager of Greenlane Holdings, LLC. As the manager, we control all of the day-to-day business affairs and decision-making of Greenlane Holdings, LLC. As
such, we, through our officers and directors, are responsible for all operational and administrative decisions of Greenlane Holdings, LLC and the day-to-day management of
Greenlane Holdings, LLC’s business.
Compensation
We are not entitled to compensation for our services as the manager. We are entitled to reimbursement by Greenlane Holdings, LLC for all fees and expenses incurred on behalf
of Greenlane Holdings, LLC, including all expenses associated with this offering and maintaining our corporate existence, and all fees, expenses and costs of being a public
company (including expenses incurred in connection with public reporting obligations, proxy statements, stockholder meetings, stock exchange fees, transfer agent fees, legal
fees, SEC and FINRA filing fees and offering expenses) and maintaining our corporate existence, including all costs of maintaining our Board and committees of the board,
executive compensation and certain insurance policies.
Distributions
The Operating Agreement requires “tax distributions,” as that term is defined in the Operating Agreement, to be made by Greenlane Holdings, LLC to its “members,” as that
term is defined in the Operating Agreement. Tax distributions will be made at least annually based on such member’s allocable share of the taxable income of Greenlane
Holdings, LLC and at a commencing tax rate equal tothe highest effective marginal combined federal, state and local income tax rate applicable to corporate or individual
taxpayers that may potentially apply to any member for the relevant period taking into account (i) any deductions pursuant to Section 199A of the Code, and (ii) the character of
the relevant tax items (e.g., ordinary or capital), as we, as the sole manager of Greenlane Holdings, LLC, reasonably determine. For this purpose, the taxable income of
Greenlane Holdings, LLC, and our allocable share of such taxable income, shall be determined without regard to any tax basis adjustments that result from our deemed or
actual purchase of Common Units from the members (as described below under “— Tax Receivable Agreement”). The tax rate used to determine tax distributions will apply
regardless of the actual final tax liability of any such member. Tax distributions will also be made only to the extent all distributions from Greenlane Holdings, LLC for the
relevant period were otherwise insufficient to enable each member to cover its tax liabilities as calculated in the manner described above. The Operating Agreement also allows
for distributions to be made by Greenlane Holdings, LLC to its members on a pro rata basis out of “distributable cash,” as that term is defined in the Operating Agreement. We
expect Greenlane Holdings, LLC may make distributions out of distributable cash periodically to the extent permitted by the agreements governing its indebtedness and as
required by Greenlane Holdings, LLC for its capital and other needs, such that we in turn are able to make dividend payments, if any, to the holders of our Class A Common
Stock.
Dissolution
The Operating Agreement provides that the decision of the manager will be required to voluntarily dissolve Greenlane Holdings, LLC. In addition to a voluntary dissolution,
Greenlane Holdings, LLC will be dissolved upon a change of control transaction under certain circumstances, as well as upon the entry of a decree of judicial dissolution or
other circumstances in accordance with Delaware law. Upon a dissolution event, the proceeds of a liquidation will be distributed in the following order: (i) first, to pay all
expenses of winding up Greenlane Holdings, LLC; and (ii) second, to pay all debts and liabilities and obligations of Greenlane Holdings, LLC.
Indemnification and Exculpation
The Operating Agreement provides for indemnification for all expenses, liabilities and losses reasonably incurred by any person by reason of the fact that such person is or was
a member or is or was serving at the request of Greenlane Holdings, LLC as the manager, an officer, an employee or an agent of Greenlane Holdings, LLC; provided, however,
that there will be no indemnification for actions made not in good faith or in a manner which the person did not reasonably believe to be in or not opposed to the best interests
of Greenlane Holdings, LLC, or, with respect to any criminal action or proceeding other than by or in the right of Greenlane Holdings, LLC, where the person had reasonable
cause to believe the conduct was unlawful, or for breaches of any representations, warranties or covenants by such person or its affiliates contained in the Operating Agreement
or in other agreements with Greenlane Holdings, LLC.
We, as the manager, and our affiliates, will not be liable to Greenlane Holdings, LLC for damages incurred by any acts or omissions as the manager, provided that the acts or
omissions of these exculpated persons are not the result of fraud, intentional misconduct, knowing violations of law, or breaches of the Operating Agreement or other agreement
with Greenlane Holdings, LLC.
66
Tax Receivable Agreement
In connection with our initial public offering we entered into a tax receivable agreement (the “Tax Receivable Agreement”) with Greenlane Holdings, LLC and each of the
members of Greenlane Holdings, LLC. We expect to obtain an increase in our share of the tax basis of the assets of Greenlane Holdings, LLC when a member receives cash or
shares of our Class A Common Stock in connection with a redemption or exchange of such member’s Common Units for Class A Common Stock or cash (such basis increase,
the “Basis Adjustments”). We intend to treat such acquisition of Common Units as a direct purchase by us of Common Units or net capital assets from a member for U.S.
federal income and other applicable tax purposes, regardless of whether such Common Units are surrendered by a member to Greenlane Holdings, LLC for redemption or sold
to us upon the exercise of our election to acquire such Common Units directly. Basis Adjustments may have the effect of reducing the amounts that we would otherwise pay in
the future to various tax authorities. The Basis Adjustments may also decrease gains (or increase losses) on future dispositions of certain capital assets to the extent tax basis is
allocated to those capital assets.
The Tax Receivable Agreement provides for the payment by us to such persons of 85% of the amount of tax benefits, if any, that we actually realize, or in some circumstances
are deemed to realize, as a result ofthe Transactions described above, including increases in the tax basis of the assets of Greenlane Holdings, LLC arising from such
Transactions, and tax basis increases attributable to payments made under the Tax Receivable Agreement and deductions attributable to imputed interest and other payments of
interest pursuant to the Tax Receivable Agreement. Greenlane Holdings, LLC will have in effect an election under Section 754 of the Code effective for each taxable year in
which a redemption or exchange of Common Units for shares of our Class A Common Stock or cash occurs. These Tax Receivable Agreement payments are not conditioned
upon any continued ownership interest in either Greenlane Holdings, LLC or us by any member. The rights of each member under the Tax Receivable Agreement are assignable
by each member with our consent, which we may not unreasonably withhold, so long as the assignee joins as a party to the Tax Receivable Agreement. We expect to benefit
from the remaining 15% of tax benefits, if any, that we may actually realize.
The actual Basis Adjustments, as well as any amounts paid to the members under the Tax Receivable Agreement, will vary depending on a number of factors, including:
●the timing of any subsequent redemptions or exchanges — for instance, the increase in any tax deductions will vary depending on the fair value, which may fluctuate over
time, of the depreciable or amortizable assets of Greenlane Holdings, LLC at the time of each redemption or exchange;
●the price of shares of our Class A Common Stock at the time of redemptions or exchanges — the Basis Adjustments, as well as any related increase in any tax deductions, is
directly related to the price of shares of our Class A Common Stock at the time of each redemption or exchange;
●the extent to which such redemptions or exchanges are taxable — if a redemption or exchange is not taxable for any reason, increased tax deductions will not be available; and
●the amount and timing of our income — the Tax Receivable Agreement generally will require us to pay 85% of the tax benefits as and when those benefits are treated as
realized under the terms of the Tax Receivable Agreement. If we do not have taxable income, we generally will not be required (absent a change of control or other
circumstances requiring an early termination payment) to make payments under the Tax Receivable Agreement for that taxable year because no tax benefits will have been
actually realized. However, any tax benefits that do not result in realized tax benefits in a given taxable year will likely generate tax attributes that may be utilized to generate
tax benefits in previous or future taxable years. The utilization of any such tax attributes will result in payments under the Tax Receivable Agreement.
For purposes of the Tax Receivable Agreement, cash savings in income and franchise tax are computed by comparing our actual income and franchise tax liability to the
amount of such taxes that we would have been required to pay had there been no Basis Adjustments and had the Tax Receivable Agreement not been entered into. The Tax
Receivable Agreement generally applies to each of our taxable years, beginning with the first taxable year ending after the completion of this offering. There is no maximum
term for the Tax Receivable Agreement; however, the Tax Receivable Agreement may be terminated by us pursuant to an early termination procedure that requires us to pay the
members an agreed upon amount equal to the estimated present value of the remaining payments to be made under the agreement (calculated based on certain assumptions,
including regarding tax rates and utilization of the Basis Adjustments).
The payment obligations under the Tax Receivable Agreement are obligations of our company and not of Greenlane Holdings, LLC. Although the actual timing and amount of
any payments that may be made under the Tax Receivable Agreement will vary, we expect that the payments that we may be required to make to the members could be
substantial. Any payments made by us to members under the Tax Receivable Agreement will generally reduce the amount of overall cash flow that might have otherwise been
available to us or to Greenlane Holdings, LLC and, to the extent that we are unable to make payments under the Tax Receivable Agreement for any reason, the unpaid amounts
generally will be deferred and will accrue interest until paid by us.
67
Decisions made by us in the course of running our business, such as with respect to mergers, asset sales, other forms of business combinations or other changes in control, may
influence the timing and amount of payments that are received by a member under the Tax Receivable Agreement. For example, the earlier disposition of assets following a
transaction that results in a Basis Adjustment will generally accelerate payments under the Tax Receivable Agreement and increase the present value of such payments.
The Tax Receivable Agreement provides that if (i) we materially breach any of our material obligations under the Tax Receivable Agreement, (ii) certain mergers, asset sales,
other forms of business combination, or other changes of control were to occur, or (iii) we elect an early termination of the Tax Receivable Agreement, then our obligations, or
our successor’s obligations, under the Tax Receivable Agreement would accelerate and become due and payable, based on certain assumptions, including an assumption that we
would have sufficient taxable income to fully utilize all potential future tax benefits that are subject to the Tax Receivable Agreement.
As a result, (i) we could be required to make cash payments to the members that are greater than the specified percentage of the actual benefits we ultimately realize in respect
of the tax benefits that are subject to the Tax Receivable Agreement, and (ii) if we elect to terminate the Tax Receivable Agreement early, we would be required to make an
immediate cash payment equal to the present value of the anticipated future tax benefits that are the subject of the Tax Receivable Agreement, which payment may be made
significantly in advance of the actual realization, if any, of such future tax benefits. In these situations, our obligations under the Tax Receivable Agreement could have a
material adverse effect on our liquidity and could have the effect of delaying, deferring or preventing certain mergers, asset sales, other forms of business combination, or other
changes of control. There can be no assurance that we will be able to finance our obligations under the Tax Receivable Agreement.
Payments under the Tax Receivable Agreement will be based on the tax reporting positions that we determine. If any such position is subject to a challenge by a taxing
authority the outcome of which would reasonably be expected to materially affect a recipient’s payments under the Tax Receivable Agreement, then we will not be permitted to
settle or fail to contest such challenge without the consent (not to be unreasonably withheld or delayed) of each member that directly or indirectly owns at least 10% of the
outstanding Common Units. We will not be reimbursed for any cash payments previously made to any member pursuant to the Tax Receivable Agreement if any tax benefits
initially claimed by us are subsequently challenged by a taxing authority and ultimately disallowed. Instead, in such circumstances, any excess cash payments made by us to a
member will be netted against any future cash payments that we might otherwise be required to make under the terms of the Tax Receivable Agreement. However, we might not
determine that we have effectively made an excess cash payment to the members for a number of years following the initial time of such payment and, if our tax reporting
positions are challenged by a taxing authority, we will not be permitted to reduce any future cash payments under the Tax Receivable Agreement until any such challenge is
finally settled or determined. As a result, it is possible that we could make cash payments under the Tax Receivable Agreement that are substantially greater than our actual cash
tax savings.
Payments are generally due under the Tax Receivable Agreement within a specified period of time following the filing of our tax return for the taxable year with respect to
which the payment obligation arises, although interest on such payments will begin to accrue at a rate of LIBOR plus 100 basis points from the due date (without extensions) of
such tax return. Any late payments that may be made under the Tax Receivable Agreement will continue to accrue interest at LIBOR plus 500 basis points until such payments
are made, including any late payments that we may subsequently make because we did not have enough available cash to satisfy our payment obligations at the time at which
they originally arose.
Indemnification Agreements
Our Bylaws provide that we will indemnify our directors and officers to the fullest extent permitted by the laws of the State of Delaware in effect from time to time, subject to
certain exceptions contained in our Bylaws. In addition, our Charter provides that our directors will not be personally liable to us or our stockholders for any damages other
than for breaches of fiduciary duty involving intentional misconduct, fraud or a knowing violation of law.
We have entered into indemnification agreements with each of our executive officers and directors. The indemnification agreements provide the executive officers and directors
with contractual rights to indemnification, and expense advancement and reimbursement, to the fullest extent permitted under the laws of the State of Delaware in effect from
time to time, subject to certain exceptions contained in those agreements.
There is no pending litigation or proceeding naming any of our directors or officers to which indemnification is being sought, and we are not aware of any pending litigation
that may result in claims for indemnification by any director or officer.
68
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
The following table presents fees for professional services rendered by Marcum for the years ended December 31, 2023, and 2022:
Audit Fees
Audit-Related Fees
Tax Fees
All Other Fees
Pre-Approval Policy
Year ended December 31,
2023
2022
528,815 $
397,320
— $
— $
— $
—
—
—
$
$
$
$
Our Board of Directors as a whole pre-approves all services provided by Marcum. For any non-audit or non-audit related services, the Board of Directors must conclude that
such services are compatible with the independence as our auditors.
69
PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
We have filed the following documents as part of this Form 10-K:
(1) Consolidated Financial Statements
Index to Consolidated Financial Statements
Reports of Independent Registered Public Accounting Firms
Consolidated Balance Sheets
Consolidated Statements of Operations and Comprehensive Loss
Consolidated Statements of Stockholders’ Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
(2) Financial Statement Schedules
Page
F-1
F-2
F-3
F-4
F-5
F-6
All financial statement schedules are omitted since they are not required or are not applicable, or the required information is included in the consolidated financial statements
and accompanying notes included in this Form 10-K.
(3) Exhibits Required by Item 601 of Regulation S-K
Exhibit
Number
Description
3.1
3.2
3.3
3.4
3.5
4.1
4.2
4.3
4.4
4.5
4.6
4.7
4.8
4.9
4.10
4.11
4.12
4.13
4.14
Amended and Restated Certificate of Incorporation of Greenlane Holdings, Inc. (Incorporated by reference to Exhibit 3.1 to Greenlane’s Quarterly Report on
Form 10-Q, filed November 15, 2021).
Second Amended and Restated By-Laws of Greenlane Holdings, Inc. (Incorporated by reference to Exhibit 3.2 to Greenlane’s Current Report on Form 8-K, filed
April 25, 2019).
Certificate of Amendment to the Amended and Restated Certificate of Incorporation of Greenlane Holdings, Inc., effective August 9, 2022 (Incorporated by
reference to Exhibit 3.1 to Greenlane’s Current Report on Form 8-K, filed on August 4, 2022).
Amendment to the Second Amended and Restated Bylaws of Greenlane Holdings, Inc. (Incorporated by reference to Exhibit 3.1 to Greenlane’s Current Report
on Form 8-K, filed on April 12, 2023).
Certificate of Designation of the Series A Preferred Stock (Incorporated by reference to Exhibit 3.2 to Greenlane’s Current Report on Form 8-K, filed on April
12, 2023).
Form of Stock Certificate (Incorporated by reference to Exhibit 4.1 to Greenlane’s Registration Statement on Form S-1/A, filed on April 8, 2019).
Form of Convertible Promissory Note (Incorporated by reference to Exhibit 4.2 to Greenlane’s Registration Statement on Form S-1, filed on March 20, 2019).
Description of Registrant’s Securities registered pursuant to Section 12 of the Securities Exchange Act of 1934 (Incorporated by reference to Exhibit 4.3 to
Greenlane’s Annual Report on Form 10-K, filed on April 24, 2020).
Form of August 2021 Standard Warrant (Incorporated by reference to Exhibit 4.1 to Greenlane’s Current Report on Form 8-K, filed August 10, 2021).
Form of August 2021 Pre-Funded Warrant (Incorporated by reference to Exhibit 4.2 to Greenlane’s Current Report on Form 8-K, filed August 10, 2021).
Form of Stock Option Assumption Notice – KushCo Options (Incorporated by reference to Exhibit 99.2 to Greenlane’s Registration Statement on Form S-8,
filed August 31, 2021).
Form of Assumed June 12, 2018 KushCo Warrant, dated as of August 31, 2021 (Incorporated by reference to Exhibit 4.4 to Greenlane’s Quarterly Report on
Form 10-Q, filed November 15, 2021).
Form of Assumed January 18, 2019 KushCo Warrant, dated as of August 31, 2021 (Incorporated by reference to Exhibit 4.5 to Greenlane’s Quarterly Report on
Form 10-Q, filed November 15, 2021).
Form of Assumed August 21, 2019 KushCo Warrant, dated as of August 31, 2021 (Incorporated by reference to Exhibit 4.6 to Greenlane’s Quarterly Report on
Form 10-Q, filed November 15, 2021).
Form of Assumed September 30, 2019 KushCo Warrant, dated as of August 31, 2021 (Incorporated by reference to Exhibit 4.7 to Greenlane’s Quarterly Report
on Form 10-Q, filed November 15, 2021).
Form of Assumed February 10, 2020 KushCo Warrant, dated as of August 31, 2021 (Incorporated by reference to Exhibit 4.8 to Greenlane’s Quarterly Report on
Form 10-Q, filed November 15, 2021).
Form of Assumed February 24, 2021 KushCo Warrant, dated as of August 31, 2021 (Incorporated by reference to Exhibit 4.9 to Greenlane’s Quarterly Report on
Form 10-Q, filed November 15, 2021).
Form of June 2022 Pre-Funded Warrant (Incorporated by reference to Exhibit 4.2 to Greenlane’s Current Report on Form 8-K, filed June 28, 2022).
Form of June 2022 Standard Warrant (Incorporated by reference to Exhibit 4.1 to Greenlane’s Current Report on Form 8-K, filed on June 28, 2022).
70
4.15
4.16
4.17
4.18
4.19
10.3
10.4
10.5
10.6
10.7
Form of October 2022 Standard Warrant (Incorporated by reference to Exhibit 4.1 to Greenlane’s Current Report on Form 8-K, filed on November 1, 2022).
Form of October 2022 Pre-Funded Warrant (Incorporated by reference to Exhibit 4.2 to Greenlane’s Current Report on Form 8-K, filed November 1, 2022).
Form of July 2023 Standard Warrant (Incorporated by reference to Exhibit 4.1 to Greenlane’s Current Report on Form 8-K, filed on July 3, 2023).
Form of July 2023 Pre-Funded Warrant (Incorporated by reference to Exhibit 4.2 to Greenlane’s Current Report on Form 8-K, filed on July 3, 2023).
Form of July 2023 Warrant Amendment (Incorporated by reference to Exhibit 4.3 to Greenlane’s Current Report on Form 8-K, filed on July 3, 2023).
Registration Rights Agreement between Greenlane Holdings, Inc. and the Original Members of Greenlane Holdings, LLC (Incorporated by reference to Exhibit
10.1 to Greenlane’s Current Report on Form 8-K, filed April 25, 2019).
Fourth Amended and Restated Operating Agreement of Greenlane Holdings, LLC. (Incorporated by reference to Exhibit 10.4 to Greenlane’s Annual Report on
Form 10-K, filed March 31, 2022).
Reorganization Agreement among Greenlane Holdings, Inc., Greenlane Holdings, LLC and the Members listed on the signature pages thereto (Incorporated by
reference to Exhibit 10.3 to Greenlane’s Current Report on Form 8-K, filed April 25, 2019).
Purchase and Sale Agreement, dated as of August 16, 2022, by and between 1095 Broken Sound Pwky LLC and ASC Capital LLC (Incorporated by reference to
Exhibit 10.3 to Greenlane’s Quarterly Report on Form 10-Q, filed November 14, 2022).
Form of Indemnification Agreement by and between Greenlane Holdings, Inc. and each of its Directors and Officers (Incorporated by reference to Exhibit 10.2
to Greenlane’s September 30, 2020 Quarterly Report on Form 10-Q, filed November 16, 2020).
10.8†
Second Amended and Restated Greenlane Holdings, Inc. 2019 Equity Incentive Plan (Incorporated by reference to Exhibit 10.1 to Greenlane’s Registration
Statement on Form S-8, filed August 31, 2022).
10.9
Contribution Agreement, dated as of February 20, 2018, by and among Greenlane Holdings, LLC (f/k/a Jacoby Holdings LLC), the Sellers named therein and
Better Life Products, Inc., as Seller Representative (Incorporated by reference to Exhibit 10.10 to Greenlane’s Registration Statement on Form S-1, filed on
March 20, 2019).
10.10
Contribution Agreement, dated as of January 4, 2019, by and among Greenlane Holdings, LLC, Pollen Gear Holdings, LLC and Pollen Gear LLC. (Incorporated
by reference to Exhibit 10.18 to Greenlane’s Registration Statement on Form S-1, filed on March 20, 2019).
10.11
Form of August 2021 Securities Purchase Agreement (Incorporated by reference to Exhibit 10.1 to Greenlane’s Current Report on Form 8-K, filed August 10,
2021).
10.12†
Separation and General Release Agreement by and between Warehouse Goods LLC and Adam Schoenfeld, dated as of March 9, 2022 (Incorporated by
10.13
10.14
reference to Exhibit 10.1 to Greenlane’s Current Report on Form 8-K, filed on March 10, 2022).
Placement Agency Agreement, dated August 9, 2021 (Incorporated by reference to Exhibit 10.2 to Greenlane’s Current Report on Form 8-K, filed August 10,
2021).
Assignment and Assumption Agreement, dated as of November 5, 2018, by and between Jacoby & Co. Inc. and Warehouse Goods LLC, relating to Employment
Agreement with Adam Schoenfeld (Incorporated by reference to Exhibit 10.17 to Greenlane Holdings, Inc.’s Registration Statement on Form S-1, filed on
March 20, 2019).
10.15†
Separation and General Release Agreement by and between Warehouse Goods LLC and William Mote, dated as of May 16, 2022 (Incorporated by reference to
Exhibit 10.4 to Greenlane’s Quarterly Report on Form 10-Q, filed May 16, 2022).
10.16†
Separation and General Release Agreement by and between Warehouse Goods LLC and Aaron LoCascio, dated as of December 30, 2021 (Incorporated by
reference to Exhibit 10.1 to Greenlane’s Current Report on Form 8-K, filed January 4, 2022).
10.17†
Separation and General Release Agreement by and between Warehouse Goods LLC and Rodrigo de Oliveira, dated as of August 12, 2022 (Incorporated by
10.18
10.19
10.20
10.21
10.22
reference to Exhibit 10.4 to Greenlane’s Quarterly Report on Form 10-Q, filed August 15, 2022).
Membership Interest Purchase Agreement, dated as of July 19, 2022, by and among Warehouse Goods LLC and Portofino Partners LLC (Incorporated by
reference to Exhibit 10.1 to Greenlane’s Current Report on Form 8-K, filed July 19, 2022).
Placement Agency Agreement, dated June 27, 2022 (Incorporated by reference to Exhibit 10.2 to Greenlane’s Current Report on Form 8-K, filed June 28, 2022).
Form of June 2022 Securities Purchase Agreement (Incorporated by reference to Exhibit 10.1 to Greenlane’s Current Report on Form 8-K, filed June 28, 2022).
Form of October 2022 Securities Purchase Agreement (Incorporated by reference to Exhibit 10.1 to Greenlane’s Current Report on Form 8-K, filed November 1,
2022).
Placement Agency Agreement, dated October 27, 2022 (Incorporated by reference to Exhibit 10.2 to Greenlane’s Current Report on Form 8-K, filed November
1, 2022).
71
10.23
Loan and Security Agreement, dated as of August 8, 2022, by and between Greenlane Holdings, Inc., the subsidiaries of Greenlane Holdings, Inc. named therein
as guarantors, the parties thereto from time to time as lenders, and WhiteHawk Capital Partners LP, as the agent for the Lenders (Incorporated by reference to
Exhibit 10.4 to Greenlane’s Quarterly Report on Form 10-Q, filed November 14, 2022).
10.24†
Amended and Restated Employment Agreement Employment Agreement by and between Warehouse Goods LLC and Nicholas Kovacevich, dated as of October
10.25
10.26
10.27
10.28
10.29
6, 2022. (Incorporated by reference to Exhibit 10.1 to Greenlane’s Current Report on Form 8-K, filed October 7, 2022).
Form of Guaranty Agreement by and between Greenlane Holdings, Inc., the subsidiaries of Greenlane Holdings, Inc. named therein as guarantors, the parties
thereto from time to time as Lenders, and WhiteHawk Capital Partners LP, as the agent for the Lenders (included in Exhibit 10.23).
Form of Pledge Agreement by and between Greenlane Holdings, Inc., the subsidiaries of Greenlane Holdings, Inc. named therein as guarantors, the parties
thereto from time to time as Lenders, and WhiteHawk Capital Partners LP, as the agent for the Lenders (included in Exhibit 10.23).
Form of U.S. Intellectual Property Security Agreement by and between Greenlane Holdings, Inc., the subsidiaries of Greenlane Holdings, Inc. named therein as
guarantors, the parties thereto from time to time as Lenders, and WhiteHawk Capital Partners LP, as the agent for the Lenders (included in Exhibit 10.23).
Form of Canadian Security Agreement by and between Greenlane Holdings, Inc., the subsidiaries of Greenlane Holdings, Inc. named therein as guarantors, the
parties thereto from time to time as Lenders, and WhiteHawk Capital Partners LP, as the agent for the Lenders (included in Exhibit 10.23).
Form of Canadian Intellectual Property Security Agreement, dated as of August 8, 2022, by and between Greenlane Holdings, Inc., the subsidiaries of Greenlane
Holdings, Inc. named therein as guarantors, the parties thereto from time to time as Lenders, and WhiteHawk Capital Partners LP, as the agent for the Lenders
(included in Exhibit 10.23).
10.30†
Employment Agreement by and between Warehouse Goods LLC and Lana Reeve, dated as of December 6, 2022 (Incorporated by reference to Exhibit 10.1 to
Greenlane’s Current Report on Form 8-K, filed December 8, 2022).
10.31†
Further Amended and Restated Employment Agreement by and between Warehouse Goods LLC and Craig Snyder, dated as of January 1, 2023 (Incorporated by
10.32
10.33
10.34
10.35
10.36
10.37
10.38
10.39
10.40
reference to Exhibit 10.1 to Greenlane’s Current Report on Form 8-K, filed January 6, 2023).
Risk Participation of ERC Claim Agreement, dated as of February 16, 2023 (Incorporated by reference to Exhibit 10.2 to Greenlane’s Quarterly Report on Form
10-Q, filed on May 15, 2023).
Amendment No. 2, dated as of February 9, 2023, to Loan and Security Agreement, by and between Greenlane Holdings, Inc, the subsidiaries of Greenlane
Holdings, Inc. named therein as guarantors, the parties thereto from time to time as Lenders, and WhiteHawk Capital Partners LP, as the agent for the Lenders
(Incorporated by reference to Exhibit 10.1 to Greenlane’s Quarterly Report on Form 10-Q/A, filed January 8, 2024).
Form of July 2023 Securities Purchase Agreement (Incorporated by reference to Exhibit 10.1 to Greenlane’s Current Report on Form 8-K, filed on July 3, 2023).
Placement Agency Agreement, dated as of June 29, 2023 (Incorporated by reference to Exhibit 10.2 to Greenlane’s Current Report on Form 8-K, filed on July 3,
2023).
Loan and Security Agreement, dated as of September 22, 2023, between Greenlane and Synergy Imports, LLC. (Incorporated by reference to Exhibit 10.3 to
Greenlane’s Quarterly Report on Form 10-Q, filed on January 9, 2024).
Secured Promissory Note, dated as of September 22, 2023, between Greenlane and Synergy Imports, LLC. (Incorporated by reference to Exhibit 10.4 to
Greenlane’s Quarterly Report on Form 10-Q, filed on January 9, 2024).
Asset Purchase Agreement, effective May 1, 2024, by and among Greenlane Holdings, Inc, Warehouse Goods LLC and Synergy Imports LLC (Incorporated by
reference to Exhibit 10.1 to Greenlane’s Current Report on Form 8-K, filed on May 10, 2024).
Loan Modification Agreement, effective May 1, 2024, by and among Warehouse Goods LLC, Synergy Imports LLC and the Guarantors as defined therein
(Incorporated by reference to Exhibit 10.2 to Greenlane’s Current Report on Form 8-K, filed on May 10, 2024).
Amended and Restated Secured Promissory Note, effective May 1, 2024, by Warehouse Goods LLC and Synergy Imports LLC (Incorporated by reference to
Exhibit 10.3 to Greenlane’s Current Report on Form 8-K, filed on May 10, 2024).
10.41†
Employment Agreement by and among Warehouse Goods LLC and Lana Reeve (Incorporated by reference to Exhibit 10.1 to Greenlane’s Current Report on
21.1*
23.1*
31.1*
31.2*
32.1*
97.1*
101*
Form 8-K, filed on May 23, 2024).
List of subsidiaries of Greenlane Holdings, Inc.
Consent of Marcum LLP
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Certification of the Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Certification of Chief Executive Officer and Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-
Oxley Act of 2002
Greenlane Holdings, Inc. Clawback Policy
The following materials from the Company’s Annual Report on Form 10-K for the year ended December 31, 2023, were formatted in Inline XBRL (Extensible
Business Reporting Language): (i) Condensed Consolidated Balance Sheets, (ii) Condensed Consolidated Statements of Operations and Comprehensive Loss,
(iii) Condensed Consolidated Statements of Stockholders’ Equity, and (iv) Condensed Consolidated Statements of Cash Flows. The instance document does not
appear in the Interactive Data File because its XBRL tags are imbedded within the Inline XBRL document.
104*
Cover Page Interactive Data File – the cover page XBRL tags are embedded within the Inline XBRL
*
†
Filed herewith.
Indicates a management contract or compensatory plan or arrangement.
ITEM 16. FORM 10-K SUMMARY
None.
72
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
SIGNATURES
Date: July 18, 2024
Date: July 18, 2024
GREENLANE HOLDINGS, INC.
By:
By:
/s/ Barbara Sher
Barbara Sher
Chief Executive Officer
(Principal Executive Officer)
/s/ Lana Reeve
Lana Reeve
Chief Financial and Legal Officer
(Principal Financial and Accounting Officer)
Pursuant to the requirements of the Securities and Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.
Signature
/s/ Barbara Sher
Barbara Sher
/s/ Lana Reeve
Lana Reeve
/s/ Donald Hunter
Donald Hunter
/s/ Aaron LoCascio
Aaron LoCascio
/s/ Renah Persofsky
Renah Persofsky
Title
Chief Executive Officer
(Principal Executive Officer)
Chief Financial and Legal Officer
(Principal Financial and Accounting Officer)
Director
Director
Director
73
Date
July 18, 2024
July 18, 2024
July 18, 2024
July 18, 2024
July 18, 2024
Legal Name
Jurisdiction of Incorporation
Percentage Owned
Exhibit 21.1
ARI Logistics B.V.
Better Life Holdings, LLC
Banana G’s LLC
Conscious B.V.
Global Pacific Holdings LLC
Greenlane Holdings, LLC
Greenlane Holdings EU B.V.
GS Fulfillment LLC
HSCM LLC
HS Products LLC
KCH Distribution Inc
KIM International, LLC
Kush Energy, LLC
Kush Supply Co. LLC
Merger Sub Gotham 2, LLC (successor to KushCo Holdings, Inc.)
Pollen Gear LLC
Rocketmang LLC
Shavita B.V.
South Atlantic Holdings LLC
Vape World Distribution LTD
Warehouse Goods LLC
Netherlands
Delaware
Delaware
Netherlands
Delaware
Delaware
Netherlands
Delaware
Delaware
Delaware
Canada
California
Colorado
Nevada
Delaware
Delaware
Delaware
Netherlands
Delaware
Canada
Delaware
100%
100%
50%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM’S CONSENT
We consent to the incorporation by reference in the Registration Statement of Greenlane Holdings, Inc. on Form S-3 ( File No. 333-257654) and Forms S-8 (File Nos. 333-
267202, 333-259211, and 333-231419) of our report dated July 18, 2024, which includes an explanatory paragraph as to the company’s ability to continue as a going concern
with respect to our audits of the consolidated financial statements of Greenlane Holdings, Inc. as of December 31, 2023 and 2022 and for the years ended December 31, 2023
and 2022, which report is included in this Annual Report on Form 10-K of Greenlane Holdings, Inc. for the year ended December 31, 2023.
Exhibit 23.1
/s/ Marcum LLP
Marcum LLP
Costa Mesa, CA
July 18, 2024
CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT
TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 31.1
I, Barbara Sher, certify that:
1. I have reviewed this Annual Report on Form 10-K of Greenlane Holdings, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of
the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results
of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e)
and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material
information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in
which this report is being prepared;
b. Designed such internal control over financial reporting, or caused such control over financial reporting to be designed under our supervision, to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted
accounting principles;
c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure
controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the
registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control
over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and
the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely
affect the registrant’s ability to record, process, summarize and report financial information; and
b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial
reporting.
Date: July 18, 2024
/s/ BARBARA SHER
Barbara Sher
Chief Executive Officer
(Principal Executive Officer)
CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT
TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 31.2
I, Lana Reeve, certify that:
1. I have reviewed this Annual Report on Form 10-K of Greenlane Holdings, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of
the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results
of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e)
and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material
information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in
which this report is being prepared;
b. Designed such internal control over financial reporting, or caused such control over financial reporting to be designed under our supervision, to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted
accounting principles;
c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure
controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the
registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control
over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and
the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely
affect the registrant’s ability to record, process, summarize and report financial information; and
b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial
reporting.
Date: July 18, 2024
/s/ LANA REEVE
Lana Reeve
Chief Financial and Legal Officer
(Principal Financial Officer)
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 32.1
In connection with the Annual Report of Greenlane Holdings, Inc. (the “Company”) on Form 10-K for the fiscal year ended December 31, 2023, as filed with the Securities and
Exchange Commission on the date hereof (the “Report”), I,Barbara Sher, the Chief Executive Officer of the Company, and I, Lana Reeve, the Chief Financial and Legal Officer
of the Company, certify, to our knowledge, pursuant to 18 U.S.C. §1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
1.
2.
the Report fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934, as amended; and
the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date: July 18, 2024
/s/ BARBARA SHER
Barbara Sher
Chief Executive Officer
(Principal Executive Officer)
/s/ LANA REEVE
Lana Reeve
Chief Financial and Legal Officer
(Principal Financial Officer)
Exhibit 97.1
1.
Introduction
GREENLANE HOLDINGS, INC.
CLAWBACK POLICY
The Board of Directors (the “Board”) of Greenlane Holdings, Inc. (the “Company”) believes that it is in the best interests of the Company and its shareholders to create and
maintain a culture that emphasizes integrity and accountability and that reinforces the Company’s pay-for-performance compensation philosophy. The Board has therefore
adopted this policy which provides for the recoupment of certain executive compensation in the event of an Accounting Restatement resulting from material noncompliance
with financial reporting requirements under the federal securities laws (the “Policy”). This Policy is designed to comply with Section 10D of the Securities Exchange Act of
1934 (the “Exchange Act”).
2. Administration
This Policy shall be administered by the Board or, if so designated by the Board, the Compensation Committee, in which case references herein to the Board shall be deemed
references to the Compensation Committee. Any determinations made by the Board shall be final and binding on all affected individuals.
3. Covered Executives
This Policy applies to each individual who served or serves as a current or former Covered Executive, at any time during the applicable performance period for any
performance-based compensation Received by such executive on or after the Effective Date.
4. Recoupment; Accounting Restatement
In the event the Company is required to prepare an Accounting Restatement of its financial statements due to the Company’s material noncompliance with any financial
reporting requirement under the securities laws, the Board will:
a)
review, with respect to each Covered Executive, all performance-based compensation Received by such Covered Executive during the applicable period,
b) determine the amount of excess Incentive Compensation Received by such Covered Executive during the applicable period;
c)
d)
require reimbursement or forfeiture of any excess Incentive Compensation Received by any Covered Executive during the three completed fiscal years immediately
preceding the date on which the Company is required to prepare an Accounting Restatement; and
reasonably promptly but in any event no later than 60 days after the date an Accounting Restatement is filed with the SEC, provide to each Covered Executive a written
notice containing the amount of excess Incentive Compensation and a demand for repayment or return, as applicable.
5.
Incentive Compensation
For purposes of this Policy, Incentive Compensation means any of the following; provided that, such compensation is granted, earned, or vested based wholly or in part on the
attainment of a financial reporting measure:
● Annual bonuses and other short- and long-term cash incentives.
● Stock options.
● Stock appreciation rights.
● Restricted stock.
● Restricted stock units.
● Performance shares.
● Performance units.
Financial reporting measures include:
● Company stock price.
● Total shareholder return.
● Revenues.
● Net income.
● Earnings before interest, taxes, depreciation, and amortization (EBITDA).
● Funds from operations.
● Liquidity measures such as working capital or operating cash flow.
● Return measures such as return on invested capital or return on assets.
● Earnings measures such as earnings per share.
6. Excess Incentive Compensation: Amount Subject to Recovery
The amount to be recovered will be the excess of the Incentive Compensation paid to the Covered Executive based on the erroneous data over the Incentive Compensation that
would have been paid to the Covered Executive had it been based on the restated results, as determined by the Board.
If the Board cannot determine the amount of excess Incentive Compensation Received by the Covered Executive directly from the information in the Accounting Restatement,
then it will make its determination based on a reasonable estimate of the effect of the Accounting Restatement.
7. Method of Recoupment
The Board will determine, in its sole discretion, the method for recouping Incentive Compensation hereunder based on all applicable facts and circumstances which may
include, without limitation:
a)
requiring reimbursement of cash Incentive Compensation previously paid;
b)
seeking recovery of any gain realized on the vesting, exercise, settlement, sale, transfer, or other disposition of any equity-based awards;
c)
offsetting the recouped amount from any compensation otherwise owed by the Company to the Covered Executive;
d)
cancelling outstanding vested or unvested equity awards; and/or
e)
taking any other remedial and recovery action permitted by law, as determined by the Board.
Notwithstanding anything herein to the contrary, the Company shall not be required to seek recoupment to the extent the Board determines that recoupment would be
impracticable in a manner consistent with Rule 10D-1 of the Exchange Act and the listing standards of the national securities exchange on which the Company’s securities are
listed, because either the direct expenses paid to a third party to assist in enforcing this Policy against a Covered Executive would exceed the amount to be recovered from that
Covered Executive, after the Company has made a reasonable attempt to recover the excess Incentive Compensation.
8. Reporting and Disclosure
The Company shall file all disclosures with respect to this Policy with the SEC in accordance with the requirements of all applicable securities laws and shall provide any
documentation with respect thereto to Nasdaq in accordance with the listing rules.
9. No Indemnification
The Company shall not indemnify any Covered Executives or their beneficiaries against the loss of any incorrectly awarded Incentive Compensation pursuant to the terms of
this Policy or otherwise indemnify or provide advancement of any costs related to the Company’s enforcement of this Policy.
10. Interpretation
The Board is authorized to interpret and construe this Policy and to make all determinations necessary, appropriate, or advisable for the administration of this Policy. It is
intended that this Policy be interpreted in a manner that is consistent with the requirements of Nasdaq Listing Rule 5608, any other applicable rules of Nasdaq and Section 10D
of the Exchange Act and any applicable rules or standards adopted by the SEC.
11. Effective Date
This Policy shall be effective as of October 2, 2023 (the “Effective Date”) and shall apply to Incentive Compensation that is Received by any Covered Executive on or after
that date.
12. Amendment; Termination
The Board may amend or terminate this Policy from time to time in its discretion and shall amend this Policy as it deems necessary, including as and when it determines that it
is legally required by any federal securities laws, SEC rule or rules of any national securities exchange or national securities association on which the Company’s securities are
listed. Notwithstanding anything herein to the contrary, no amendment or termination of this Policy shall be effective if such amendment or termination would (after taking into
account any actions taken by the Company contemporaneously with such amendment or termination) cause the Company to violate any federal securities laws, SEC rule or the
rules of any national securities exchange or national securities association on which the Company’s securities are listed.
13. Other Recoupment Rights
The Board intends that this Policy will be applied to the fullest extent of the law. The Board may require that any employment agreement, equity award agreement, or similar
agreement entered into on or after the Effective Date shall, as a condition to the grant of any benefit thereunder, require a Covered Executive to agree to abide by the terms of
this Policy. Any right of recoupment under this Policy is in addition to, and not in lieu of, any other remedies or rights of recoupment that may be available to the Company
pursuant to the terms of any similar policy in any employment agreement, equity award agreement, or similar agreement and any other legal remedies available to the
Company.
14. Successors
This Policy shall be binding and enforceable against all Covered Executives and their beneficiaries, heirs, executors, administrators or other legal representatives.
15. Definitions
For purposes of this Policy, the following terms shall have the following meanings:
a)
b)
c)
“Accounting Restatement” means an accounting restatement due to the material noncompliance of the Company with any financial reporting requirement under the
securities laws, including any required accounting restatement to correct an error in previously issued financial statements that is material to the previously issued financial
statements, or that would result in a material misstatement if the error were corrected in the current period or left uncorrected in the current period.
“Covered Executive” means each executive officer, as determined by the Board in accordance with Section 10D of the Exchange Act and the listing standards of the
national securities exchange on which the Company’s securities are listed.
“Received” means the date of actual or deemed receipt, and for purposes of the foregoing, Incentive Compensation shall be deemed received in the Company’s fiscal
period during which the applicable financial reporting measure is attained, even if payment or grant of the Incentive Compensation occurs after the end of that period.
d)
“SEC” means the U.S. Securities and Exchange Commission.