Good day, ladies and gentlemen, and thank you for standing by. Welcome to today's conference call to discuss Greenlane Holdings' Second Quarter Fiscal 2019 Financial Results. [Operator Instructions] Hosting today's conference will be Scott Van Winkle with ICR. As a reminder, today's conference is being recorded. I would now like to turn the conference over to Mr. Van Winkle. Please go ahead, sir.

Thank you. Good afternoon and welcome to Greenlane Holdings' conference call to discuss results for the second quarter 2019. On the call today from Greenlane with prepared remarks are Aaron LoCascio, Chief Executive Officer; and Ethan Rudin, Chief Financial Officer. We're also joined by Adam Schoenfeld, our Chief Strategy Officer, and Sasha Kadey, Chief Marketing Officer. By now everyone should have access to the earnings release which went out this afternoon at approximately 4:20 PM Eastern Time. If you've not received the release, it's available on the Investor Relations section of Greenlane's website at gnln.com. This call is being webcast and a replay will be available on the Company's website for approximately 30 days. Before we begin, we'd like to remind everyone that Greenlane's prepared remarks contain forward-looking statements and management may make additional forward-looking statements in response to your questions. These statements do not guarantee future performance and, therefore, undue reliance should not be placed upon them. These statements are based on current expectations of the Company's management and involve inherent risks and uncertainties, including those identified in the Risk Factors included in Greenlane's IPO prospectus dated April 17, 2019. Please note that during today's call management will discuss non-GAAP financial measures including adjusted net loss and adjusted EBITDA. Management believes these financial measures can facilitate a more complete analysis and greater transparency in the Greenlane's ongoing results of operations, particularly when comparing underlying operating results from period to period. Greenlane has included a reconciliation of these non-GAAP measures in its earnings release. This call also contains time sensitive information that speaks only as of the date of this live broadcast, August 12, 2019. Greenlane assumes no obligation to update any forward-looking statements that may be made in today's release or call. Now I’d like to turn the call over to the Company's CEO, Aaron LoCascio.

Thanks, Scott, and good afternoon, everyone. I will briefly review our second quarter sales highlights and business development activities, and then turn the call over to Ethan to review our financial results in more detail. After that we will open up the call for your questions. We had a record second quarter at Greenlane, generating $53 million in revenue representing 31% revenue growth year-over-year and continue to expand our portfolio of leading brands and customer network. We experienced growth during the quarter across each of the cannabis, hemp-derived CBD, and liquid nicotine categories and have an aggressive pipeline of additional partnership in each segment. Gains in both the U.S. and Canada drove the growth, particularly in the vaporizer category. We also advanced international development adding key talent in Europe and Asia while continuing to invest in the expansion of our sales team. Our goal of being the employer of choice is proving out well as we have attracted and hired top talent from leading consumer product, retail, cannabis, and global tobacco organization. We will continue to search for and hire a world-class workforce to create, grow, and nurture the best cannabis brands across the globe. We've also been reviewing strategic opportunities globally to accelerate our growth. We remain disciplined with the potential acquisition targets we are evaluating, as well as in our opportunity selection process. We have significant confidence in our pipeline to continue to grow through acquisitions and M&A remains a key strategic reason we decided to go public. In the rapidly growing CBD category, last week Gallup survey found that one in seven Americans is using some form of CBD, and we are positioning ourselves as a category captain, building a portfolio of the most respected brands in the sector through exclusive distribution agreements. Over the past several…

Thank you, Aaron, and good afternoon, everyone. Second quarter net sales reached a company record of $53 million representing a 31% increase year-over-year. As Aaron noted, multiple product categories and strong growth in both the U.S. and Canada drove the increase. In terms of product categories, the net sales increased compared to the prior year period, include increases of $10.5 million from the sale of e-cigarette products $0.8 million from the sale of child-resistant packaging and $1.8 million from the introduction of new product lines, including hemp-derived CBD products. Gross margin was 17.3% in the second quarter of 2019 compared to 20.7% in the prior year period reflecting changes in sales mix given the strong growth of JUUL and promotional activity to expand market share in the e-cigarette category. To provide some context on the impact of the mix and promotional activity, our gross margin excluding the sales of e-cigarette products would have been just over 24% during the second quarter. Salaries, benefits and payroll tax expenses increased $3.4 million year-over-year. As a percentage of net sales, sales benefits and payroll taxes increased to 13.3% from 8.9% in the prior year, the increase is primarily due to the addition of 65 employees over the past year as we continue to expand our domestic sales and marketing efforts and $1.7 million of equity-based compensation expense for the three months ended June 30, 2019. We expect to see a further uptick in salaries and marketing in the back half of the year as we increase our investments in sales and marketing to support growth of our Greenlane house brands, supply and packaging e-commerce initiatives. These expenses will materialize ahead of the higher margin sales we expect to generate. General and administrative expenses increased approximately $1.3 million in the second quarter of 2019…

[Operator Instructions] Our first question is from Vivien Azer with Cowen and Company. Please proceed.

So really solid brand new quarter ahead of my expectations, and I was at the higher end of the street. So just curious to hear how the quarter ended up relative to your internal expectations and it was [indiscernible] expectations, what were the key contributing factors? Thanks.

You know, I don’t think anybody could deny the fact Vivien, that JUUL really, really outshined our expectations, the promotional activities that dropped in June really, really accelerated matters for us above and beyond what we thought. Admittedly, a lot of it was promotional related to batteries rather than pods, but nonetheless, I mean it really speaks to the strength of the installed base, the fact that the installed base is growing and you know the mix shift obviously had an impact, but nonetheless, we’re excited to get the revenue and we’re excited to see the strength of the brand in partnership with JUUL.

That makes perfect sense, and I appreciate your plans are on that. I don’t necessarily though raise those type of questions, which is Ethan, you reiterated your commitment getting gross margin over 20%, but as you enumerated the growth rate of your underlying businesses in particular, e-com only up 14%, sorry in the broader context of consumer stapled of plus 14 is admirable to be sure. Like how do you drive positive margin mix when JUUL’s growing 17, cannabis growing 16, e-commerce growing 14% like how actually do you drive margin expansion?

So, few points here to make. One I would say is that you know, as we indicated in our prepared commentary that we plan to step on the gas. Obviously, we’re seeing some very, very early success with Vibes. We've got new store opening in higher standards and we have significant number of levers to pull to really drive that mix shift. I don't want to stay away from JUUL but to actually compete with it as a piece of our portfolio; and so, the other side of the story is for the brands that are more third-party versus house, we’re really subject to the cycle of innovation, and truth be told we’re waiting for some really new and exciting things to come out from partners that everybody wants to have it dialed in right, everybody want to have their new products placed in the right doors, and we're taking a really methodical and strategic approach to thinking about what new pipeline looks like and how that translates across the channels of trade we compete in.

And I don’t mean to monopolize the call. I promise these are my last two follow-ups, but they are both related. And so, number one, you called out Pollen Gear and in your prepared remarks that obviously on [indisernible] and you’ve also called out Higher Standards, and I am just a little bit confused, is it true are you asserting the Higher Standards is higher margin than the corporate average?

Yes, Higher Standards, both our retail brick-and-mortar stores as well as the Higher Standards portfolio of products are substantially higher margins than our corporate average.

And then I promise my last question. You guys like commented on M&A and like “new opportunities” derived your margins higher. It reminds me of the most recent announcement that was well received by the market in terms of the stores [indiscernible] – innovation and there was you know kind of a vast pattern [ph] around like a new hybrid, can you expand on that. That’s my all question, thank you.

Sure. So, as Ethan has mentioned before in our environment with the pipeline that we built, one of the things that is always exciting to see internally that drives the next level of growth is innovation. And it’s been a little while since we've seen new and innovative products come to our primary portfolio of paid products because we are so predominantly paid, so the launch of the Volcano Hybrid certainly represents a very exciting opportunity for us to expand upon the distribution of the products and get the next class of customer that’s been looking for next generation product bought into it.

Our next question is from Derek Dley with Canaccord Genuity. Please proceed.

Just following up on that last one around acquisition. Can you just give us an idea of some of the things that you're looking for, I mean is there focus on acquiring more brand? Is it acquiring more distribution assets potentially globally or even looking at some technology assets I mean just how about sort of thinking about the framework with your acquisition strategy?

So we look at acquisitions through two different lenses, one is horizontally which is really an expansion or fortification of our distribution pipeline more notably through geographic expansion. And then the other lens is vertical acquisitions where we can really look to expand upon our margin profile and again build upon the house of brands that we've already built and continue to build.

And on that house of brands, I mean can you give us an update on sort of where your house of brands, your private label penetration was at that during the quarter?

In the prior quarter, we had mentioned that it was 5.1% of the revenue, and I believe now let me just double check I think it's 6 - bear with me for a second, 6.3% of the portfolio.

Okay, great. That’s in good progression. And you called out Vibes as being obviously having an exceptional sell-through with your distribution partners being sold out so on and so forth. Can you comment on some of the other major private label brands like Pollen Gear still relatively early stage, but how about the Higher Standards brand for example are you seeing good sell-through with some of the other brands?

Yes, I mean our Higher Standards brand, we see the growth whenever we open up a new store. So, there's obviously more visibility and so obviously having standalone company retail, but then also had to be a brand within our B2B and B2C portfolio, we see a lift there as well as just general awareness helps. We’re really, really excited about Keith Haring’s suite of products that are coming out in smoking and vaping accessories. We’re really excited about Marley Natural. We’re seeing growth across all of our house brands in a fairly even keel, so super excited about them.

And then last one from me and I do appreciate if you can disclose but you mentioned obviously JUUL sales were up 70% year-over-year during the quarter. Canada is doing exceptionally well, and the U.S. still growing. Can you give us sort of the magnitude of difference I mean was the U.S. up so high within up in the double-digits or what was the magnitude difference there?

We’re not breaking that out just yet, is it actually - we haven’t split out - I am sorry are you talking about the revenue mix or you talking about the growth, it was unclear?

The growth, sorry, the growth?

So the U.S. growth for JUUL quarter-over-quarter was 48%.

And how about Canada?

I'm sorry, and in Canada that figure - we didn’t have JUUL in Canada Q2 of last year.

Sorry, so that 48 were year-over-year perfect that is very help. Thank you very much and congrats on the solid quarter.

Our next question is from Scott Fortune with ROTH Capital Partners. Please proceed.

Yes, I want to expand on the CBD brand offerings and now you have I believe six or seven different brands do you strength coming in certain states for the CBD regulations are varying. And then what type of SKUs and offerings are you seeing from our restocking standpoint whether the tincture oil and such or topical front on. Where can we see strength so that you can call out states or the product offerings from that standpoint?

So we are seeing strong growth in our CBD brands across all geographies in the United States. Some of these top selling products as we expected are the vaporable as well as the tinctures. Although I don't want to take away from the topicals that we've been doing quite well with this as well and again it’s really for us. Internally it’s about building a strong portfolio that really provides a good merchandising platform for our customers because they are looking for multiple brands. So we’ll continue to evaluate others as we progress.

And note on that have you seen new distribution partners come on board five years established 11,000 retail kind of vaping smoke shops from that standpoint are you in discussions with that new distribution.

Yes, we’re in early discussions with all sorts of distribution I mean look at the end of the day we're trying to figure out the best placement for these products so that consumers can try them. Obviously we have some semblance of dominance over the 11,000 doors in our chosen channels of trade, but we have a creative out of the box thinking sales force that’s also thinking about what everybody else is thinking about in terms of food drug and mass. And other interesting places where we could be placing our portfolio of products. So yeah we’re helping everybody try and spread out their CBD and their cannabis strategy and we really enjoy engaging in that dialogue with potential partners.

And then last thing on CBD what is the margin profile as far as JUUL or some may other higher margins at the same what’s the profile on that business part of it?

We have such a diverse SKU assortment in CBD that it would be a misnomer for me to give you an average at this juncture given the diversity in product we’re carrying.

Okay, and last thing okay?

But to comment it does have a higher margin profile than a lot of the other products that were selling in the e-cigarette area.

And last thing higher standards you signed up on Malibu, you’ve mentioned you want to open up two or three potential higher standards retail stores by the end of the year where are we kind of real estate located and signed for expectations kind of towards the end of this year?

We have a very fortunate problem Scott that a lot of folks really want a higher standards store in their lifestyle center or wherever you know cannabis consumers aggregate and congregate. It's also a great education center. So we're really kind of agnostic we’re just looking for the best real estate the best foot traffic and the best place to showcase our brands.

Any guidance on the number of stores potentially by the end of this year?

No different than what we've already guided I think we’re trying to plan our standalone retail relatively conservatively.

Our next question is from Mike Grondahl with Northland Capital Markets. Please proceed.

With your CBD product that you're selling roughly how many of your 11,000 retail locations that you touched how penetrated are you into those 11,000?

I say right now we’re in very early innings I mean obviously with Select and Mary's we picked up a lot of doors that they have kind of given to us. And so we’ve been working through those to make sure that we got the assortment correct. We've got it priced appropriately but when we approached new product launch we don't saturation bomb. We look for quality doors, we look at reorder rates we look to generate excitement in sales velocity. And so we're not really commenting right now on the number of doors and the percentage penetration, but I will say there is healthy runway ahead of us.

And then with your vaporizer product I know you’ve been looking at sort of the big box in mass retail. How is that progressing a sort of a new opportunity?

But we continue to service big box retailers in Canada with the likes of Loblaw's Shoppers Drug Mart and OCS. We have been in discussion with the mass retailers in the United States where there is a number of interesting mass retailers that are looking to tip a different toe in the water if you will. So it will be interesting to see how those products perform in those places and we look forward to kind of talking more about it in near future.

And then lastly you gave a number was that e-commerce growth or was that percent of revenue when you started talking about e-commerce I didn't catch the number?

That was e-commerce growth.

It was 15.7% or can you repeat it?

13.6.

Our next question is from Glenn Mattson with Ladenburg Thalmann. Please proceed.

So curious this is the second quarter in a row that kind of JUUL promotions led to outperformance in that category, can you speak to whether or not that cadence should remain the same, do you expect further promotion of the second half or is there any chance or risk that they maybe some revenue got pulled forward by some of these promotions?

JUUL has been pretty consistent with the number and frequency and velocity of promotions. I wouldn’t expect that to change, but I remind you that, JUUL remain -- even in quarters where they have historically not been promotions is a very, very, very strong performer. Again they ran the promotion on the batteries with the primary objective is increasing the installed base having more and more additional adult smokers make the switch from traditional combustion products to the JUUL platform and it proved out to be working remarkably well. And there's certainly some price elasticity into bringing those customers onto the platform but once they're on there we've shown tremendous evidence that they are sticky, they stay.

And beyond the initial headlines on the when those -- San Francisco, on the regulatory front when those issues came up, I haven't seen much news on it. Can you talk anything about kind of follow through there and whether or not you’ve seen any other cities or anything think about things similar to San Francisco or its been the one-off?

So there's always going to be individual municipalities that are evaluating these products, especially ahead of the FDA actually ironing out their approach to these products, so it's unclear as to if and when any additional municipalities may take a similar stance. But I remind you that we have a very, very, very robust distribution pipeline for these products. They’re much in the way that San Francisco represented 0.1% of our total sales in the first half of the year, you can expect similar type of figures out of individual municipalities. And Canada, which is not under the FDA is showing very strong robust growth and we've mentioned that we are expanding our distribution internationally, so that also represents additional opportunities, like in Europe, in the U.K. in particular, where they really embrace vaporization as an alternative for adult smokers. So we expect -- we don't expect any negative, if any additional municipalities take a similar approach, we do not expect to have any material impact on our financial statements.

Thanks for that, and Ethan you mentioned the salary expense running ahead of the benefit you're going to gain from higher margin sales and things like that, I guess you -- how do we think about this, is this kind of incrementally up in dollar terms sequentially over the next few quarters?

Yes. We’re not really giving any guidance other than there's probably going to be a couple million dollar variance from our initial expectations.

Do you have a number for a stock comp expense for this year like what your expectation is?

Given how close we are to the IPO and in fact that we’re ramping up on talent. I would expect it to be on the higher side for now but not terribly dissimilar from the guidance and what you've seen this quarter.

And last one for me. On the financial criteria for acquisitions, can you just remind us about the framework on how you're thinking about like return on investment in the need of acquisitions [indiscernible]…

Yes, obviously given you know, our public company status and being the stewards of shareholder capital now, we're thinking about all of the traditional metrics that you'd be thinking about doing public company M&A, we need to have accretion in both our growth and our margins. Obviously, it has to be accretive to our earnings per share but also more importantly, strategically it has to be a platform for us to jump-off of to grow an entirely new country continent, bring on a new product with margin accretion to the portfolio and look we’re ferreting through several opportunities at any one time in various stages, and obviously want to make sure that we get it right so we’re really excited and hopefully be able to talk about some of the stuff in the near future.

[Operator Instructions] We now have a follow-up question from Vivien Azer with Cowen and Company. Please proceed.

You have been keeping items and then like one more strategic question for you. Number one, and I apologies if I missed it. Have you just closed what CBD was as a percent of sales?

We have not. We actually characterized the growth as $1.8 million of new products, of which CBD is a meaningful portion of it and that’s the growth.

So $1.8 million is incremental revenue, of which CBD was 1.5?

A meaningful percentage, yes.

Meaningful, perfect, okay. That’s great. Thank you. Second [indiscernible] has come up in a couple of times does in the prepared remarks as well as Q&A geographic opportunities specifically highlighting Europe, so let’s be like very clear. Number one, are you in Europe?

Yes we’ve established the density and hired our staff in Europe but we’re looking very closely in future quarters to aggressively accelerate on Europe as our next jumping point geographically.

So Europe is basically that’s like an SG&A overhang or right now with revenue to come, is that right?

Yes, but it’s very, very small.

The next question is on JUUL, so you called out the timing of the promo in June and maybe this small housekeeping than strategic that my understanding was that June ran by annual promos and you guys actually called it out on your last earnings call. And this is an off-cycle promo that the language I was hearing from you was that this is like part of like normal operating procedure and not that’s just not my understanding of what JUUL does, so if you could elaborate on that, that will be helpful? Thank you.

So I would suggest I mean, historically JUULs actually ran their promotions quarterly. They've not necessarily provided a -- they haven’t provided a calendar of promotion to expect going forward but they’ve very consistently have done quarterly promotions. You have to understand that JUUL has grown very expensively, very quickly as well. And some of the -- it was actually two promotions that took place in this last quarter. One promotion was actually geared towards SKU, four line compliance would expand upon the number of SKUs at given customers purchasing with a focus on the lower nicotine products that they carry. So again, while I don't have a calendar, what you expect from JUUL going forward, again I would tell you that they have been very consistent in their promotional activities and I see no reason to believe that it will change in the near-term.

Does any of this have to do with Altria’s investment in JUUL in terms of the personal cadence? And so just like dive a little deeper on that, Altria is now doing Altria client services that are offering three key benefits to JUUL. Number one, is back power optimization. Number two is just broader like sales force and number three, with the accompaniment of the e-com data base and number three is the impact promos. So but do you feel or have you been sat with JUUL that they are trying to harmonize some of that activities with what they are doing in your process rate?

You know Vivien, you are really on top of this as we are and I would say that we try not to second guess what Altria is doing as part of running our business. We have direct pipes into our partners with JUUL and I think that whether it may obviously be some correlation and some overlap, it's not something we openly discuss.

We have reached end of our question-and-answer session. I would like to turn the conference back over to management for closing remarks.

All right. Well, thank you for joining us today. We appreciate your support and are confident in this next phase of growth for Greenlane. We look forward to speaking with you soon.

Thank you. This concludes today's conference. You may disconnect your lines at this time and thank you for your participation.