Good morning all. Welcome to today's conference call to discuss Greenlane Holdings' Second Quarter Financial Results. A press release detailing the financial results for the quarter was distributed this morning and is available on the Investor Relations section of the Greenlane website. As a reminder, today's conference is being recorded. On today’s call are Aaron LoCascio, Chief Executive Officer; and Bill Mote, Greenlane incoming Chief Financial Officer. Before we begin, Greenlane would like to remind listeners that today's prepared remarks may contain forward-looking statements and management may make additional forward-looking statements in response to the questions received. These statements do not guarantee further performance and therefore undue reliance should not be placed upon them. The statements are based on current expectations of the company's management and involve inherent risks and uncertainties and other factors discussed on today's press release. This call also contains time sensitive information that speaks only as of the date of this live broadcast, August 07, 2020. Factors that could cause Greenlane's results to differ materially are set forth in today's press release and in Greenlane's annual report on Form 10-K and its quarter report on Form 10-Q filed with the SEC. Any forward-looking statements made today on this call are based on assumptions as of today and Greenlane assumes no obligation to update these statements as a result of new information or future events. During today's call, Greenlane management may discuss non-GAAP financial measures, including adjusted net loss and adjusted EBITDA. Greenlane has included a reconciliation of the non-GAAP measures in today's press release which is available in the Investor Relations section of our website at gnln.com. I would like to turn the conference over to Mr. Aaron LoCascio, Chief Executive Officer of Greenlane. Please go ahead, Mr. LoCascio.

Good morning and thank you everyone for joining us today. During this call, I will review our second quarter 2020 sales highlights, operating environment and business development activities. Before getting into our financial results, I wanted to take a moment to discuss a few of the recent additions to our team that we announced last week. I would like to formally welcome Bill Bine, our new Chief Operating Officer; and Bill Mote, our incoming Chief Financial Officer, who you will hear from shortly, as well as four additional experienced senior executives we have added to drive other strategic priorities. Bill Bine is an accomplished executive with more than 25 years of experience leading supply chain and operations growth and transformation in the consumer products and manufacturing industries. Among his many priorities, we are excited to have him apply his skill set to scaling our Greenlane brands’ supply chain to support the growing demand. Bill Mote will oversee the accounting, business support, financial planning and analysis, treasury and tax functions. Bill has over 25 years of experience building and leading finance teams and global corporations with significant operating scale and complexity. Now on to the numbers, I am proud to report that even amid the ongoing COVID 19 pandemic, the benefits of the important changes that we began implementing earlier this year are beginning to come into focus. These changes include repositioning our focus towards higher margin revenue opportunities, a strategic review of our workforce and the streamlining of our global operations. In the quarter, we achieved revenues of $32.4 million and gross profit of $6.7 million. While COVID-19 has introduced some additional uncertainty to our forecasting, we believe that we are well on our way to achieving our goal of returning to adjusted EBITDA profitability, supported by the savings from…

Thanks, Aaron, and hello, everyone. Before starting I'd just like to say how excited I am to be joining the Greenlane team and proud of the work that the team has done in getting us to where we are today. As a reminder, the results I will be reviewing with you this morning can be found in our earnings release that is available in Edgar and the investor relations section of our website @gnln.com. Our Q2 2020 revenue was $32.4 million, representing a sequential decline of $1.5 million reflecting full quarter of the impact that the COVID-19 pandemic placed on consumer purchasing behaviors in our operations. Our Q2 revenue was also affected by the implementation of our business transformation plan that realigned our focus on higher margin revenue opportunities, which resulted in June sales accounting for less than 10% of our total sales in the quarter. Gross profit was $6.7 million or 21% of net sales compared to $7.3 million or 22% of net sales in Q1 2020. We had a significantly higher than average adjustment relating to the stale and obsolete inventory of $700,000. For reference, last quarter, that amount was $120,000. If we were to exclude the $700,000 from our calculations, our adjusted gross margin would have been 23%. This adjustment was largely due to purchasing decisions made last year. Since that time, we have brought in new leadership and advanced our purchasing processes and software. And we believe that going forward, we will drive better performance in this dimension. Salaries, benefits and payroll tax expenses for the second quarter of 2020 decreased by $0.5 million to $6.1 million from $6.6 million in Q1 2020. As a result of the strategic review of our workforce completed earlier this year. General and administrative expenses decreased by $2.4 million to $6.4 million sequentially. Net loss for the second quarter of 2020 improved to $6.4 million, compared to $16.7 million in the first quarter of 2020. Adjusted net loss for the second quarter of 2020 was $5.2 million, compared to adjusted net loss of $6.1 million in the first quarter of 2020. Adjusted EBITDA loss improved by $1.9 million to $4.4 million for the second quarter of 2020, compared to a loss of $6.3 million in the first quarter of 2020. We ended the quarter with $41.8 million in cash and approximately $77.8 million of working capital, as we have continued to prudently manage our accounts receivable balances, and closely monitor our inventory levels to maintain a healthy balance sheet. With that, I will turn over the call back to the operator and open it up for Q&A.

Thank you. [Operator instructions] And your first question is from the line of Vivien Azer with Cowen & Company.

Hi, good morning.

Yes, good morning, Vivian.

So, thanks for all the color. I was hoping to get a little bit more clarity on the purchase decisions and what that entails specifically? And whether there's going to be a residual impact as we think ahead to the back half of the year? Thanks.

Sure, great question. No, we specifically called it out because we do not anticipate that level of activity to take place going forward. Since our -- beginning of Q4 of last year, we spent a lot of time refocusing our energy and efforts towards higher margin activities and really a broad scale transformational effort. And part of the results that came out of that was this $700,000 impact to our reserve for obsolete inventory in Q2.

Okay, fair enough. That's helpful. Thanks for that. As we think about your B2B business you offered that you're starting to see that business normalizes, economies are reopening. We're certainly seeing kind of a mixed bag reopening and closing. So, is there some volatility there? Or is it a little bit more steady-state improvement in terms of that business? Thanks.

So we are seeing some level of volatility as states reopen. Overall, there's a pretty good overall cadence of improvements compared to the early parts of Q2. We're definitely seeing a higher level of activity in the positive direction in the B2B channel. But you're correct to say that there's also some volatility. So, we're going to closely watch that going forward. But we do anticipate to see a bit of a normalization in our B2B revenues in Q3.

Okay, perfect. That's helpful. Thanks. And then in terms of your commentary around JUUL, obviously, your exposure to that business has come down meaningfully. But you did note that you think that the current sales level is probably the right steady-state. That implies you don't expect any disruption in the near or medium term, frankly, from FDA. So, can you just clarify that or applying on that? Thanks.

Yes. So part of the reason why it was impacted was that we don't sell JUUL in any other revenue channel except for B2B. So, considering there was a lot of brick and mortar closures there, definitely B2B was slower for the quarter. So yes, JUUL is definitely impacted by that. But from the FDA front, we have seen positive progress from JUUL and other suppliers as it relates to the PMTA process. And we are not currently anticipating any disruptions related to the FDA.

Perfect. I'm going to squeeze one last one in if you don't mind. On the VIBES commentary encouraging around the distribution from Europe, can you just remind us what your margin profile looks like internationally versus domestically on a like-for-like basis for that product line? Thanks.

Specifically to VIBES?

Yes, or you can talk about on geographic segment and margins about that year. Thanks.

Sure. So, Europe has a higher margin profile in general which is largely driven by the type of business lines that we have there. There's a lot more ecommerce activity there. There's a lot more direct-to-consumer business. So, our overall margin profile in Europe is typically in the 25% to 35% range, depending on, again COVID impacts and how that's shifting from business channel to business channel. VIBES overall is one of our strongest performing margin items. And oftentimes we're seeing margin profiles for that product line in excess of 50% or even 60%.

That's great. Thank you for the color.

Your next question is from the line of Glenn Mattson with Ladenburg Thalmann.

Hi. So a couple questions, you mentioned possible M&A activities. Can you maybe just expand on that as far as what kind of things you're looking at given, I don't know, the balance sheet is strong, and the share price is still a little bit depressed. So, could you just give us some of your thoughts on that?

Sure, and good morning. So, as it relates to M&A opportunities, historically, we've talked about it from two lenses, both a vertical and a horizontal perspective. Vertical being potential acquisitions of brands to bolt-on to our Greenlane brands strategy, and from a horizontal perspective, from a geographical reach, new territories, new customers. So, I would say that still remains a key focus for Greenlane going forward. But we've also added in the opportunity to look at potential M&A opportunities around digital assets. The pandemic has certainly made it quite clear that digital is a critical component of winning company strategies going forward. So, we’re very carefully looking at new technologies and different platforms to really build out our digital infrastructure going forward, which may involve M&A, but it may also involve just some organic building ourselves.

Okay, thanks. And then with regards to new house brands, can you give us kind of a cadence of what you expect is coming down the pipe over the next six months or so? And where you think -- what’s the status of where you think house brands could be, say, I don't know, by the end of next year maybe?

Sure. So we're seeing some tremendous quarter over quarter growth in most of our brands, with the exceptions being the ones that we experienced short term supply chain challenges with. So examples include, we're seeing greater than a 100% increase, 143% quarter over quarter increase for Marley Natural as an example, we've seen a 45% increase in Keith Haring quarter over quarter. That's just a couple of examples. In the pipeline at any given point, we have approximately 10 new products, new brands that we're carefully evaluating and looking at timing of launch. I don't suspect that they'll all launch between now and the end of the year as we go through a very thoughtful evaluation process. But that gives you a bit of color and clarity in terms of the cadence in which we look to be launching products and evaluating products in the go forward basis. Internally, we talk long-term, meaning the 2023 initiative, really building our brands division to a point where it represents close to 50% of our total overall revenues.

Okay, great, thanks. That's it for me.

Your next question is from the line of Scott Fortune with ROTH Capital Partner.

Good morning, Scott.

If you're muted, please unmute. Scott, your line is open. We'll move to the next question. Your next question from the line of Mike Grondahl with Northland Securities.

Good morning, Mike.

Good morning, guys. Good morning. Hey, Vapor.com, how does that continue to trend into July?

Great question. So our Vapor.com and overall our e-commerce sites do remain strong. However, they're looking more like Q1 activity as more and more brick and mortar stores reopen. They're taking share back from online. So we do anticipate to see just overall continued growth in B2C on a year-over-year basis. But there will likely be a flattening or potential decline even on B2C as B2B gains more share.

Got it, got it. And then kind of overall in Canada, how are sales going up there?

Sales in Canada remain strong. We've seen -- on a year over year basis there was definitely a lot of load-in as it relates to the cannabis legalization that occurred. So we saw a lot of upfront activity there. The business remains very strong from a historical perspective, but we're seeing a bit of a flattening in Canada overall on our core brands. We have been focusing a lot more energy and efforts on our Greenlane brands. As you might imagine, there is a higher proportion of JUUL sales in Canada than in other geographies. But overtime, we will look to continue to transition that revenue to our core product sets, in particular our Greenlane brands. But I would say overall, we're very pleased with the performance from Canada thus far.

Got it. And lastly, anything to call out with the CBD products and whatnot?

CBD remains a good opportunity overall. However, there's a tremendous amount of dilution that's taking place in the marketplace, a lot of brand dilution. I mean, we saw this coming from the beginning of really the -- as CBD really started to peak maybe roughly a year ago or so. There's just a lot of brands, there's a lot of noise, and it's difficult for consumers to find and connect with brands. So I expect that there will be some net winners in the CBD space, but you'll see a lot of consolidation take place over the next 12 months. So overall, it is part of our overall assortment, but I wouldn't call it a key driver of performance going forward.

That's fair. Okay. Hey, thanks a lot.

[Operator Instructions] And your next question is from the line of Scott Fortune with ROTH Capital Partners.

Good morning. Thanks for taking my call. Just real quick, kind of look on higher standards and pushing that in more into the European side if you can go down that process a little bit?

Yeah, I mean, in general, we have been focusing a lot of our activities. Our house brands, our Greenlane brands really started in the U.S. is kind of our ground zero for our brands. But we're definitely pushing our brands including higher standards out to all of the geographies including Europe. Now, we also have our higher standards retail stores, I'm not sure if you were referring to the retail footprint. But in Europe, we opted to launch a Cookies store in collaboration with Cookies in Barcelona, Spain. But we don't have any near-term intentions to launch any higher standards, physical locations. Frankly, anywhere in the world right now with the current environment, I can also mention though, that we did reopen both our Chelsea Market store and our Malibu store higher standards. And we are seeing some early indications of positive progress there. But still remain depressed overall, compared to historical figures due to the COVID-19 pandemic.

Okay. And then real quick follow-up, would you plan to expand the cookies offering or you kind of waiting to see the Barcelona rollout and then go from there?

I would say overall, we're going to take a very cautious approach right now in light of the COVID-19 pandemic. We do have a lot of broad opportunities that we've been discussing with key partners like Cookies. And we'll look to continue to add to these opportunities going forward. But from a physical brick and mortar standpoint, we will remain very cautious in our approach while the pandemic continues around the world.

Okay. Thanks for the color.

And at this time, there are no further questions. I will turn the call back to Mr. LoCascio for any closing remarks.

Well, again I want to thank everyone for joining Greenlane's conference call today. The replay for this conference call will be available in approximately two hours on Greenlane's website in the investor relations section. And I hope everyone enjoys the rest of their day.

Thank you. This does conclude today's conference call. You may now disconnect.