Good morning, all. Welcome to today's conference call to discuss Greenlane Holdings First Quarter 2021 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 the call today are Aaron LoCascio, Chief Executive Officer; and Bill Mote, 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 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 and other factors discussed in today's press release. This call also contains time-sensitive information that speaks only as of the date of this live broadcast May 18, 2021. 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 quarterly reports 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 these 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 now 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. This morning, I will review key highlights from the quarter and the significant recent progress on our growth strategies before turning the call over to our Chief Financial Officer, Bill Mote for a review of our financial results. We started 2021 on strong footing, following our successes in 2020 and we have made tremendous progress. We continue to gain momentum on the growth of our core revenue and Greenlane Brands. Core revenue was up 11.6% to 32.3 million for Q1 2021, compared with 28.9 million in Q1 2020 and accounted for 95% of our total revenue for the first quarter of 2021. We are also seeing continued growth from our higher margin Greenlane owned brands, with revenue up 18.4% to a record 8.5 million in Q1 2021 from 7.2 million in Q1 2020, which I am extremely proud to share is our second consecutive quarter of record revenue for our owned brands. These owned brands continue to perform exceptionally well in the market, and VIBES in particular hit a quarterly revenue record of 2.7 million in Q1 2021, up 72.7% from Q1 2020 and our Marley Natural line grew a significant 222.4% in Q1 2021, compared to Q1 2020. I would also like to note our Greenlane Brands revenue accounted for 25% of total revenue for the first quarter of 2021. These financial metrics demonstrate continued positive results from the work we completed throughout 2020 to increase our revenue mix to one more heavily weighted to our higher margin Greenlane owned brands. I'm also excited to share the advancements we have made on the execution of our strategic vision, which continues to focus on launching exciting new consumer products into the market, expanding our platform through carefully selected M&A opportunities,…

Thanks, Aaron, and hello everyone. As a reminder, the results I will be reviewing for you this morning can be found in our earnings release that is available on EDGAR and the investor relations section of our website at gnln.com. As a reminder, before I begin, our core revenue is defined as all non-nicotine revenue and Greenlane Brand revenue is inclusive of Eyce figures Net sales of Greenlane owned brands grew 18.4% to 8.5 million for the year, our best quarter ever for our Greenlane owned brands, which represented 25.1% of total net sales for Q1 2021, up 380 basis points from 21.3% for Q1 2020. Core revenue grew 11.6% to 32.3 million in Q1 2021 from 28.9 million in Q1 2020. Total net sales increased 34 million in Q1 from 33.9 million in Q1 2020 with core revenue now accounting for [over 95%] of revenue for the quarter, compared with 85% in Q1 2020. Our United States segment net sales increased 5.7% to 28.7 million for Q1 from 27.1 million in Q1 2020. We are very pleased with our growth in the United States, which occurred despite the lingering impacts of the COVID-19 pandemic. Net sales in the United States increased to a $1.4 million increase in B2B sales, a $900,000 increase in e-commerce sales and a $600,000 increase in Channel and drop-ship sales, offsetting declines in supply and packaging in retail sales. Our Canadian segment decreased 1.8 million for Q1, primarily due to a decrease of [1.6 million] in our non-core revenue sales resulting from our strategic shift away from low margin sales. Looking at our European segment, we saw meaningful growth of 18.5% as net sales increased to 2.8 million for Q1, compared to 2.3 million in the same period of 2020, primarily due to the establishment…

Thank you. [Operator Instructions] Our first question comes from the line of Glenn Mattson with Ladenburg Thalmann. Your line is open.

Hi, thanks for taking the questions. So, just, nice result to see the core, I'm sorry the house brands kind of get up to 25% of revenue, but can you give us a sense of how much that benefited from Eyce in the quarter? I think you had a full quarter of Eyce for the first time. So, just can you, you maybe don't want to break out by revenue product, but I'm just trying to get to kind of organic growth on the house brands? And then where you think that can go just talking about Greenlane now as a standalone business organically say by the end of the year, as we try to think about the impact that would have on margins?

So, just – this is Bill. And just to answer the Eyce question, we don't break out Eyce specifically from a revenue perspective, but we have indicated that it's up 56%, you know versus the previous period. So that's the initial expectation that we've set. So, we don't break out the individual dollar amount though.

Right. No, I’m just trying to get a sense of the organic growth in the house brands, but maybe you could move to the second point of just what you think house brands can get to, you know, maybe by year-end or something, if Greenlane was just still standalone?

Hey, Glenn it’s Aaron. It’s nice to speak with you. So, again, high level going back to your first question, the high level answer is, yes. We are seeing excluding Eyce, well, without getting into detailed specifics, we continue to see robust organic growth, as noted by some of the brands such as like VIBES and Marley Natural as an example. So, even excluding Eyce, we see meaningful organic growth and anticipate that trends to continue. Couple that with the robust M&A pipeline that we alluded to, we believe that we can continue, again, last quarter, if you remember, our concentration of Greenlane Brands was 20%, this quarter is 25%, you know, we believe that we can continue to increase that percentage meaningfully throughout the year, based on both organic and/or inorganic growth. On a standalone basis, you know, again, not providing too many specifics but think that we can continue that trend going from 20 to 25 sequentially, and believe that we can make meaningful progress by the end of the year to increase that further on a standalone basis.

And we've also said publicly aspirationally, we want our Greenlane owned brands to be at a 40% mix level over the course of the next three years. So that's our aspirational goal as we continue to travel from 20% last year, and continue that path. So, you kind of, it won't be perfectly linear, but that will be our goal and where we're headed.

Yeah, great. Thanks. That's very helpful. And then just quick to the consolidation that you're underway with, so last time you reported it was kind of the day that you announced that news. So, can you just give us a sense of, you know, a big part of the story is the cross sell opportunities and stuff. So just kind of a little more color on the feedback you've gotten from some of the, you know, big MSOs or, you know, areas where you expect to see that cross sell, you know, just the color you've seen over the last six weeks as you made the announcement? That'd be great. Thanks.

Yeah, great question. A very, I mean, we've seen a tremendous amount of interest very early on, where some of the industry's top MSOs have actually reached out to us directly to ask questions about our retail merchandising program and the up sell and cross sell opportunities in the CPG products. So, and that's without, again, without us even proactively reaching out to the MSOs them actually reaching out to us. So, I would say that it's very positive early signs that the MSOs and single state operators are very curious and interested in learning more about the opportunity to drive additional revenues to their store, and we think it will be a meaningful driver of potential organic growth in the future for the combined company.

Great, thanks. I'll hop back in the queue. Thank you.

Thank you. Our next question comes from the line of Aaron Grey with Alliance Global Partners. Your line is open.

Hi, good morning, and thanks for the questions. First one for me, it's just [Technical Difficulty] by end of year, [Technical Difficulty] kind of entrenched [Technical Difficulty] within…

You’re breaking up a bit. Sorry, you were chopping up, so we heard every other word.

Can hear me okay, now?

Sounds better. Yes.

Okay. Yeah. Sorry. Yeah. So, I was asking about VIBES and C-store channel initiative, just maybe how many incremental stores you plan to be in by year-end? And then whether or not you're being added to the existing, you know, brands there, or, you know, some of the strategy that you're having there, and then also, maybe in the additional marketing initiatives as you plan to go into that more mainstream channel? Thank you.

Sure. So I'll start and nice to get connected here. So, we haven't, we have not made any assumptions yet in terms of the number of additional doors that we will reach in the [C-store] environment yet, because we're seeing such strong growth also in our traditional smoke shop environment, that we want to make sure that we're able to maintain constant inventory levels for our existing customers as we bring on new customers. But we do believe just in the early conversations, again, we went to the TPE convention this last week and had meetings with some leading C-store customers and the response very early on was very tremendous. So, I would suggest that looking to other rolling paper brands in the space, could give you a pretty good gauge or guide in terms of the size of opportunity that that represents. And we were spending a lot of focus, ramping up our production capabilities on VIBES in particular to meet what we believe will be substantial increase in demand in the near term.

Okay, thanks for that color. That's helpful. And then second question for me in terms of the incremental M&A, right, so if we think about VIBES, and then, you know, maybe some of your other products, obviously something like rolling papers is much easier to, you know, expand into some of the more than mainstream. We're seeing what other products are, you know, currently more focused on either e-commerce or the head shop channel, we're also looking to move into this venture channel. So, as you're looking at the incremental M&A, you know, are you focused more on, you know, potential brands and products, that would be serviced to, you know, more of these mainstream channels, or as well as the ones that are more for that kind of core head shop that you're also looking to transition into the dispensaries along with your merger with KushCo? Thank you.

So, two parts to that. For starters, we do – in addition to a robust pipeline of M&A opportunities, we actually have a robust pipeline of products that we have designed and developed. And we are looking to place within either our current portfolio of brands that we own and operate, and even potential future brands that we’re looking to acquire or build. And some of those products do include breaking, you know, more specifically catered for the, you know, the legal cannabis market in the form of dispensaries, MSOs, single state operators, so on, so forth. So, we definitely see that as an opportunity. But again, I will like you alluded to, I will remind everyone that we – while our CPG products have traditionally been sold in smoke shops, and we believe that they will be continued to sell in smoke shops in the future. We do truly believe that more of these CPG products will be sold in dispensaries throughout the world as cannabis continues to legalize on a global basis. So, it's twofold. Yes, there are specific products catered towards the existing type of products that MSOs carry and are interested in carrying. And we're also very keen to leverage the relationships on a combined KushCo Greenlane basis to get the traditional CPG products in the front of the store as well.

Okay, great. Thanks for the color. I'll jump back into the queue.

Thank you. Our next question comes from the line of Vivien Azer with Cowen. Your line is open.

Hi, good morning.

Good morning, Vivien.

So, in the prepared remarks, Bill, you called out higher logistics and legal costs, you know, legal costs, of course, you know, associated I'm sure with M&A, but in terms of the logistics costs, it sounded like you were talking about domestic logistics, but I was curious if you could comment on freight costs, because I understand you know, imports continue to be backed up, and you know, air and water freight continues to be inflated. So, how did that impact your gross margin this quarter?

It had an impact, I would call it under 50 basis points in terms of overall gross margin impact, but we have seen higher shipping costs just on a global basis from an ocean freight perspective. Obviously, there's a lot going on in that marketplace and there's been a couple of [snack foods] in the last quarter that have impacted global shipping rates, logistics costs pacifically is referencing just our own transition into our a 3PL. And as we optimize that relationship, those logistics costs were elevated slightly. We did have a large physical inventory we did in January as well that impacted that that was, you know, that won’t continue to recur. So, that's margin wise, related to global freight. I think I just gave you that number. And then the logistics costs specifically in G&A is related to 3PL.

Understood, thanks for that color, much appreciated. And then my second question is on your higher standard store, can you just update us on the status of that, given re-openings across the U.S.?

Yeah, those stores are open and operating now in normal functionality. Obviously, the COVID still has a little bit of an impact just with people getting out, but as we said earlier, people seem to be getting out and about now. And those stores are starting to pick up in their overall sales, but still operating both the Chelsea market and the Malibu village store, and we’ll continue to operate those peer over the year.

Okay. So to summarize then, is it fair to characterize a sequential improvement in foot traffic?

I, you know, I haven't looked at the foot traffic details Vivien, but it's fair to assume that as COVID restrictions lift that more people will be in the retail outlets.

Yeah, I would say Vivien in particular, in roughly the last six weeks, in particular, six to eight weeks, we have seen a more meaningful increase in traffic, in particular, in New York over California, although we're starting to see improvement in California as well on a sequential basis. So, definitely some meaningful signs of life in the brick and mortar environments.

Terrific. Thanks so much for the color.

Thank you. Our next question comes from the line of Derek Dley with Canaccord. Your line is open.

Yeah. Hi, guys. And thanks. I just want to follow up on that last question quickly, have you guys, you know, I guess more so in the U.S. where we've seen some of the COVID restrictions, you know, being less impactful, have you guys seen any sort of changes in consumer purchasing behavior, if you go back to pre-COVID levels, you know, e-commerce, for example, are you seeing, you know, continued to strengthen e-commerce?

So – hey Derek, great to get connected this morning. So, we are seeing what I would say is a leveling of the e-commerce growth, certainly not seeing that the same growth numbers that we saw at the height of the pandemic, as again, everyone was really the only avenue to purchase products for a period of time was e-commerce. We are seeing, you know, again, as the brick and mortar side of the business has increased substantially, definitely seen a leveling of the e-commerce business, but it's still grown year-over-year, just not to the same level. And that's also in part due to some resources that we're allocating there because we do believe that e-commerce will be a meaningful avenue in the future as the pandemic has really shifted consumer purchasing patterns and behaviors, we believe on a somewhat permanent basis, at least to a degree.

Yeah, no, we would agree with that for sure. Bill, maybe for just for your question on the on the working capital, you know, you mentioned and you call that in the press release $10 million payment, you know, for accounts payable or for vendors, do we – should we expect this to normalize over the course of the year?

Yeah, that was really Chinese New Year in and of itself. We built inventories in advance of the Chinese New Year that obviously caused the bubble of payables that we had to pay out. So that was a large chunk of the decrease in cash. And it was just calling that out, but like I said in the notes, in the script there, we will see – we've seen cash normalize and in fact, we've gotten some refunds from our VAT tax work that we've been doing in Europe. And we expect that, you know, cash actually increased in Q2 as we had expected, and we'll continue to manage cash judiciously as we go forward.

And would it have increased, you know, in and above that $4 million payment?

No, but it did increase.

Okay, that's helpful. And then just the last one for me. Just in terms of SG&A, you know, you guys obviously have a cost reduction plan in place in advance of the merger with KushCo. Can you just give us some comments on areas where you continue to push on that front?

Well, of course, as we've indicated earlier, the third party logistics and optimizing that scenario, we continue to push there. We continue to maintain, and lower headcount wherever possible. We did a large reduction in December. And we also are transitioning now to EU – 3PL and EU, which is, we're now shifting out of our 3PL and EU, which has been successful. So, all of those are aimed at creating the most efficient organization we can have, as well as very scalable organization. So, as we grow sales that we don't run into constraints around the ability to ship or space needed to store and process orders.

Okay, great. Thank you very much.

Thank you. Our next question comes from the line of Eric Des Lauriers with Craig-Hallum. Your line is open.

Great. Thank you for taking my question. I was wondering if you could elaborate a bit on the M&A pipeline as it relates to your discussions with MSOs? Essentially, which types of product categories are you guys focusing in on for your M&A pipeline and has that evolved at all, with these discussions with MSOs and looking to include ancillary products in their stores? Basically just wondering how your current and future brand portfolio is, sort of matching up with the types of products that MSOs are looking to include in their dispensaries. Thank you.

Yeah, great, great question. So, you know, again, looking at you know, there's eight primary categories that Greenlane sells across. And in each of those product categories, we believe that there's an opportunity to create products that cater more towards the MSOs. And what I mean by that is, again, looking at cartridges vape cartridges as an example; we have additional – in our internal organic pipeline, new child resistant packaging offerings as an example. But again, the primary kind of M&A activity around MSOs is focused on, kind of that closed cartridge vaping system side more than anything at various batteries. Again, they do use a lot of battery technology in dispensaries that they couple with the cartridges. So, those would be the primary ones, but we do have in each of our eight primary product categories a combination of M&A opportunities, as well as products that we've developed and are developing internally. You know, I also want to – as a side note, I also want to mention, you know, that we didn't talk about before there are even some M&A opportunities that help us get into new meaningful relationships with big-box stores and third party sites like Amazon as well, where traditionally, a lot of the products that we sell, are not often sold in those stores or places, although there are categories and products that meet the criteria for breaking into those opportunities, which are also very exciting developments.

And I guess just elaborating on that a bit, are those more platforms or websites or is that, sort of still keeping with the product and brands like M&A?

So, we've always historically looked at acquisitions from both a vertical and a horizontal perspective, horizontal being broadening our distribution pipeline. KushCo can largely be described as a horizontal merger. And vertically, we do look very much so towards the brand side of things. And when we're acquiring additional brands, we're oftentimes turning towards our existing vendor landscape where we built these meaningful long-term relationships just like we did with Eyce. So, having these long standing relationships with these brands in the space really provides for, you know, that strong pipeline. And to follow on again, working with the dispensaries and how we can increase the revenue in MSOs, a lot of that activity is driven around, I know we talk about the backup store products, if you will, and closed cartridge systems and child resistant packaging, but I want to underscore the potential, the true potential to generate more revenue per square foot in the dispensary landscape by leveraging this robust portfolio of premium canvas ancillary brands, because we truly believe the future in the MSO will include a suite of carefully selected and merchandise product from the Greenlane portfolio to drive additional revenues to the stores. So, as much as we talk about the traditional products sold in MSOs, the real core focus is delivering on front of store CPG products.

Okay, great. Appreciate the color. Thank you.

Thank you. Our next question comes from the line of Scott Fortune with ROTH Capital. Your line is open.

Hi, Scott.

Hey, good morning. This is [Nick] stepping in for Scott. I'm just looking for some color on the Canadian side. It looks like you're continuing to shift away from the lower margin nicotine sales, which kind of impacted the Canadian side a bit, but it's still comprise about 7.5% of your mix and 9% of KushCo’s mixed last quarter. So, I was just wondering how you're looking at the go-forward strategy on that side of things?

So, I mean, Canada remains a very important part of our geographical profile for the company. But, you know, again, the predominant place that our products are sold in Canada is brick and mortar. We have a very strong brick and mortar presence even more so than our e-commerce presence, when compared to the U.S. or Europe, and Canada has been under a tremendous amount of pressure and continued pressure related to the COVID-19 pandemic that is resulted in continued store closures, whereas in the KushCo environment where they're largely catering towards dispensaries, both from a recreational and medical perspective, those businesses are often deemed as essential where smoke shops sometimes are not, which I would largely attribute to the change that you're seeing there, which we believe again to be temporary as vaccination rates increase throughout the world.

Okay, appreciate the color and then on the, kind of facility consolidation side, can you just touch on your potential distribution center footprint, and how you're looking at the merge footprint with KushCo here in the near term? We saw initiatives on their end to consolidate their footprint, and it looks like you're planning to get down to five centers as well. So, if I could just get an update there, that'd be great?

We definitely are looking at an overall ecosystem of distribution facilities. We haven't necessarily made any direct commentary publicly on that at this point. And there's certain legal things we got to consider. So, but definitely, as you can imagine, in a synergy scenario there's – we need to look at all the sites that we have and what we need to do to be most efficient from a distribution perspective.

Okay. Appreciate it. Thanks for the color.

Thank you. [Operator Instructions] Our next question comes from the line of Mike Grondahl with Northland Securities. Your line is open.

Hi it is [Michael] on for Mike, thanks for taking our questions. Maybe first just on the strength and owned brands, could you give us a high level breakdown on pricing or volume versus product mix there?

Can you maybe restate that? I just want to make sure we're capturing the whole question.

Yes, just in the house brands on the quarter, could you just talk about volume versus pricing in product mix, and what kind of drove the strength there?

It's largely organic. We have not made any meaningful changes in price points in any direction, down or up. So, it's really just organic growth that we're seeing. You know, I think I would attribute it to the focus, right. We're putting a lot of focus on growing our Greenlane Brands and it's showing up in a meaningful way, absent any levers such as modifying price points as an example. Some brands are performing better than others. At sometimes it's related to supply chain challenges more than anything, which is why some brands outperform others, but if you look on an annualized basis, we continue to see improvement across all of our Greenlane Brands. Again, just some more than others.

And yeah, we haven't changed pricing, margins are holding steady, volume is primarily the driver.

Got it. That’s helpful. And then just sort of [on last] inventory management. I think it was 260 bips that were lost from [indiscernible] inventory, is there much here to improve on this that one just be kind of offset by more expensive process?

Yeah, so like on a normal ongoing basis, and I believe we said this publicly, we expect about $300,000 a quarter in terms of excess and obsolete, that would be if there's no cleanup, if there's no, you know, no expiration dates, about 400,000 of that 900,000 related to expired lots meaning products that had expired. It had a date code on it, and there was an expired lot on it. So, we wrote that off, it related to CBD, which is a lower and lower part of our business as we progress. But on a normal ongoing basis, my expectation be, call it, 300,000 to 400,000 a quarter. So about half of that 260 bips, I would expect just on a normal ongoing. The rest of it is trying to carve out that excess. So, you can see the pure margin related to the products that are being generated, which is increasing on a regular basis. So, we wanted to make sure and call that out so people could model that.

Thanks. I’ll fall in queue.

Thank you.

Thank you. I'm not sure on any further questions in the queue. I would now like to turn the call back over to Mr. LoCascio for closing remarks.

Well, thank you again for joining Greenlane’s conference call today. As always, I want to finish by sincerely thanking our team for all their dedicated hard work. We look forward to updating you on our future 2021 progress in the next quarter. Thank you.

Thank you, everyone. Have a great day.

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.