Item 1. Business
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.
3
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.
4
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.
5
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.
6
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.
5.
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.
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.